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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-Q**

**(MarkOne)**

 

**x****     ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended June 30,2010**

 

**OR**

 

**o****  TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the transition period from                       to                       **

 

**Commission File Number 001-33253**

 

**FORCE PROTECTION, INC.**

(Exact Name of Registrant as Specified in Its Charter)

 

| **Nevada**                                                             | ** ** | **84-1383888**                              |
|------------------------------------------------------------------------|------------|---------------------------------------------|
| (State or Other Jurisdiction of

 Incorporation  or Organization) |       | (I.R.S. Employer

 Identification No.) |
|                                                                   |       |                                        |
| **9801 Highway 78, Building  No. 1**

**Ladson, South Carolina**  | ** ** | **29456**                                   |
| (Address of Principal Executive Offices)                               |       | (Zip Code)                                  |

 

**(843) 574-7000**

(Registrant’s Telephone Number, Including AreaCode)

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  x Yes  o No

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).   o Yes  o No

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer  o                                            |   | Accelerated filer  x         |
|---------------------------------------------------------------------------------|--------|----------------------------------------|
|                                                                            |   |                                   |
| Non-accelerated filer  o(Do not check if a smaller reporting company) |   | Smaller reporting company  o |

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).  o Yes  x No

 

The registrant had 70,272,327 shares of common stockoutstanding as of July 23, 2010.

 

 

 

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TABLE OF CONTENTS

 
| **PART I — FINANCIAL INFORMATION**                                                             |       |       |
|----------------------------------------------------------------------------------------------------------|------------|------------|
|                                                                                                     |       |       |
| Item 1. Financial Statements                                                                        |       |       |
|                                                                                                     |       |       |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations |       |       |
|                                                                                                     |       |       |
| Item 3. Quantitative and Qualitative Disclosures  About Market Risk                                 |       |       |
|                                                                                                     |       |       |
| Item 4. Controls and Procedures                                                                     |       |       |
|                                                                                                     |       |       |
| **PART II — OTHER INFORMATION**                                                                |       |       |
| ** **                                                                                               | ** ** | ** ** |
| Item  1. Legal Proceedings                                                                          |       |       |
|                                                                                                     |       |       |
| Item 1A. Risk Factors                                                                               |       |       |
|                                                                                                     |       |       |
| Item 2. Unregistered Sales Of Equity Securities  And Use Of Proceeds                                |       |       |
|                                                                                                     |       |       |
| Item 3. Defaults Upon Senior Securities                                                             |       |       |
|                                                                                                     |       |       |
| Item  4. (Removed and Reserved)                                                                     |       |       |
|                                                                                                     |       |       |
| Item  5. Other Information                                                                               |       |       |
|                                                                                                     |       |       |
| Item 6. Exhibits                                                                                    |       |       |

 

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**PART I. FINANCIAL STATEMENTS**

 

**Item 1.**   **Financial Statements**

** **

**Force Protection, Inc.and Subsidiaries**

**Condensed Consolidated BalanceSheets**

**(Unaudited)**

 
| ** **                                           | ** ** | **As of June 30,** | ** ** | **As of December 31,** | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                           | ** ** | **2010**                | ** ** | **2009**                    | ** ** |
| ** **                                           | ** ** | **(In Thousands)** | ** ** |
| **Assets**                                           |       |                    |       |                        |       |
| **Current  assets:**                                 |       |                    |       |                        |       |
| Cash and cash equivalents                            |       | $                       | 120,766    |                        | $          | 147,254 |   |
| Accounts receivable, net                             |       | 147,536                 |       | 143,480                     |       |
| Inventories                                          |       | 72,925                  |       | 74,075                      |       |
| Deferred income tax assets                           |       | 15,958                  |       | 16,235                      |       |
| Income taxes receivable                              |       | —                  |       | 1,352                       |       |
| Other current assets                                 |       | 4,098                   |       | 3,031                       |       |
| Total current assets                                 |       | 361,283                 |       | 385,427                     |       |
| Property and equipment,  net                         |       | 57,794                  |       | 58,918                      |       |
| Investment in  unconsolidated joint venture          |       | 2,665                   |       | 2,541                       |       |
| Other assets, net                                    |       | 625                     |       | 202                         |       |
| **Total  assets**                                    |       | $                       | 422,367    |                        | $          | 447,088 |   |
|                                                 |       |                    |       |                        |       |
| **Liabilities and Shareholders’ Equity**        |       |                    |       |                        |       |
| **Current  liabilities:**                            |       |                    |       |                        |       |
| Accounts payable                                     |       | $                       | 60,518     |                        | $          | 86,588 |   |
| Due to United States  government                     |       | 23,136                  |       | 25,965                      |       |
| Advance payments on  contracts                       |       | 3,392                   |       | 1,164                       |       |
| Other current liabilities                            |       | 15,070                  |       | 21,044                      |       |
| Total current liabilities                            |       | 102,116                 |       | 134,761                     |       |
| Deferred income tax  liabilities                     |       | 1,225                   |       | 1,236                       |       |
| Other long-term  liabilities                         |       | 364                     |       | —                      |       |
|                                                 |       | 103,705                 |       | 135,997                     |       |
| Commitments and  contingencies                       |       |                    |       |                        |       |
|                                                 |       |                    |       |                        |       |
| **Shareholders’  equity:**                      |       |                    |       |                        |       |
| Common stock                                         |       | 70                      |       | 70                          |       |
| Additional paid-in capital                           |       | 261,856                 |       | 260,112                     |       |
| Accumulated other  comprehensive income              |       | 44                      |       | 129                         |       |
| Retained earnings                                    |       | 56,692                  |       | 50,780                      |       |
| Total shareholders’ equity                      |       | 318,662                 |       | 311,091                     |       |
| **Total  liabilities and shareholders’ equity** |       | $                       | 422,367    |                        | $          | 447,088 |   |

 

Theaccompanying notes to condensed consolidated financial statements are anintegral part of these statements.

 

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**Force Protection, Inc.and Subsidiaries**

**Condensed ConsolidatedStatements of Operations**

**(Unaudited)**

 
| ** **                                       | ** ** | **For the three months ended**                 | ** ** | **For the six months ended**                   | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                       | ** ** | **June 30,**                                                  | ** ** | **June 30,**                                                  | ** ** |
| ** **                                       | ** ** | **2010**                                                           | ** ** | **2009**                                                           | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                       | ** ** | **(In Thousands, Except Per Share Data)** | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| Net sales                                        |       | $                                                                  | 137,139    |                                                               | $          | 187,116 |   | $ | 271,986 |   | $ | 371,850 |   |
| Cost of sales                                    |       | 105,457                                                            |       | 161,403                                                            |       | 214,915 |   | 309,235 |   |
| Gross profit                                     |       | 31,682                                                             |       | 25,713                                                             |       | 57,071 |   | 62,615 |   |
| General and administrative  expenses             |       | 19,124                                                             |       | 20,172                                                             |       | 37,864 |   | 41,023 |   |
| Research and development  expenses               |       | 5,284                                                              |       | 4,892                                                              |       | 10,131 |   | 9,497 |   |
| Operating income                                 |       | 7,274                                                              |       | 649                                                                |       | 9,076 |   | 12,095 |   |
| Other income (expense),  net                     |       | 189                                                                |       | (133                                                               | )          | 262 |   | (195 | ) |
| Interest (expense) income,  net                  |       | (62                                                                | )          | 103                                                                |       | (194 | ) | (33 | ) |
| Income before income tax  expense                |       | 7,401                                                              |       | 619                                                                |       | 9,144 |   | 11,867 |   |
| Income tax expense                               |       | (2,624                                                             | )          | (178                                                               | )          | (3,231 | ) | (4,050 | ) |
| Net income                                       |       | $                                                                  | 4,777      |                                                               | $          | 441 |   | $ | 5,913 |   | $ | 7,817 |   |
| **Earnings  per common share:**                  |       |                                                               |       |                                                               |       |   |   |   |   |
| Basic                                            |       | $                                                                  | 0.07       |                                                               | $          | 0.01 |   | $ | 0.09 |   | $ | 0.11 |   |
| Diluted                                          |       | $                                                                  | 0.07       |                                                               | $          | 0.01 |   | $ | 0.08 |   | $ | 0.11 |   |
| **Weighted  average common shares outstanding:** |       |                                                               |       |                                                               |       |   |   |   |   |
| Basic                                            |       | 68,787                                                             |       | 68,425                                                             |       | 68,729 |   | 68,416 |   |
| Diluted                                          |       | 69,606                                                             |       | 68,979                                                             |       | 69,609 |   | 68,909 |   |

 

Theaccompanying notes to condensed consolidated financial statements are anintegral part of these statements.

 

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**Force Protection, Inc.and Subsidiaries**

**Condensed ConsolidatedStatements of Cash Flows**

**(Unaudited)**

 
| ** **                                                                                         | ** ** | **For the six months ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                                                         | ** ** | **2010**                                                            | ** ** | **2009** | ** ** |
| ** **                                                                                         | ** ** | **(In Thousands)**                                             | ** ** |
| **Cash  flows from operating activities:**                                                         |       |                                                                |       |   |   |
| Net income                                                                                         |       | $                                                                   | 5,913      |   | $ | 7,817 |   |
| Adjustments to reconcile  net income to net cash (used in) provided by operating activities — |       |                                                                |       |   |   |
| Depreciation and  amortization                                                                     |       | 7,927                                                               |       | 6,676 |   |
| Deferred income tax provision                                                                      |       | 313                                                                 |       | 2,049 |   |
| Income tax effect realized  from stock transactions                                                |       | (12                                                                 | )          | — |   |
| Stock-based compensation                                                                           |       | 1,714                                                               |       | 1,260 |   |
| Provision for asset  impairment                                                                    |       | —                                                              |       | 748 |   |
| Provision for inventory                                                                            |       | 1,154                                                               |       | 891 |   |
| Loss on disposal of  property and equipment                                                        |       | 5                                                                   |       | 158 |   |
| Equity in (earnings) loss  of unconsolidated joint venture                                         |       | (131                                                                | )          | 484 |   |
| (Increase) decrease in  assets —                                                              |       |                                                                |       |   |   |
| Accounts receivable                                                                                |       | (4,056                                                              | )          | (4,010 | ) |
| Inventories                                                                                        |       | (4                                                                  | )          | (52,268 | ) |
| Advances to subcontractor                                                                          |       | —                                                              |       | (26,027 | ) |
| Prepaid income taxes                                                                               |       | —                                                              |       | (8,893 | ) |
| Income taxes receivable                                                                            |       | 1,352                                                               |       | — |   |
| Other assets                                                                                       |       | (1,419                                                              | )          | (707 | ) |
| Increase (decrease) in  liabilities —                                                         |       |                                                                |       |   |   |
| Accounts payable                                                                                   |       | (26,742                                                             | )          | 37,039 |   |
| Due to United States  government                                                                   |       | (2,829                                                              | )          | 14,604 |   |
| Advance payments on  contracts                                                                     |       | 2,228                                                               |       | 47,385 |   |
| Other liabilities                                                                                  |       | (5,597                                                              | )          | (8,865 | ) |
| Total adjustments                                                                                  |       | (26,097                                                             | )          | 10,524 |   |
| **Net cash  (used in) provided by operating activities**                                           |       | (20,184                                                             | )          | 18,341 |   |
| **Cash  flows from investing activities:**                                                         |       |                                                                |       |   |   |
| Capital expenditures                                                                               |       | (5,029                                                              | )          | (5,302 | ) |
| Purchases of marketable  securities                                                                |       | —                                                              |       | (9,985 | ) |
| Proceeds from the sale of  fixed assets                                                            |       | 22                                                                  |       | — |   |
| Purchase of JAMMA assets                                                                           |       | (1,200                                                              | )          | — |   |
| Investment in  unconsolidated joint venture                                                        |       | —                                                              |       | (2,149 | ) |
| **Net cash  used in investing activities**                                                         |       | (6,207                                                              | )          | (17,436 | ) |
| **Cash  flows from financing activities:**                                                         |       |                                                                |       |   |   |
| Proceeds from issuance of  common stock                                                            |       | 17                                                                  |       | 37 |   |
| Income tax effect realized  from stock transactions                                                |       | 12                                                                  |       | — |   |
| Net decrease in other  long-term liabilities                                                       |       | —                                                              |       | (128 | ) |
| **Net cash  provided by (used in) financing activities**                                           |       | 29                                                                  |       | (91 | ) |
| **Effect of  foreign currency rate changes on cash**                                               |       | (126                                                                | )          | — |   |
| **(Decrease)  increase in cash and cash equivalents**                                              |       | (26,488                                                             | )          | 814 |   |
| **Cash and  cash equivalents at beginning of year**                                                |       | 147,254                                                             |       | 111,001 |   |
| **Cash and  cash equivalents at end of period**                                                    |       | $                                                                   | 120,766    |   | $ | 111,815 |   |
| **Supplemental  cash flow information:**                                                           |       |                                                                |       |   |   |
| Cash paid during the  period for                                                                   |       |                                                                |       |   |   |
| Income taxes                                                                                       |       | $                                                                   | 6,937      |   | $ | 15,119 |   |
| Interest, net of amounts  capitalized                                                              |       | $                                                                   | 210        |   | $ | 82 |   |
| **Supplemental  schedule of noncash investing and financing activities:**                          |       |                                                                |       |   |   |
| Property and equipment  additions in accounts payable                                              |       | $                                                                   | 1,622      |   | $ | 873 |   |

 

Theaccompanying notes to condensed consolidated financial statements are anintegral part of these statements.

 

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1.     Summary of Significant Accounting Policies

 

***Organization and Description of theBusiness***

 

ForceProtection, Inc. provides survivability solutions to support the armedforces of the United States and its allies. We design, manufacture, test, deliver and support our blast- andballistic-protected products to increase the survivability of the users of ourproducts.  Our specialty vehicles, whichwe believe are at the forefront of blast- and ballistic-protected technology,are designed to protect their occupants from landmines, hostile fire, andimprovised explosive devices (IEDs).  Weare a key provider of the U.S. military’s Mine Resistant Ambush Protected(MRAP) vehicle program and have sold and delivered over 3,000 vehicles underthis program.  We also provide our Cougarand Buffalo mine-protected vehicles to several foreign customers, including theU.K. Ministry of Defence (MoD) which has purchased three variants of our Cougarvehicle.  Complementing these efforts, weare designing, developing and marketing new vehicle platforms (including theOcelot and the Joint All-Terrain Modular Mobility Asset (JAMMA)) that provideincreased modularity, speed, mobility and concealment with enhanced levels ofblast- and ballistic-protection.  Acrossall vehicle programs we have sold approximately 4,600 vehicles since 2005.  Supporting our vehicle design, developmentand production initiatives, we develop, manufacture, test, deliver and supportproducts and services aimed at further enhancing the survivability of our usersagainst additional threats.  Capitalizingon our strengths in survivability solutions, we are focused on developingadditional products to protect against rocket-propelled grenades and under bodyarmor kits to mitigate blast effects on military vehicles.  We also provide long-term life cycle supportservices for our vehicles that involve development of technical data packages,supply of spares, field and depot maintenance activities, assignment ofhighly-skilled field service representatives, and advanced off-road driver andmaintenance training programs.  Ourservices are based on establishing and maintaining long-term relationships withthe U.S. government and foreign military users.

 

Referencesherein to “Force Protection,” the “Company,” “we,” “our,” or “us” refer toForce Protection, Inc. and its subsidiaries unless otherwise stated orindicated by context.

 

In 2009, we formed Integrated SurvivabilityTechnologies Limited, an England and Wales company, referred to as IST, a jointventure between Force Protection Europe Limited, a subsidiary of ForceProtection Industries, Inc., and NP Aerospace Limited, a subsidiary of TheMorgan Crucible Company plc.  Pursuant to the terms of the joint venture, ISTacts as the prime contractor for vehicles and related total life cycle supportawarded by the United Kingdom Ministry of Defence (U.K. MoD) to ensure thatthis customer has a single point of contact for its Wolfhound, Buffalo, Mastiffand Ridgback vehicles.  We account for this joint venture as anequity-method investment.  In September 2009,we formed Force Protection Australasia Pty Ltd, an Australian company, topursue market opportunities in Australia and Asia.  Force Protection Australasia Pty Ltd is awholly owned subsidiary of Force Protection Europe Limited.

 

Aspart of our comprehensive business development efforts, we are pursuing anumber of substantial vehicle programs in several countries worldwide.  Notable examples include:

 

*LightProtected Patrol Vehicle (LPPV).* Through Force Protection Europe Limited, we have developed with a subcontractor(Ricardo U.K. Limited) a new vehicle platform called the Ocelot.  The Ocelot is a light-weight protectedvehicle that provides increased modularity, speed, mobility and off-roadcapability with MRAP-like survivability qualities.  The vehicle has beensubmitted by Force Protection Europe Limited to the U.K. MoD for the LPPVcompetition.  In April 2010, we received a contract from the U.K. MoDfor the purchase of two Ocelot vehicles for further testing for the LPPVprogram. The Ocelot is one of two finalists for this urgent operational needsprogram and a preferred bidder is expected to be selected in September 2010.  The LPPV program is initially for at least 200vehicles and related long-term support services.

 

*Land 121Protected Mobility Vehicle-Light (PMV-L).* TheOcelot was proposed in September 2009 to the Commonwealth of Australia forone of the PMV-L requirements found in the Land 121 Phase IV project.  In May 2010,we were formally notified that our Force Protection Europe Ocelot vehicle wasselected as one of three funded competitors to continue competitive prototypingin the Manufactured and Supported in Australia (MSA) option for Land 121. Force Protection Europe entered into a contract on July 23, 2010 to buildand deliver two Ocelot prototypes with accompanying documentation, as well astest and evaluation support.  Prototypes are scheduled to be delivered in February 2011.  The value of the contract is not-to-exceed $8.4 million ($9.9 million Australiandollars).  The contract and evaluation period for the PMV-L competitivestage is currently scheduled to conclude by May 2011, at which point theCommonwealth of Australia is expected to make a decision to continue with theJoint Light Tactical Vehicle (JLTV) program or MSA prototyping and sourcing forproduction.  In addition 

 

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to the Land 121 PMV-L option, the Australiangovernment has collaborated with the U.S. government on the development of theJLTV.  The PMV-L program is for approximately1,300 vehicles, trailers and related long-term support services.

 

*Joint All-TerrainModular Mobility Asset (JAMMA).*TheJAMMA is a light-weight, hybrid, high-performance, high-speed, all-terrainvehicle that is transportable inside a V-22 Osprey helicopter and features anattachment system for threat-specific armor.  The JAMMA was specificallydeveloped and designed to meet an upcoming customer requirement, the UnitedStates Air Force’s Guardian Angel Air-Deployable Rescue Vehicle (GAARV) programbut will have application to a multitude of Special OperationsCommand programs both domestically and worldwide.  It is currentlyanticipated that the Air Combat Command will issue a Request for Proposal (RFP)for the GAARV program in the fall of 2010. The JAMMA is designed to be anair-droppable, surface recovery platform capable of maneuvering over adverseterrain in order to search for and recover isolated personnel andequipment.  The JAMMA also is designed to transport recovery teams and therecovered ambulatory or wounded personnel from isolated high threat areas todefendable locations for extraction by aircraft or self-recovery to a final,secure destination. The GAARV program is for approximately 90 vehicles.

 

*TacticalArmored Patrol Vehicle (TAP-V).* The TAP-V program, sponsored by the Canadian Department of NationalDefense, is the avenue that the Canadian military is expected to utilize toreplace the Coyote and RG-31.  Vehicle requirements must satisfy thefollowing mission profiles: Reconnaissance and Surveillance, Security, Commandand Control, Cargo and Armored Personnel Carrier. The vehicle selected for theTAP-V program must possess a high degree of mobility as well as a high degreeof protection for the crew.  Additionally, this program will be builton a Military Off-The-Shelf solution.  Similar to the LPPV and Land 121 PMV-Lprograms, the TAP-V program requires vehicle production to be basedin-country.  In June 2010, Force Protection supplied two possiblesolutions for the TAP-V program, a Cougar 4x4 and Cougar 6x6 variant.  In July 2010,both of our vehicle solutions were selected to move into the RFP phase of theprocurement process, along with seven other vehicles from other equipmentmanufacturers.  A contract award to thefinal selected bidder is expected in 2011. The TAP-V program is forapproximately 600 vehicles and related long-term support services.

 

***Basis of Presentation and Consolidation***

 

Theaccompanying unaudited condensed consolidated financial statements should beread in conjunction with our audited consolidated financial statements includedin our Annual Report on Form 10-K for the year ended December 31,2009 filed with the United States Securities and Exchange Commission (SEC) on March 8,2010.  These unaudited condensedconsolidated financial statements have been prepared pursuant toRule 10-01 of Regulation S-X. Certain information and note disclosures normally included in annualfinancial statements prepared in accordance with generally accepted accountingprinciples in the United States of America (GAAP) have been condensed oromitted pursuant to those rules and regulations, although we believe thatthe disclosures made herein are adequate to make the information notmisleading.

 

Theunaudited results of operations for the interim periods shown in thesecondensed consolidated financial statements are not necessarily indicative ofoperating results for the entire year. In our opinion, the accompanyingunaudited condensed consolidated financial statements recognize all adjustmentsof a normal recurring nature considered necessary to fairly state the financialposition, results of operations and cash flows for each interim periodpresented.

 

Theseunaudited condensed consolidated financial statements include the assets,liabilities, revenues and expenses of our wholly owned subsidiaries, ForceProtection Industries, Inc. and Force ProtectionTechnologies, Inc.  We eliminatefrom our financial results all significant intercompany accounts andtransactions.

*** ***

***Fair Value ofFinancial Instruments***

 

FASB Statement No. 107, *Disclosures about Fair Value of Financial Instruments*,which was primarily codified into Topic 825, “*FinancialInstruments*” in the Accounting Standards Codification (ASC),requires disclosures of the fair value of financial instruments.  Our financial instruments include cash andcash equivalents, accounts receivable, accounts payable, accrued liabilitiesand amounts due to United States government. The carrying amounts of cash and cash equivalents, accounts receivable,accounts payable, accrued liabilities and amounts due to the U.S. government,approximate their fair value because of the short-term maturity and highlyliquid nature of these instruments.  Thecarrying values of our financial instruments approximate their fair value as ofJune 30, 2010 and December 31, 2009.

 

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***Recent Accounting Pronouncements***

 

In June 2009,the FASB issued FASB Statement No. 168, *The FASBAccounting Standards Codification and the Hierarchy of Generally AcceptedAccounting Principles,*which was codified into Topic 105 “*Generally AcceptedAccounting Standards.*” This guidance launched the FASB Accounting Standards Codification thatis the single source of non-SEC authoritative GAAP.  It is effective for interim and annualperiods beginning after September 15, 2009.  We adopted this guidance as of September 30,2009.  This guidance did not have amaterial impact on our consolidated financial position, results of operationsor cash flows.

 

In October 2009,the FASB issued Update No. 2009-13 (ASU 2009-13), an update to Topic 605 “*Revenue Recognition*,” which addresses the accounting formultiple-deliverable arrangements to enable vendors to account for products orservices (deliverables) separately rather than as a combined unit.  ASU 2009-13 is effective prospectively forrevenue recognition arrangements entered into or materially modified beginningin fiscal years on or after June 15, 2010. Early adoption is permitted.  Weare currently evaluating the impact that the adoption of this guidance willhave on our consolidated financial position, results of operations or cashflows, if any.

 

In February 2010,the FASB issued Update No. 2010-9 (ASU 2010-9), an update to Topic 855 “*Subsequent Events*,” which clarified that subsequent eventsshould be evaluated through the date the financial statements are issued.  In addition, this update no longer requires afiler to disclose the date through which subsequent events have beenevaluated.  This guidance is effectivefor financial statements issued subsequent to February 26, 2010.  We adopted this guidance on March 8,2010.  This guidance did not have amaterial impact on our consolidated financial position, results of operationsor cash flows.

 

Wehave determined that all other recently issued accounting guidance will nothave a material impact on our consolidated financial position, results ofoperations and cash flows, or do not apply to our operations.

 

**2.**    **Accounts Receivable**

 

Accountsreceivable consist of the following (in thousands):

 
| ** **                | ** ** | **As of June 30,** | ** ** | **As of December 31,** | ** ** |
|---------------------------|------------|-----------------------------------|------------|---------------------------------------|------------|
| ** **                | ** ** | **2010**                          | ** ** | **2009**                              | ** ** |
| United States government  |       | $                                 | 122,709    |                                  | $          | 122,070 |   |
| Other accounts receivable |       | 24,827                            |       | 21,410                                |       |
| Accounts receivable, net  |       | $                                 | 147,536    |                                  | $          | 143,480 |   |

 

Asof June 30, 2010 and December 31, 2009, our accounts receivableincluded $96.7 million and $57.2 million, respectively, of earned and unbilledaccounts receivable, of which $12.8 million and $6.4 million, respectively, isearned and unbilled to Integrated Survivability Technologies Limited and $83.9million and $50.8 million, respectively, is earned and unbilled to the U.S.government.  The earned and unbilledaccounts receivable as of June 30, 2010 and December 31, 2009primarily result from not-to-exceed undefinitized contracts whereby, althoughthe products and services have been delivered, we cannot fully bill until thecontracts are definitized.  Otheraccounts receivable include amounts that relate to non-government entities andthe sale of raw materials to suppliers.

 

**3.**    **Inventories**

 

Inventoriesconsist of the following (in thousands):

 
| ** **                | ** ** | **As of June 30,** | ** ** | **As of December 31,** | ** ** |
|---------------------------|------------|-----------------------------------|------------|---------------------------------------|------------|
| ** **                | ** ** | **2010**                          | ** ** | **2009**                              | ** ** |
| Raw material and supplies |       | $                                 | 42,497     |                                  | $          | 57,026 |   |
| Work in process           |       | 28,363                            |       | 16,099                                |       |
| Finished goods            |       | 2,065                             |       | 950                                   |       |
| Inventories               |       | $                                 | 72,925     |                                  | $          | 74,075 |   |

 

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**4.**    **Property and Equipment**

 

Propertyand equipment consist of the following (in thousands):

 
| ** **                                            | ** ** | **As of June 30,** | ** ** | **As of December 31,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------|------------|---------------------------------------|------------|
| ** **                                            | ** ** | **2010**                          | ** ** | **2009**                              | ** ** |
| Land                                                  |       | $                                 | 4,419      |                                  | $          | 4,419 |   |
| Buildings                                             |       | 13,749                            |       | 13,246                                |       |
| Leasehold improvements                                |       | 16,256                            |       | 15,661                                |       |
| Machinery and equipment;  including tooling and molds |       | 35,256                            |       | 33,451                                |       |
| Computer equipment and  software                      |       | 16,043                            |       | 15,297                                |       |
| Furniture and fixtures                                |       | 3,722                             |       | 3,668                                 |       |
| Demonstration and other  vehicles                     |       | 3,434                             |       | 2,657                                 |       |
| Manuals                                               |       | 705                               |       | 705                                   |       |
|                                                  |       | 93,584                            |       | 89,104                                |       |
| Less: Accumulated  depreciation                       |       | (39,605                           | )          | (31,887                               | )          |
|                                                  |       | 53,979                            |       | 57,217                                |       |
| Construction in progress                              |       | 3,815                             |       | 1,701                                 |       |
| Property and equipment,  net                          |       | $                                 | 57,794     |                                  | $          | 58,918 |   |

 

**5.**    **Income Taxes**

 

Weprovide for income taxes using the liability method in accordance with FASB ASCTopic 740, “*Income Taxes*.”  In accordance with this guidance, theprovision for taxes on income recognizes our estimate of the effective tax rateexpected to be applicable for the full year, adjusted for the impact of anydiscrete events, which are reported in the period in which they occur.  Each quarter, we re-evaluate our estimatedtax expense for the year and make adjustments for changes in the estimated taxrate.  Additionally, we evaluate therealizability of our deferred tax assets on a quarterly basis.  Our evaluation considers all positive andnegative evidence and factors, such as the scheduled reversal of temporarydifferences, historical and projected future taxable income or losses, andprudent and feasible tax planning strategies.

 

The**incometax expense for the three and six months ended June 30, 2010 wasbased on the estimated effective tax rates applicable for the fiscal yearending December 31, 2010, after considering items specifically related tothe interim period.  The income taxexpense for the three and six months ended June 30, 2009 was based on theestimated effective tax rates applicable for the fiscal year endedDecember 31, 2009, after considering items specifically related to theinterim period.

 

ForceProtection is subject to United States federal, state, and local income taxes. * Income beforeincome tax expense*isas follows (in thousands):

 
| ** **                        | ** ** | **For the three months ended** | ** ** | **For the six months ended** | ** ** |
|-----------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| ** **                        | ** ** | **June 30,**              | ** ** | **June 30,**            | ** ** |
| ** **                        | ** ** | **2010**                       | ** ** | **2009**                     | ** ** | **2010** | ** ** | **2009** | ** ** |
| Income before income tax  expense |       | $                              | 7,401      |                         | $          | 619 |   | $ | 9,144 |   | $ | 11,867 |   |
|                                   |            |                                |            |                              |            |  |  |  |  |  |  |  |  |

 

Areconciliation of the statutory federal income tax expense rate to theeffective income tax expense rate is as follows:

 
| ** **                                          | ** ** | **For the three months ended** | ** ** | **For the six months ended** | ** ** |
|-----------------------------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| ** **                                          | ** ** | **June 30,**              | ** ** | **June 30,**            | ** ** |
| ** **                                          | ** ** | **2010**                       | ** ** | **2009**                     | ** ** | **2010** | ** ** | **2009** | ** ** |
| Income tax expense at  statutory rate               |       | 35.0                           | %          | 35.0                         | %          | 35.0 | % | 35.0 | % |
| Increase (decrease) in tax  rate resulting from:    |       |                           |       |                         |       |   |   |   |   |
| State income taxes, net of  federal tax benefit     |       | 1.4                            |       | 0.2                          |       | 1.4 |   | 0.7 |   |
| Research and development  credit                    |       | —                         |       | 18.0                         |       | — |   | (1.5 | ) |
| Domestic Production  Activities Deduction           |       | (2.4                           | )          | (14.5                        | )          | (2.5 | ) | (1.1 | ) |
| Interest expense related  to uncertain tax benefits |       | 0.1                            |       | —                       |       | 0.1 |   | — |   |
| Nondeductible items                                 |       | 1.4                            |       | (10.0                        | )          | 1.4 |   | 1.0 |   |
| Effective income tax  expense rate                  |       | 35.5                           | %          | 28.7                         | %          | 35.4 | % | 34.1 | % |

 

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Theeffective income tax rate is the provision for income tax expense as a percentof income before income taxes.  Theeffective rate for the three and six months ended June 30, 2010 is higherthan the federal statutory rate of 35% due to state income taxes andnondeductible compensation, partially offset by the Domestic ProductionActivities Deduction.

 

Taxyears ended December 31, 2002 through December 31, 2009 remain openand are subject to examination by the Internal Revenue Service.  However, we believe that we have appropriatesupport for the income tax positions taken and to be taken on our income taxreturns and that our income tax receivable and accruals for tax liabilities areadequate for all open years based on an assessment of many factors includingpast experience and interpretations of tax laws applied to the facts of eachmatter.  However, we do have a $1.1 millionreserve, which includes approximately $45,000 of interest, for prior years’income taxes as a result of applying the guidance in FASB ASC Topic 740, “*Income Taxes*.”  Ifrecognized, the entire $1.1 million would favorably impact the Company’seffective tax rate.  It is not expectedthat within the next 12 months the effective tax rate will be impacted bythe resolution of some or all of the matters by various taxingauthorities.  We include interest andpenalties related to federal and state income taxes, if any, as a component of*Income tax expense* in the accompanyingcondensed consolidated statements of operations.

 

**6.**    **Earnings Per Common Share and Comprehensive Income**

 

***Earnings Per Common Share***

 

Thefollowing table shows the information used in the calculation of basic anddiluted earnings per common share (in thousands, except per share amounts):

 
| ** **                                                 | ** ** | **For the three months ended** | ** ** | **For the six months ended** | ** ** |
|------------------------------------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| ** **                                                 | ** ** | **June 30,**              | ** ** | **June 30,**            | ** ** |
| ** **                                                 | ** ** | **2010**                       | ** ** | **2009**                     | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Numerator  — Basic and diluted:**                   |       |                           |       |                         |       |   |   |   |   |
| Net income                                                 |       | $                              | 4,777      |                         | $          | 441 |   | $ | 5,913 |   | $ | 7,817 |   |
| **Denominator:**                                           |       |                           |       |                         |       |   |   |   |   |
| Weighted average common  shares outstanding — basic   |       | 68,786,642                     |       | 68,424,750                   |       | 68,729,295 |   | 68,416,226 |   |
| Add:     Stock  options           |       | 96,298                         |       | 172,039                      |       | 116,244 |   | 138,705 |   |
| Add:     Stock  grants            |       | 723,283                        |       | 381,860                      |       | 763,348 |   | 354,201 |   |
| Weighted average common  shares outstanding — diluted |       | 69,606,223                     |       | 68,978,649                   |       | 69,608,887 |   | 68,909,132 |   |
| **Basic  earnings per common share:**                      |       |                           |       |                         |       |   |   |   |   |
| Net income — basic                                    |       | $                              | 0.07       |                         | $          | 0.01 |   | $ | 0.09 |   | $ | 0.11 |   |
| **Diluted  earnings per common share:**                    | ** ** | ** **                     | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income — diluted                                  |       | $                              | 0.07       |                         | $          | 0.01 |   | $ | 0.08 |   | $ | 0.11 |   |

 

Thecalculation of earnings per common share is based on the weighted-averagenumber of our common shares outstanding during the applicable period.  The calculation for diluted earnings percommon share recognizes the effect of all dilutive potential common shares thatwere outstanding during the respective periods, unless their impact would beanti-dilutive.  We use the treasury stock method to calculate the dilutiveeffect of stock options and other common stock equivalents (potentiallydilutive shares). These potentially dilutive shares include stock options andunvested restricted stock grants.  We didnot include stock options to purchase 4,831 and 98,294 shares of common stockin our computation of diluted earnings per share in the three and six monthsended June 30, 2010, respectively, as the effect of including such optionswould be anti-dilutive.  For the 2009periods presented above, we have not excluded any potentially dilutive sharesfrom the calculation of diluted earnings per share.

 

***Comprehensive Income***

 

Ourcomprehensive income was $4.8 million and $5.8 million for the three and sixmonths ended June 30, 2010 and $0.2 million and $7.6 million for the threeand six months ended June 30, 2009, respectively.  The components of our comprehensive incomeare net income and foreign currency translation adjustments of zero and a $0.1million net loss for the three and six months ended June 30, 2010,respectively, and a $0.2 million net loss for the three and six months ended June 30,2009.

 

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**7.**    **Commitments and Contingencies**

 

***Financing Commitments— Credit Facility***

 

Asof December 31, 2009 and June 30, 2010, we had a $40 millionrevolving credit line with Wells Fargo Bank, National Association, whichexpires April 30, 2012.  Furthermore, we can designate up to $5million for letters of credit against the $40 million line of credit.  There were no borrowings outstanding underthe facility as of December 31, 2009 or June 30, 2010.  However,on July 23, 2010, we obtained a letter of credit in the amount of $2.9million ($3.3 million Australian dollars) for the performance of ourobligations under a contract for the PMV-L vehicle program, which lowered theavailability under the line of credit to approximately $37.1 million.  Borrowings under the line of credit bear afloating interest rate per annum on any principle borrowings applicable toLIBOR rate plus a spread.  The bank’s obligation to make loans under theline of credit is subject to, among other things, our compliance with variouscovenants to include a maximum leverage ratio. As of December 31, 2009 andJune 30, 2010, we were in compliance with all of our line of creditcovenants.

* *

*Legal Proceedings*

 

*Shareholder Class Action and Derivative Actions*

 

On March 10,2008, the first of ten related class action lawsuits was filed against us andcertain of our former and current directors or officers in the United StatesDistrict Court for the District of South Carolina, Charleston Division, onbehalf of a purported class of investors who purchased or otherwise acquiredour stock during the period between August 14, 2006, and February 29,2008.  The complaints seek classcertification, and the allegations include, but are not limited to, allegationsthat the defendants violated the Securities Exchange Act of 1934 and made falseor misleading public statements and/or omissions concerning our business,internal controls, and financial results. The individual class action lawsuits were consolidated on June 10,2008, under the caption *In Re ForceProtection, Inc. Securities Litigation*, ActionNo. 2:08-cv-845-CWH.  On September 29,2009, the court denied the defendants’ motion to dismiss the plaintiffs’consolidated complaint, and the parties are engaging in discovery.

 

BetweenMarch 27, 2008 and May 28, 2008, a series of shareholder derivativeactions were filed in both state and federal courts against certain of ourformer and current directors and officers alleging that the individualdefendants breached fiduciary duties, abused control, engaged in grossmismanagement and wasted corporate assets and were unjustly enriched.  Recovery is sought for the benefit of theCompany, which has been named a nominal defendant in each derivativeaction.  The state court actions pendingin South Carolina were consolidated on May 18, 2009.  Defendants’ motions to dismiss each of thestate court derivative actions were denied, and the parties are engaging indiscovery.  Four derivative lawsuitspending in the United States District Court for the District of South Carolina,Charleston Division, were consolidated on March 31,2009, under the caption *In Re Force Protection, Inc. Derivative Litigation*, Action No. 2:08-cv-01907-CWH.

 

*Other Disputes*

 

Wehave received a total of 78 complaints over the last three years from currentand former employees filed with the United States Equal Employment OpportunityCommission alleging, among other things, race and/or genderdiscrimination.  We have responded to thecomplaints as such responses have become due, and have investigated theallegations.

 

On June 26,2009, a temporary independent contractor whose services we terminated in 2007filed a complaint against the Company in the United States District Court forthe District of South Carolina, Charleston Division as Civil Action No. 2:09cv1708-DCN-BM,which alleges a violation under the employee protection provisions ofSection 806 of the Corporate and Criminal Fraud Accountability Act of2002, Title VIII of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1514A.  The former independent contractor allegesthat we terminated his engagement in retaliation for his allegation of certaincorporate governance, government contracting, accounting and otherirregularities.  On March 12, 2010,we filed motions to dismiss certain claims in the plaintiff’s complaint.

 

Althoughwe intend to defend ourselves in connection with the foregoing legalproceedings and claims, there can be no assurance that we will ultimatelyprevail in any of these matters. Moreover, the defense of these claims andproceedings may result in substantial legal expenses and diversion of ourmanagement, and any settlement or adverse judgment may require us to makesubstantial payments, any of which could have a material adverse effect on ourbusiness or financial position, results of operations, or cash flows.

 

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Inaddition, compliance with the directives of the Directorate of Defense Trade Controls (DDTC) may result insubstantial expenses and diversion of management.  Any failure to adequately address thedirectives of DDTC could result in civil fines or suspension or loss of ourexport privileges, any of which could have a material adverse effect on ourbusiness or financial position, results of operations, or cash flows. TheCompany does not have any outstanding matters with the DDTC.

 

Weare also a party to other litigation which we consider routine and incidentalto our business.  We may be involved fromtime to time in other litigation that could have a material effect on ouroperations or finances.  Other than thelitigation described above, we are not aware of any pending or threatenedlitigation against us that could have a material adverse effect on our businessor financial position, results of operations, or cash flows.

 

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**Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

Management’sDiscussion and Analysis of Financial Condition and Results of Operations(MD&A) is designed to provide information that is supplemental to, andshould be read together with our unaudited condensed consolidated financialstatements and the accompanying notes included in this Quarterly Report onForm 10-Q.  Information in this Item2 is intended to assist the reader in obtaining an understanding of ourunaudited condensed consolidated financial statements, the changes in certainkey items in those financial statements from period to period, the primaryfactors that accounted for those changes, and any known trends or uncertaintiesthat we are aware of that may have a material effect on our future performance,as well as how certain accounting principles affect our unaudited condensedconsolidated financial statements. MD&A includes the following sections:

 

·                  Overview

 

·                  Outlook

 

·                  Resultsof Operations—an analysis of our consolidated results of operations, for thethree and six months presented in our unaudited condensed consolidatedfinancial statements

 

·                  Liquidityand Capital Resources—an analysis of the effect of our operating, financing andinvesting activities on our liquidity and capital resources

 

·                  Off-Balance Sheet Arrangements—a discussion of such commitments and arrangements

 

·                  ContractualObligations—a summary of our aggregate contractual obligations

 

·                  CriticalAccounting Policies and Estimates—a discussion of accounting policies thatrequire significant judgments and estimates

 

·                  NewAccounting Pronouncements—a summary and discussion of our plans for theadoption of new accounting standards relevant to us

 

**SPECIAL NOTE REGARDINGFORWARD-LOOKING STATEMENTS**

 

ThisQuarterly Report on Form 10-Q contains both historical and forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended (Securities Act), and Section 21E of the SecuritiesExchange Act of 1934, as amended (Exchange Act).  All statements otherthan statements of historical fact included in this Quarterly Report onForm 10-Q that address activities, events or developments that we expect,believe or anticipate will or may occur in the future are forward-lookingstatements including, in particular, the statements about our plans,objectives, strategies and prospects regarding, among other things, ourfinancial position, results of operations, cash flows and business.  We have identified some of theseforward-looking statements with words like “believe”, “may”, “will”, “should”, “expect”,“intend”, “plan”, “predict”, “anticipate”, “outlook”, “estimate” or “continue”and other words and terms of similar meaning. These forward-looking statements include, among other things:

 

·                  Statementsregarding the growth of the U.S. and world market for blast- and ballistic-protectedvehicles and our survivability products, services and solutions,

 

·                  Statementsregarding the U.S. military’s plans or intentions, including operations in Iraqand in Afghanistan,

 

·                  Informationregarding the number of various types of MRAP and other armored vehicles thatmay be purchased by the U.S. Marine Corps, the U.S. Army and other U.S. andforeign customers under various programs,

 

·                  Statementswith respect to our expectations regarding our ability to obtain materials,components and supplies necessary to manufacture our vehicles, our ability toimprove cost efficiencies, including, without limitation, as a result of volumepurchasing, improvements in our manufacturing process and possible futurechanges in the efficiencies in our operations,

 

·                  Statementsregarding our ability to extend our current business, including the effect ofour research 

 

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and development and introduction of new products,

 

·                  Statementsregarding any changes in our cost of sales, our general and administrativeexpenses, our operating results or our research and development expenses as apercentage of net sales,

 

·                  Statementsregarding our anticipated cash needs,

 

·                  Statementsregarding our business strategy, including growing balanced diverse revenue andearnings,

 

·                  Statementsregarding the revenues that may be derived from, and the quantities ofvehicles, products and services that may be purchased or ordered pursuant to,existing or possible future contracts or orders by various customers, includingstatements regarding the estimated value of those orders and contracts andstatements about the amount of vehicles in our backlog,

 

·                  Statementsregarding our expectations regarding contract awards, including opportunitiesfor the sales of our vehicles,

 

·                  Statementsregarding the effects of rebalancing our workforce and manufacturingcapacities,

 

·                  Statementsregarding the benefits that may be realized from our joint ventures, teamingarrangements and any new ventures or business developed pursuant to them andour ability to grow through meaningful acquisitions, and

 

·                  Statementsregarding our ability to utilize net operating loss carryforwards for incometax purposes and the effect of our income tax positions on our effective taxrate.

 

Whenused in this Quarterly Report on Form 10-Q, except as specifically notedotherwise, the term “Force Protection, Inc.” refers to ForceProtection, Inc. only, and references  to the terms “Company,” “we,” “our,”“ours” and “us” refer to Force Protection, Inc. and its consolidatedsubsidiaries.

 

**Overview**

 

ForceProtection, Inc. provides survivability solutions to support the armedforces of the United States and its allies. We design, manufacture, test, deliver and support our blast- andballistic-protected products to increase the survivability of the users of ourproducts.  Our specialty vehicles, whichwe believe are at the forefront of blast- and ballistic-protected technology,are designed to protect their occupants from landmines, hostile fire, andimprovised explosive devices (IEDs).  Weare a key provider of the U.S. military’s Mine Resistant Ambush Protected(MRAP) vehicle program and have sold and delivered over 3,000 vehicles underthis program.  We also provide our Cougarand Buffalo mine-protected vehicles to several foreign customers, including theU.K. Ministry of Defence which has purchased three variants of our Cougarvehicle.  Complementing these efforts, weare designing, developing and marketing new vehicle platforms (including theOcelot and the Joint All-Terrain Modular Mobility Asset (JAMMA)) that provideincreased modularity, speed, mobility and concealment with enhanced levels of blast-and ballistic-protection.  Across allvehicle programs we have sold approximately 4,600 vehicles since 2005.  Supporting our vehicle design, developmentand production initiatives, we develop, manufacture, test, deliver and supportproducts and services aimed at further enhancing the survivability of our usersagainst additional threats.  Capitalizingon our strengths in survivability solutions, we are focused on developingadditional products to protect against rocket-propelled grenades and under bodyarmor kits to mitigate blast effects on military vehicles.  We also provide long-term life cycle supportservices for our vehicles that involve development of technical data packages,supply of spares, field and depot maintenance activities, assignment ofhighly-skilled field service representatives, and advanced off-road driver andmaintenance training programs.  Ourservices are based on establishing and maintaining long-term relationships withthe U.S. government and foreign military users.

 

Ourbusiness is heavily influenced by the needs of the U.S. military for blast- andballistic-protected wheeled vehicles. The U.S. Department of Defense is our largest customer.  For the past several years, substantially allof our net sales have been derived from the Foreign Military Sales through the U.S.government.  We attempt to align ourworkforce to satisfy our business requirements.

 

Weare headquartered, and have leased manufacturing facilities, in Ladson, SouthCarolina.  We have office space inSterling Heights, Michigan; Edgefield, South Carolina; North Charleston, SouthCarolina; Arlington, 

 

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Virginia;Bristol, United Kingdom; and Leamington Spa, United Kingdom.  We conduct our blast range, research anddevelopment activities and customer training requirements at properties locatedin Edgefield, South Carolina; Summerville, South Carolina; and Roxboro, NorthCarolina.  We also have a vehicle supportfacility in Kuwait, and provide military operations support in Afghanistan andIraq.

 

**Outlook**

 

Theglobal war on terrorism, especially in Iraq and Afghanistan, has confirmed thatIEDs, landmines, explosively-formed projectiles and rocket-propelled grenadespose a significant threat to coalition military personnel and civilians.  We believe the world market for blast- andballistic-protected military vehicles and other survivability solutions willremain at high levels in the short-term. The 30,000 troop surge of forces to Afghanistan will take most of 2010to achieve and additional, or modified, MRAPs from original equipmentmanufacturers (OEMs) may be required to support operations in this difficultterrain.  Landmines and IEDs are beingused extensively by terrorists and insurgent groups in Afghanistan because oftheir highly effective nature and relatively low cost.  The extent of the long-term presence of U.S.forces in Iraq and Afghanistan is uncertain. Consequently, U.S. and international military departments are in theprocess of determining long-term roles for MRAPs.  The future requirements for long-term lifecycle logistics plans, as well as an important effort to reset and recapitalizevehicles that come out of theater, are being determined.  MRAPs can be placed into permanent militaryorganizations for convoy security, route clearance, explosive ordnance disposaland casualty evacuation, or be placed into prepositioned storage roles forregional response, or be reassigned as home station training vehicles, or besold to foreign military customers.

 

*Ourfiscal 2010 outlook is based on the following market assumptions andexpectations:*

 

·                  Areduction of combat forces and our vehicles in Iraq, which has significantlyreduced the operational tempo placed on our fleet*,*aswell as the requirement for our field service representatives resourced tosupport units in that theater,

 

·                  Conversely,there is growth of military forces,our vehicles and all MRAPs in Afghanistan, which is necessitating changes toour vehicles and is increasing sustainment/maintenance requirements.  Our currentcustomers are developing modernization and sustainment plans for our fieldedfleet of vehicles and we will have to compete for the spares and sustainmentsupport business for these vehicles,

 

·                  Uncertaintyin defense spending, due to thecurrent defense strategy, as well as the dynamic macroeconomic and geopoliticalconditions,

 

·                  Challengeswith the expansion of our customers, products and services both domesticallyand internationally.  We will continue totry to capture contract awards for our products and services in a volatilemarketplace,

 

·                  Establishinglong-term programs to include upgrades, remanufacture, and sustainment for ourfleet of vehicles, and then expanding this capability to sustain all MRAPsuniversally,

 

·                  Developingnew products and services to bring to market, and

 

·                  Rationalizingour cost structure to match our sales.

 

*StrategicOutlook*

 

Ourbusiness strategy is focused on increasing shareholder value by providingproducts and services that are relevant, responsive, innovative, high-qualityand affordable.  We believe the globalneed for blast- and ballistic- protected military vehicles and othersurvivability solutions will remain high through 2011.  The 30,000 troop surge of force inAfghanistan is expected take most of 2010 to achieve and additional, ormodified, MRAPs are expected to be required to support operations in thistheater.  However, U.S. forces arecurrently drawing down from Iraq and many MRAPs are being transferred from Iraqto Afghanistan.  The U.S. and foreignmilitary departments are determining the current and future roles for MRAPvehicles.  We expect a large number of our currently deployed vehicleswill remain in service or be pre-positioned for rapid deployment.  Thesevehicles will likely require an overhaul and modification to remain in optimalcombat readiness.  We will leverage our manufacturing skills and fieldservices to support our customers in maintaining readiness for these highlyvalued assets.  Although much of this work will involve large depotfacilities, the magnitude of work could exceed our capacity and requirestrategic

 

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partnershipsto complete work on schedule.

 

Weintend to maintain and expand our current business as a leading supplier ofsurvivability solutions, including protected vehicles, total life cycle supportand other services, to the U.S. Department of Defense, other U.S. governmentagencies, foreign governments, and domestic and international commercialcustomers.  Our strategy is focused ongrowing balanced diverse revenue and earnings through organic growth, costcontainment, and selected investments, partnerships and acquisitions, enablingus to grow the Company.  Specificcomponents of the strategy include the following:

 

·                  Buildingon our base business to enable future success, including improving performanceon contracts and improving our cost structure,

 

·                  Capitalizingon and extending our current business, including growing sales organically byinvesting in research and development and introducing new products within our core capabilities of blast- andballistic-protection,

 

·                  Buildingon our core capabilities and continuing to ensure a leadership position bydelivering innovative survivability solutions to market, including investing innew technologies, and

 

·                  Growingprofitably through meaningful acquisitions, partnerships and investments toengage in a broader range of products, customers and markets.

 

As discussed in Item 4,  *Controlsand Procedures*, of this Quarterly Report on Form 10-Q, we believe that effective disclosure controlsand procedures (as defined in Rule 13a-15(e) and Rule 15d-15(f) underthe Exchange Act) are in place as of June 30,2010.  We will continue to devote ourresources, in an amount we believe to be appropriate, to maintain effectiveinternal controls over our financial reporting and disclosures.

 

*RecentEvents*

 

On June 4,2010, we were awarded a contract modification under our MRAP contract with theU.S. Marine Corps Systems Command for modernization of the U.S. military’sCougar fleet.  The firm, fixed pricecontract modification of approximately $46.1 million provides for the purchaseof 2,451 enhanced Automated Fire Extinguishing Systems.

 

On June 11,2010, we were awarded a contract modification under our MRAP contract formodernization of the U.S. military’s Cougar fleet.  The approximate $10.8 million firm, fixedprice contract modification includes the design and purchase of 2,654 570-ampalternator kits and related materials.

 

On June 22,2010, we were awarded a contract modification under our MRAP contract for 43field service representatives and associated support for installation ofmodernization kits and to conduct general maintenance for Cougar vehicleslocated in Afghanistan and Iraq.  Thecontract modification has a firm, fixed price valued at $15.4 million.

 

On June 23,2010, we were awarded a contract modification under our MRAP contract foradditional field service representative support.  The $19.6 million firm, fixed price contractprovides for 216 field service representatives and associated support forcontinued installation of Independent Suspension System (ISS) kits on the U.S.military’s Cougar fleet in Kuwait.

 

**Results of Operations**

 

Thefollowing discussion and analysis is based on our unaudited condensed consolidatedstatements of operations, which reflect our results of operations for the threeand six months ended June 30, 2010 and 2009 as prepared in accordance withgenerally accepted accounting principles in the United States of America(GAAP).

 

***Comparison of Results of Operations for theThree and Six Months Ended June 30, 2010 and 2009***

 

Thefollowing table presents our results of operations for the three and six monthsended June 30, 2010 and 

 

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2009.

 
| ** **                           | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended  June 30,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**              | ** ** | **2010**                                      | ** ** | **2009**                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net sales                            |       | $                                             | 137,139    |                                        | $          | 187,116 |   | $ | 271,986 |   | $ | 371,850 |   |
| Cost of sales                        |       | 105,457                                       |       | 161,403                                     |       | 214,915 |   | 309,235 |   |
| Gross profit                         |       | 31,682                                        |       | 25,713                                      |       | 57,071 |   | 62,615 |   |
| General and administrative  expenses |       | 19,124                                        |       | 20,172                                      |       | 37,864 |   | 41,023 |   |
| Research and development  expenses   |       | 5,284                                         |       | 4,892                                       |       | 10,131 |   | 9,497 |   |
| Operating income                     |       | 7,274                                         |       | 649                                         |       | 9,076 |   | 12,095 |   |
| Other income (expense),  net         |       | 189                                           |       | (133                                        | )          | 262 |   | (195 | ) |
| Interest (expense) income,  net      |       | (62                                           | )          | 103                                         |       | (194 | ) | (33 | ) |
| Income before income tax  expense    |       | 7,401                                         |       | 619                                         |       | 9,144 |   | 11,867 |   |
| Income tax expense                   |       | (2,624                                        | )          | (178                                        | )          | (3,231 | ) | (4,050 | ) |
| Net income                           |       | $                                             | 4,777      |                                        | $          | 441 |   | $ | 5,913 |   | $ | 7,817 |   |

 

*Units sold*

 

Thefollowing table presents our vehicle unit sales for the three and six monthsended June 30, 2010 and 2009.

 
| ** **                   | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended  June 30,** | ** ** |
|------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| **Units Sold**               | ** ** | **2010**                                      | ** ** | **2009**                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
| Buffalo                      |       | 21                                            |       | 17                                          |       | 43 |   | 29 |   |
| Cougar MRAP (Competitive)    |       | —                                        |       | —                                      |       | — |   | 5 |   |
| Mastiff                      |       | 44                                            |       | 8                                           |       | 60 |   | 24 |   |
| Ridgback                     |       | —                                        |       | —                                      |       | — |   | 83 |   |
| Wolfhound                    |       | 24                                            |       | 4                                           |       | 24 |   | 4 |   |
| Cougar (all other  variants) |       | —                                        |       | 10                                          |       | 4 |   | 28 |   |
| Cheetah                      |       | —                                        |       | 3                                           |       | — |   | 5 |   |
| Ocelot                       |       | 2                                             |       | —                                      |       | 2 |   | — |   |
| Total                        |       | 91                                            |       | 42                                          |       | 133 |   | 178 |   |

 

*Net sales*

 

Thedecrease in net sales from the three and six months ended June 30, 2010 tothe comparable periods for 2009 was mostly attributable to a decrease in sparesand sustainment sales, including field service representatives, training, IraqiLight Armored Vehicle (ILAV) subcontractor revenues and technical publications;partially offset by an increase in sales resulting from modernization efforts,which include the supply and installation of ISS kits for our Cougar vehicles.  The spares and sustainment sales decreasedfrom the three and six months ended June 30, 2010 to the comparableperiods for 2009 due to the current demand slowing for spares as large suppliesof initial spares procurement with the initial vehicle deliveries are currentlybeing consumed.  Additionally, the modernization of Cougar independentsuspension system kits has decreased the demand for straight axle spares andother components, which have been a large part of the spares revenue in the past.

 

Thesales mix of modernization efforts and spares and sustainment in thecomparative periods are set forth in the following table:

 

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| ** **                   | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended  June 30,** | ** ** |
|------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**           | ** ** | **2010**                                      | ** ** | **2009**                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
| Buffalo                      |       | $                                             | 21,483     |                                        | $          | 18,630 |   | $ | 44,845 |   | $ | 29,430 |   |
| Cougar MRAP (Competitive)    |       | —                                        |       | —                                      |       | — |   | 4,029 |   |
| Mastiff                      |       | 22,833                                        |       | 4,856                                       |       | 33,469 |   | 11,608 |   |
| Ridgback                     |       | —                                        |       | 3,370                                       |       | — |   | 34,489 |   |
| Wolfhound                    |       | 11,070                                        |       | 2,826                                       |       | 11,070 |   | 2,826 |   |
| Cougar (all other  variants) |       | —                                        |       | 7,306                                       |       | 2,899 |   | 21,028 |   |
| Cheetah                      |       | —                                        |       | 2,362                                       |       | — |   | 3,362 |   |
| Ocelot                       |       | 1,462                                         |       | —                                      |       | 1,462 |   | — |   |
| Modernization                |       | 31,534                                        |       | 27,274                                      |       | 79,699 |   | 27,274 |   |
| Spares and sustainment       |       | 48,757                                        |       | 120,492                                     |       | 98,542 |   | 237,804 |   |
| Total                        |       | $                                             | 137,139    |                                        | $          | 187,116 |   | $ | 271,986 |   | $ | 371,850 |   |

 

*Cost of sales and Gross profit*

 
| ** **                                 | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended  June 30,** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**                         | ** ** | **2010**                                      | ** ** | **2009**                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
| Cost of sales                              |       | $                                             | 105,457    |                                        | $          | 161,403 |   | $ | 214,915 |   | $ | 309,235 |   |
| Gross profit                               |       | $                                             | 31,682     |                                        | $          | 25,713 |   | $ | 57,071 |   | $ | 62,615 |   |
| Gross profit as a  percentage of net sales |       | 23.1                                          | %          | 13.7                                        | %          | 21.0 | % | 16.8 | % |

 

The gross profit percentage increased by 9.4and 4.2 percentage points for the three and six months ended June 30, 2010over the comparative 2009 periods.  Thethree month increase was primarily due to increased revenue as a result ofimproving program cost management and the ability to negotiate various contractmodifications on work previously performed ($3.6 million), the recovery ofpreviously written-off receivables and inventory ($0.8 million), and an accrualreversal related to an expected contract loss ($0.7 million) which all occurredin the three months ended June 30, 2010. Additionally, this three monthincrease was due to a lower than normal gross profit percentage as of June 30,2009, which was due to costs incurred on the Cheetah vehicle submitted for the MRAP All TerrainVehicle (M-ATV) competition and manufacturing costsassociated with fewer vehicles produced during the second quarter of 2009,partially offset with a $2.1 million reduction of definitization reserve. Thesesecond quarter 2010 and 2009 transactions also primarily contributed to theincreased gross profit percentage for the six months of 2010 as compared to2009, partially offset by manufacturing-related costs associated with fewervehicles and lower pricing on a limited number of Buffalo vehicles sold during2010 as compared to 2009.

 

*General and administrative expenses*

* *
| ** **                           | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended  June 30,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**                   | ** ** | **2010**                                      | ** ** | **2009**                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
| General and administrative  expenses |       | $                                             | 19,124     |                                        | $          | 20,172 |   | $ | 37,864 |   | $ | 41,023 |   |
| As a percentage of net  sales        |       | 13.9                                          | %          | 10.8                                        | %          | 13.9 | % | 11.0 | % |
|                                      |            |                                               |            |                                             |            |  |  |  |  |  |  |  |  |

 

Generaland administrative expenses decreased $1.0 million and $3.2 million for thethree and six months ended June 30, 2010, from the comparable 2009periods.  The $3.2 million decrease forthe six months ended June 30, 2010 from the comparative 2009 period isprimarily due to $3.2 million of 2006 re-audit costs incurred during the firstquarter of 2009, $0.7 million impairment for certain custom machines incurredduring the second quarter of 2009, lower accounting and auditing fees ($1.3million), lower consulting fees ($0.6 million) and lower legal fees ($1.8million), partially offset by increased costs for business development ($2.6million), strategy ($0.8 million), depreciation ($1.2 million), and Europeanoperations ($1.1 million).  All othergeneral and administrative expenses, net, decreased $1.3 million for the sixmonths ended June 30, 2010 compared to 2009.

 

*Research and development expenses*

* *
| ** **                         | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended  June 30,** | ** ** |
|------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**                 | ** ** | **2010**                                      | ** ** | **2009**                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
| Research and development  expenses |       | $                                             | 5,284      |                                        | $          | 4,892 |   | $ | 10,131 |   | $ | 9,497 |   |
| As a percentage of net  sales      |       | 3.9                                           | %          | 2.6                                         | %          | 3.7 | % | 2.6 | % |
|                                    |            |                                               |            |                                             |            |  |  |  |  |  |  |  |  |

 

Researchand development expenses increased by $0.4 million and $0.6 million for thethree and six months ended June 30, 2010, over the comparable 2009periods.  Total expenses incurred for thethree and six months ended 

 

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June 30,2010 were for the Ocelot and other vehicle development programs, survivabilityenhancements for currently fielded vehicles and armor developmentactivities.  Total expenses incurred forthe three and six months ended June 30, 2009 were for the M-ATVprototypes.

 

*Other income (expense), net*

* *
| ** **                    | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended  June 30,** | ** ** |
|-------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**            | ** ** | **2010**                                      | ** ** | **2009**                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
| Other income (expense),  net  |       | $                                             | 189        |                                        | $          | (133 | ) | $ | 262 |   | $ | (195 | ) |
| As a percentage of net  sales |       | 0.1                                           | %          | -0.1                                        | %          | 0.1 | % | -0.1 | % |
|                               |            |                                               |            |                                             |            |  |  |  |  |  |  |  |  |

 

Otherincome (expense), net increased in the three and six months ended June 30,2010, as compared to the same periods for 2009, primarily due to the $0.1million gain on our joint venture, Integrated Survivability TechnologiesLimited (IST), for the three and six months ended June 30, 2010 comparedto a $0.3 million and $0.5 million loss for the same periods in 2009.

 

*Interest (expense) income, net*

* *
| ** **                      | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended June 30,** | ** ** |
|---------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------|------------|
| **(in thousands)**              | ** ** | **2010**                                      | ** ** | **2009**                                   | ** ** | **2010** | ** ** | **2009** | ** ** |
| Interest (expense) income,  net |       | $                                             | (62        | )                                          | $          | 103 |   | $ | (194 | ) | $ | (33 | ) |
| As a percentage of net  sales   |       | 0.0                                           | %          | 0.1                                        | %          | -0.1 | % | 0.0 | % |
|                                 |            |                                               |            |                                            |            |  |  |  |  |  |  |  |  |

 

Interest(expense) income, net was relatively flat for the three and six months ended June 30,2010, as compared to the same periods for 2009.

 

*Income tax expense*

 
| ** **                    | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended  June 30,** | ** ** |
|-------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**            | ** ** | **2010**                                      | ** ** | **2009**                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
| Income tax expense            |       | $                                             | 2,624      |                                        | $          | 178 |   | $ | 3,231 |   | $ | 4,050 |   |
| As a percentage of net  sales |       | 1.9                                           | %          | 0.1                                         | %          | 1.2 | % | 1.1 | % |
|                               |            |                                               |            |                                             |            |  |  |  |  |  |  |  |  |

 

Incometax expense increased $2.4 million for the three months ended June 30,2010, from the comparable 2009 period primarily because of higher effective taxrates and increased profits resulting from higher revenues.  Conversely, income tax expense decreased $0.8million for the six months ended June 30, 2010, from the comparable 2009period primarily because of lower profits resulting from reduced salesvolumes.  The effective income tax ratesfor the three and six months ended June 30, 2010 were approximately 36%and 35%, compared to the effective income tax rates of approximately 29% and34% for the comparable 2009 periods.  SeeNote 5, *Income Taxes*, in theaccompanying unaudited condensed consolidated financial statements.

 

*Net income*

* *
| ** **                                    | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended  June 30,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands, except per share  amounts)** | ** ** | **2010**                                      | ** ** | **2009**                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net income                                    |       | $                                             | 4,777      |                                        | $          | 441 |   | $ | 5,913 |   | $ | 7,817 |   |
| Diluted earnings per share                    |       | $                                             | 0.07       |                                        | $          | 0.01 |   | $ | 0.08 |   | $ | 0.11 |   |

 

Netincome for the three months ended June 30, 2010 increased $4.3 millioncompared to the same period for 2009 primarily due to an increase in profitsresulting from increased revenue as a result of improving program cost managementand the ability to negotiate various contract modifications on work previouslyperformed ($3.6 million), the recovery of previously written-off receivablesand inventory ($0.8 million), and an accrual reversal related to an expectedcontract loss ($0.7 million) in the second quarter of 2010. These actionsresulted in both higher gross margins and net income for the three and sixmonths ended June 30, 2010.  Netincome for the six months ended June 30, 2010 decreased $1.9 millioncompared to the same period for 2009 primarily due to a decrease in profitsresulting from reduced sales volume, which was partially offset with the highernet income from improving program cost management and the ability to negotiatevarious contracts on work previously performed, the recovery of previouslywritten-off receivables and inventory, and an accrual reversal related to anexpected 

 

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contractloss.

 

*Backlog*

 

Thefollowing table sets forth the number of vehicles included in our backlog as ofJune 30, 2010 and 2009.  The backlogshown in the following table is “funded” backlog, meaning that it reflectsvehicles for which we have received orders and for which funding has beenappropriated and authorized for expenditure by the applicable customer.  We cannot assure that we will deliver or sellall of the vehicles included in our backlog. See Part I, Item 1A,Risk Factors, included in our Annual Report on Form 10-K for the yearended December 31, 2009.

 
| ** **                   | ** ** | **Vehicle Funded Backlog** | ** ** |
|------------------------------|------------|----------------------------|------------|
| ** **                   | ** ** | **as of June 30,**    | ** ** |
| ** **                   | ** ** | **2010**                   | ** ** | **2009** | ** ** |
| Buffalo                      |       | 73                         |       | 54 |   |
| Wolfhound                    |       | 4                          |       | 94 |   |
| Cougar (all other  variants) |       | 30                         |       | 13 |   |
| Total                        |       | 107                        |       | 161 |   |

 

On July 23,2010, we were awarded a contract with the Commonwealth of Australia, Departmentof Defense for the delivery of 2 Ocelot prototypes and deliverables.  The contract has a not-to-exceed amount of$9.9 million Australian dollars.

 

On July 30,2010, we received a contract modification from the U.S. Marine Corps SystemsCommand for the delivery of 27 Mastiff vehicles under the Foreign MilitarySales Program.  The contract has anapproximate value of $14.1 million, which is subject to definitization.

 

**Liquidity and Capital Resources**

 

Ourliquidity and available capital resources are impacted by operating, financingand investing activities.  Our principal sources of liquidity are cash onhand and cash from operations, primarily from contracts with the U.S.government.

 

*Sources and Uses of Cash*

 

Duringthe past several years, our cash requirements have been met primarily throughcash flow provided by operations; and our funds have been used primarily tofund working capital requirements and make capital expenditures.  The following chart shows the cash flowsprovided by or used in operating, investing, and financing activities for thesix months ended June 30, 2010 and 2009:

 
| ** **                                           | ** ** | **For the six months ended  June 30,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**                              | ** ** | **2010**                                    | ** ** | **2009** | ** ** |
| Net cash (used in)  provided by operating activities |       | $                                           | (20,184    | ) | $ | 18,341 |   |
| Net cash used in investing  activities               |       | (6,207                                      | )          | (17,436 | ) |
| Net cash provided by (used  in) financing activities |       | 29                                          |       | (91 | ) |
| Effect of exchange rate  changes on cash             |       | (126                                        | )          | — |   |
| (Decrease) increase in  cash and cash equivalents    |       | $                                           | (26,488    | ) | $ | 814 |   |

 

Asof June 30, 2010, we had $120.8 million of cash and cash equivalents, adecrease from $147.3 million as of December 31, 2009, and an increase from$111.8 million at June 30, 2009.

 

*Cash Flows from Operating Activities*

 

Cashflows from operating activities decreased by $38.5 million during the first sixmonths of 2010, compared with the first six months of 2009.  The decrease resulted from a reduction in netincome and unfavorable net changes in operating assets and liabilities duringthe first half of 2010, compared to the same period for 2009.

 

Beloware the significant changes in operating assets and liabilities for the firstsix months of 2010:

 

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Increases to *Cash Flows from OperatingActivities*:

 

·                  anincrease in advance payments on contracts of $2.2 million primarily resultingfrom customer payments received on our contract for ISS kits as of June 30,2010 compared to December 31, 2009.

 

Decreases to *Cash Flows from OperatingActivities*:

 

·                  anincrease in accounts receivable of $4.1 million primarily resulting from anincrease in the earned and unbilled accounts receivable balance due toincreased sales under not-to-exceed undefinitized contracts, whereby we cannotfully bill until the contracts are definitized although the products have beendelivered, partially offset by lower net sales during the three months ended June 30,2010 compared to the three months ended December 31, 2009,

 

·                  adecrease in accounts payable of $26.7 million, primarily due to a reduction inour field service representative accrual, other accounts payable accrualreductions and payments to suppliers, all resulting in decreased obligations atJune 30, 2010 compared to December 31, 2009 due to lower workingcapital needs as a result of lower sales during the three months ended June 30,2010 as compared to three months ended December 31, 2009,

 

·                  adecrease in other liabilities of $6.1 million primarily due to a decrease inincome taxes payable and compensation-related liabilities resulting frompayments made during the first half of 2010, partially offset with an increasein accruals for Force Protection Europe at June 30, 2010 compared to December 31,2009, and

 

·                  adecrease in due to U.S. government of $2.8 million primarily due to decreaseddefinitization reserve requirements for spares, partially offset by anincreased reserve for Buffalo, U.K. Mastiffs and Wolfhounds as of June 30,2010 compared to December 31, 2009.

 

*Cash Flows from Investing Activities*

 

Cash used in investing activities decreased by $11.2million during the first six months of 2010 compared with the first six monthsof 2009 primarily due to the $10.0 million investment in marketable securities consistingof held-to-maturity (180-day) treasury bills and the $2.1 million investment inIST, our joint venture with NP Aerospace, which both occurred in 2009.  These decreases were partially offset by $1.2million for the purchase of JAMMA assets, which occurred in the second quarterof 2010.

 

*Cash Flows from Financing Activities*

 

Cash flows from financing activities were relativelyflat during the first six months of 2010 compared with the first six months of2009 due to minimal stock option exercises and a minimal change in otherlong-term liabilities.

 

*Current Liquidity and Capital Resources*

 

Our cash and cash equivalents as of June 30, 2010were held for working capital purposes and were invested primarily inshort-term United States Treasury bills. We do not enter into investments for trading or speculative purposes.

 

We have not had any significant capital expendituresfor manufacturing since 2008.  During2009, capital expenditures were $11.2 million, mostly due to upgrades of ourinformation technology infrastructure as well as leasehold improvements.  During the first six months of 2010, capitalexpenditures were $5.0 million primarily due to outlays made for certain leaseholdimprovements and a demonstration vehicle. We do not expect any significant changes to capital expenditures in 2010as compared to 2009.

 

The amount of capital that we will require depends onseveral factors, including without limitation, the extent and timing of salesof our products and services, performance-based payments, inventory costs,costs of raw materials and components, labor costs, costs of improving ourfinancial and accounting systems, the timing and costs associated with anyexpansion of our manufacturing, development, engineering and customer supportcapabilities, the timing and cost of our product development and enhancementactivities and our operating results.  Wecurrently estimate that our cash flow will be sufficient to meet our presentlybudgeted capital expenditures and our other presently anticipated cash needsfor the year ending December 31, 2010. In addition, we have available to us a $40 million line of credit,which expires on April 30, 2012. Furthermore, we can designate up to $5 million for letters of creditagainst the $40 million line of credit. As of July 23, 2010, we obtained a letter of credit in the 

 

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amountof $2.9 million ($3.3 million Australian dollars) for the performance of ourobligations under a contract for the PMV-L vehicle program, which lowered theavailability under the line of credit to approximately $37.1 million.  We may need to obtain additional sources ofcapital to meet our future cash needs, which may include borrowings or theissuance of debt or equity securities, including common stock, and there can beno assurance that such financing will be available to us when we need it or, ifavailable, that the terms of any such financing will be satisfactory to us andnot dilutive to our shareholders.  Anyfailure to obtain necessary capital as and when required could have a materialadverse effect on our business, prospects, financial position, results ofoperations and cash flows.

 

**Off-Balance Sheet Arrangements**

 

In accordance with the definition under SECrules and regulations, the following qualify as off-balance sheetarrangements:

 

·                  anyobligation under certain guarantees or contracts,

 

·                  aretained or contingent interest in assets transferred to an unconsolidatedentity or similar entity or similar arrangement that serves as credit,liquidity, or market risk support to that entity for such assets,

 

·                  anyobligation under certain derivative instruments, and

 

·                  anyobligation under a material variable interest held by the registrant in anunconsolidated entity that provides financing, liquidity, market risk, orcredit risk support to the registrant, or engages in leasing, hedging, orresearch and development services with the registrant.

 

The following discussion addresses each of the aboveitems for the Company.

 

As of June 30, 2010, we did not have anyobligation under certain guarantees or contracts as defined above.

 

As of June 30, 2010, we did not have any retainedor contingent interest in assets as defined above.

 

As of June 30, 2010, we did not hold derivativefinancial instruments, as defined by FASB ASC Topic 815, “*Derivativesand Hedging*.”

 

As of June 30, 2010, we did not participate intransactions that generate relationships with unconsolidated entities orfinancial partnerships, such as entities often referred to as structuredfinance or special purpose entities (SPEs), which would have been establishedfor the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes. As of June 30, 2010 and December 31, 2009, we were notinvolved in any unconsolidated SPE transactions.

 

**Contractual Obligations**

 

We have future obligations under various contractsrelating to debt and interest payments, operating leases, and purchaseobligations.  During the six months ended June 30, 2010, there wereno significant changes to these obligations as reported in our Annual Report onForm 10-K for the year ended December 31, 2009, except that ourpurchase obligations increased to $204.5 million as of June 30, 2010, from$68.2 million as of December 31, 2009. The increase in purchase obligations as of June 30, 2010 wasprimarily due to new purchase orders related to modernization sales andengineering services.

 

**Critical Accounting Policies and Estimates**

 

For the quarterly period ended June 30, 2010,there were no significant changes in critical accounting policies and estimatesfrom those disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2009 filed with the SEC on March 8, 2010.

 

**New Accounting Pronouncements**

 

See Note 1, *Summary of SignificantAccounting Policies*, to the condensed consolidated financialstatements for a description of the new accounting standards that areapplicable to us.

 

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**Item 3. Quantitative and QualitativeDisclosures About Market Risk**

 

**Commodity Prices**

 

We are exposed to market risk from changes incommodity prices.  If the price of steelincreases significantly, the cost of our products could increase. It is unlikelywe will be able to pass on this cost under our current contracts.  As a result, if the cost of our raw materialsincreases, our profitability, if any, could decrease.

 

We buy and stock key steelmaterials at competitive current prices, based on projected trends of steelsurcharge movement.  Additionally, we addannual escalations and adjust prices for extraordinary circumstances to allsteel long-term contracts.  In cases wheresubcontractors purchase steel directly, we mirror supplier terms and conditionsto customer terms and conditions to mitigate commodity risks.

 

**Foreign Currency**

 

The majority of our business is denominated in U.S.dollars and as such, movement in the foreign currency markets will have aminimal direct impact on our business.

 

**Interest Rates**

 

Although our current financing arrangement is at avariable rate, we do not have any borrowings under our $40 million line ofcredit.  On July 23, 2010, we obtained a letter of credit in theamount of $2.9 million ($3.3 million Australian dollars) for the performance ofour obligations under a contract for the PMV-L vehicle program, which loweredthe availability under the line of credit to approximately $37.1 million.  We currently are not directly at risk ofinterest rate fluctuations.  As our financingneeds change in the future, interest rate risk may become a more significantissue for us.

 

Currently, we do not use any derivative financialinstruments for the purpose of reducing our exposure to adverse fluctuations ininterest rates, foreign currency exchange, or commodity prices.  We are not a party to leveraged derivativesnor do we hold or issue financial investments for speculative purposes.

 

**Item 4. Controls and Procedures**

 

**Evaluation of Disclosure Controls and Procedures**

 

Disclosure controls and procedures are controls andother procedures that are designed to provide reasonable assurance that theinformation required to be disclosed in reports filed or submitted under theExchange Act, is recorded, processed, summarized and reported within thetime periods specified in the rules and forms of the SEC and accumulatedand communicated to management, including the chief executive officer and chieffinancial officer, as appropriate to allow timely decisions regarding requireddisclosure.

 

Our management, at the direction of our chiefexecutive officer (our principal executive officer)  and chief financial officer (our principalfinancial officer), performed an evaluation of the effectiveness and design ofour disclosure controls and procedures (as defined in Rule 13a-15(e) andRule 15d-15(e) under the Exchange Act), as of June 30,2010.  Based on this evaluation, ourchief executive officer and chief financial officer concluded that, as of June 30,2010, Force Protection’s disclosure controls and procedures were effective.

 

**Changesin Internal Control over Financial Reporting**

 

There were no changes in our internal control overfinancial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) underthe Exchange Act) that occurred during the quarter ended June 30, 2010,that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

 

The effectiveness of Force Protection’s or any systemof disclosure controls and procedures and internal control over financialreporting is subject to certain limitations, including the exercise of judgmentin designing, implementing, and evaluating the controls and procedures, theassumptions used in identifying the likelihood of future events, and the inabilityto eliminate misconduct completely.  As aresult, our disclosure controls and procedures and internal control overfinancial reporting may not prevent all errors or improper acts or ensure thatall material information will be made known to appropriate management in atimely fashion.

 

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**PART II.OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

**Shareholder Class Action and DerivativeActions**

 

On March 10, 2008, the first of ten related classaction lawsuits was filed against us and certain of our former and currentdirectors or officers in the United States District Court for the District ofSouth Carolina, Charleston Division, on behalf of a purported class ofinvestors who purchased or otherwise acquired our stock during the periodbetween August 14, 2006, and February 29, 2008.  The complaints seek class certification, andthe allegations include, but are not limited to, allegations that thedefendants violated the Securities Exchange Act of 1934 and made false ormisleading public statements and/or omissions concerning our business, internalcontrols, and financial results.  Theindividual class action lawsuits were consolidated on June 10, 2008, underthe caption *In Re Force Protection, Inc. SecuritiesLitigation*, Action No. 2:08-cv-845-CWH.  On September 29, 2009, the court deniedthe defendants’ motion to dismiss the plaintiffs’ consolidated complaint, andthe parties are engaging in discovery.

 

Between March 27, 2008 and May 28, 2008, aseries of shareholder derivative actions were filed in both state and federalcourts against certain of our former and current directors and officersalleging that the individual defendants breached fiduciary duties, abusedcontrol, engaged in gross mismanagement and wasted corporate assets and wereunjustly enriched.  Recovery is soughtfor the benefit of the Company, which has been named a nominal defendant ineach derivative action.  The state courtactions pending in South Carolina were consolidated on May 18, 2009.  Defendants’ motions to dismiss each of thestate court derivative actions were denied, and the parties are engaging indiscovery.  Four derivative lawsuitspending in the United States District Court for the District of South Carolina,Charleston Division, were consolidated on March 31,2009, under the caption *In Re Force Protection, Inc. Derivative Litigation*, Action No. 2:08-cv-01907-CWH.

 

**Other Disputes**

 

We have received a total of 78 complaints over thelast three years from current and former employees filed with the United StatesEqual Employment Opportunity Commission alleging, among other things, raceand/or gender discrimination.  We haveresponded to the complaints as such responses have become due, and haveinvestigated the allegations.

 

On June 26, 2009, a temporary independentcontractor whose services we had terminated in 2007 filed a complaint againstthe Company in the United States District Court for the District of SouthCarolina, Charleston Division as Civil Action No. 2:09cv1708-DCN-BM, whichalleges a violation under the employee protection provisions ofSection 806 of the Corporate and Criminal Fraud Accountability Act of2002, Title VIII of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1514A.  The former independent contractor allegesthat we terminated his engagement in retaliation for his allegation of certaincorporate governance, government contracting, accounting and otherirregularities.  On March 12, 2010,we filed motions to dismiss certain claims in the plaintiff’s complaint.

 

Although we intend to defend ourselves in connectionwith the foregoing legal proceedings and claims, there can be no assurance thatwe will ultimately prevail in any of these matters. Moreover, the defense ofthese claims and proceedings may result in substantial legal expenses anddiversion of our management, and any settlement or adverse judgment may requireus to make substantial payments, any of which could have a material adverseeffect on our business or financial position, results of operations, or cashflows.

 

In addition, compliance with the directives of the Directorate of Defense Trade Controls(DDTC) may result in substantial expenses and diversion of management.  Any failure to adequately address thedirectives of DDTC could result in civil fines or suspension or loss of ourexport privileges, any of which could have a material adverse effect on ourbusiness or financial position, results of operations, or cash flows. TheCompany does not have any outstanding matters with the DDTC.

 

We are also a party to other litigation which weconsider routine and incidental to our business.  We may be involved from time to time in otherlitigation that could have a material effect on our operations orfinances.  Other than the litigationdescribed above, we are not aware of any pending or threatened litigationagainst us that could have a material adverse effect on our business orfinancial position, results of operations, or cash flows.

 

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**Item 1A. Risk Factors**

 

In addition to the risk factors set forth below andother information set forth in this Quarterly Report on Form 10-Q, youshould carefully consider the risk factors discussed in Part I, “Item 1A.Risk Factors” in our Annual Report on Form 10-K for the year endedDecember 31, 2009 filed with the SEC on March 8, 2010, which couldmaterially affect our business, financial condition or future results. Therisks described in our Annual Report on Form 10-K and as described beloware not the only risks facing Force Protection. Additional risks and uncertainties not currently known to us or that wecurrently deem to be immaterial also may materially adversely affect ourbusiness, financial condition, operating results or cash flows.

 

**Presently, all of our contracts are on a fixed-price basis,which could subject us to losses if there are cost overruns.**

 

Undera fixed-price contract, we receive only the amount indicated in the contract,regardless of the actual cost to produce the goods.  While firmfixed-price contracts allow us to benefit from potential cost savings, theyalso expose us to the risk of cost overruns.  Also, many of the contractswe receive from the U.S. military are sole source with a “not-to-exceed” amountand are subject to “definitization,” meaning that the contract price is notagreed upon at contract inception.  If the estimates we use to calculatethe contract price are incorrect, the cost to perform the work proves to begreater than the price, or the definitized contract price is less than thecost, we could incur losses.  In addition, some of our contracts havespecific provisions relating to schedule and performance, which may result inpenalties for failure to perform.  Accordingly, there can be no assurancethat the actual prices we receive under contracts will not be substantiallyless than our estimates or costs, which would adversely affect our cash flows,our operating results and could result in losses.

 

**We may make acquisitions**, **which may pose risks to ourbusiness and dilute the ownership of our existing stockholders.**

 

We may enter into acquisitions in the future in aneffort to enhance shareholder value.  Wemay enter into such arrangements in the future in order to expand ourcapabilities, enter new markets, or increase our market share.  Acquisitions involve a certain amount ofrisks and uncertainties that could result in our not achieving expectedbenefits.  With respect to acquisitions,such risks include difficulties in integrating newly acquired businesses andoperations in an efficient and cost-effective manner; challenges in achievingexpected strategic objectives, cost savings and other benefits; the risk thatthe acquired businesses’ markets do not evolve as anticipated and that thetechnologies acquired do not prove to be those needed to be successful in thosemarkets; the risk that we pay a purchase price that exceeds what the futureresults of operations would have merited; and the potential loss of keyemployees of the acquired businesses.  Inaddition, unanticipated delays or difficulties in effecting acquisitions maydivert the attention of our management and resources from our existingoperations.  Future acquisitions by uscould also result in large and immediate write-offs or assumptions of debt andcontingent liabilities, any of which may have a material adverse effect on ourconsolidated financial position, results of operations, or cash flows.

 

**Item 2. Unregistered Sales of EquitySecurities and Use of Proceeds**

 

**Purchases of Equity Securities by the Issuer and AffiliatedPurchasers**

 

Thefollowing table sets forth purchases of our common stock for the three monthsended June 30, 2010:

 
| **Period**                               | ** ** | **(a) Total Number  of  Shares Purchased** | ** ** | **(b) Average  Price  Paid Per Share** | ** ** | **(c) Total Number of  Shares Purchased as  Part of Publicly  Announced  Plans or Programs** | ** ** | **(d)  Maximum  Number of Shares  that May Yet Be  Purchased  Under the  Plans or Programs** | ** ** |
|------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|
| April 1, 2010 - April 30, 2010 |       | 77,270                                          |       | $                                           | 6.07       |                                                                                                   | —     |                                                                                                   | —     |   |
|                                     |       |                                            |       |                                        |       |                                                                                                   |       |                                                                                                   |       |
| May 1, 2010 - May 31, 2010     |       | 1,617                                           |       | $                                           | 5.32       |                                                                                                   | —     |                                                                                                   | —     |   |

 

Pursuant to restricted stockaward agreements entered into in April and May of 2009 between ForceProtection, Inc. and 61employees of Force Protection, Inc., 232,427restricted shares became vested in April and May of 2010.   In order to comply with the minimumstatutory federal and state tax withholding including Social Security and 

 

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Medicare, certain of these employees surrendered78,887 of their vested shares to Force Protection, Inc. to satisfy thesewithholding obligations.

 

**Item 3. Defaults Upon SeniorSecurities**

 

None.

 

**Item 4. (Removed and Reserved)**

 

**Item 5. Other Information**

 

None.

 

**Item 6. Exhibits**

 

The following is an index ofthe exhibits included in this Quarterly Report on Form 10-Q.

 

**EXHIBIT INDEX**

 

In reviewing the agreements included asexhibits to this Quarterly Report on Form 10-Q, investors are remindedthat they are included to provide you with information regarding their termsand are not intended to provide any other factual or disclosure informationabout Force Protection or the other parties to the agreements.  Some of the agreements containrepresentations and warranties by each of the parties to the applicableagreement.  These representations andwarranties have been made solely for the benefit of the other parties to theapplicable agreement and:

 

·Should not in all instances be treated as categorical statements of fact, butrather as a way of allocating the risk to one of the parties if thosestatements prove to be inaccurate,

 

·Have been qualified by the disclosures that were made to the other party inconnection with the negotiation of the applicable agreement, which disclosuresare not necessarily reflected in the agreement,

 

· May applystandards of materiality in a way that is different from what may be viewed asmaterial to you or other investors, and

 

·Were made only as of the date of the applicable agreement or such other date ordates may be specified in the agreement and are subject to more recentdevelopments.

 

Accordingly, the representations and warrantiesmay not describe the actual state of affairs as of the date they were made orat any other time.  Additionalinformation about Force Protection, Inc. may be found elsewhere in thisQuarterly Report on Form 10-Q and Force Protection’s other public filings,which are available without charge on Force Protection, Inc.’s website at *www.forceprotection.net*.

 
| **NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                     |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                          |
| 2.1        |       | Agreement  and Plan of Merger, filed as Exhibit 2.1 to the Company’s Annual Report on  Form10-K filed September 15, 2008, is hereby  incorporated by reference.                                      |
|       |       |                                                                                                                                                                                                                |
| 3.1        |       | Restated  Articles of Incorporation, filed as Exhibit 3.1 to the Company’s  Quarterly Report onForm 10-K  filed May 11, 2009, is hereby incorporated by reference.                              |
|       |       |                                                                                                                                                                                                                |
| 3.2        |       | Certificate  of Amendment to Articles of Incorporation, filed as Exhibit 3.1 to the  Company’sCurrent Report on Form 8-K filed  November 26, 2008, is hereby incorporated by reference.         |
|       |       |                                                                                                                                                                                                                |
| 3.3        |       | Certificate  of Correction to Restated Articles of Incorporation, filed as  Exhibit 3.3 to theCompany’s  Quarterly Report on Form 10-Q filed May 11, 2009, is hereby  incorporated byreference. |

 

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| **NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                                                                                                                                           |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                |
| 3.4        |       | Second  Amended and Restated By-Laws of Force Protection, Inc., filed as  Exhibit 3.2 to theCompany’s  Current Report on Form 8-K filed November 26, 2008, is hereby  incorporated byreference.                                                                                                                                                                  |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.1       |       | Amendment  of Solicitation/Modification of Contract under Contract  No. M67854-07-D-5031 withthe United States Marine Corps Systems Command, dated April 2,  2010. † *                                                                                                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.2       |       | Third  Amended and Restated Loan Agreement by and among the Registrant, Force Protection  Technologies, Inc., Force Protection Industries, Inc. and Wells  Fargo Bank, National Association, dated as of April 29, 2010, filed as  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  April 30, 2010 is hereby incorporated by reference. |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.3       |       | Promissory  Note by the Registrant in favor of Wells Fargo Bank, National Association,  dated as of April 29, 2010, filed as Exhibit 10.2 to the Company’s  Current Report on Form 8-K filed April 30, 2010 is hereby  incorporated by reference.                                                                                                                |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.4       |       | Amendment  of Solicitation/Modification of Contract under Contract  No. W56HZV-08-C-0028 with the United States Army Tank-Automotive and  Armaments Command, dated May 4, 2010. † *                                                                                                                                                                                        |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.5       |       | Amendment  of Solicitation/Modification of Contract under Contract  No. M67854-07-D-5031 withthe U.S. Marine Corps Systems Command, dated June 4, 2010. † *                                                                                                                                                                                                                |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 31.1       |       | Certification  of the Chief Executive Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of2002.  †                                                                                                                                                                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 31.2       |       | Certification  of the Chief Financial Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of2002.  †                                                                                                                                                                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 32.1       |       | Certification  of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906of  the Sarbanes-Oxley Act of 2002. †                                                                                                                                                                                                                                    |

 

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(Exhibits marked with a (†) are filed electronicallyherewith.)

 

(Exhibits marked with one asterisk (*) have portionsof the exhibit omitted pursuant to a confidential treatment request. Thisinformation has been filed or will be filed separately with the Securities andExchange Commission.)

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
| ** **                 | * *   | **FORCE PROTECTION, INC.***(Registrant)* |
|----------------------------|------------|-----------------------------------------------|
| ** **                 | ** ** | ** **                                    | ** ** |
|                       |       |                                          |   |
| Date:  August 3, 2010 |       | By:                                           | /s/  MICHAEL MOODY |
| ** **                 | ** ** | ** **                                    | **Name:** | **Michael Moody** |
| ** **                 | ** ** | ** **                                    | **Title:** | **Chairman, Chief Executive Officer and****President** |
| ** **                 | ** ** | ** **                                    | ** ** | **(principal executive officer)** |
| ** **                 | ** ** | ** **                                    | ** ** | ** ** |
| ** **                 | ** ** | ** **                                    | ** ** | ** ** |
| Date:  August 3, 2010 |       | By:                                           | /s/  CHARLES MATHIS |
| ** **                 | ** ** | ** **                                    | **Name:** | **Charles Mathis** |
| ** **                 | ** ** | ** **                                    | **Title:** | **Chief Financial Officer** |
| ** **                 | ** ** | ** **                                    | ** ** | **(principal financial and accounting officer)** |

 

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