U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER: 0-22273
FORCE PROTECTION, INC.
(formerly Sonic Jet Performance, Inc.)
(Exact name of Registrant as specified in its charter)
Colorado 84-1383888
(State or jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
9801 Highway 78, Building No. 3, Ladson, South Carolina 29456
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (843) 740-7015
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) been subject to such filing requirements for the past 90 days.
Yes X No .
As of September 30, 2003, the Registrant had 114,727,992 shares
of common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X .
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
REORT ON REVIEW BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT 3
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2003 4
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 3. CONTROLS AND PROCEDURES 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
SIGNATURES 24
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCAL STATEMENTS.
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors
Force Protection, Inc. and Subsidiary
We have reviewed the accompanying consolidated balance sheet of Force
Protection, Inc., formerly Sonic Jet Performance, Inc., and Subsidiary
as of September 30, 2003, the related consolidated statements of
operations (for the three months and nine months ended September 30,
2003 and 2002), and the related statements of cash flows for the nine
months ended September 30, 2003 and 2002 included in the accompanying
Securities and Exchange Commission Form 10-QSB for the period ended
September 30, 2003. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the
financial statements as a whole. Accordingly, we do not express such
an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying financial statements for them
to be in conformity with accounting principles generally accepted in
the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the balance sheet as of
December 31, 2002, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then
ended (not presented herein). In our report dated April 6, 2003, we
expressed an unqualified opinion on those financial statements. In
our opinion, the information set forth in the accompanying balance
sheet as of September 30, 2003 is fairly stated in all material
respects in relation to the balance sheet from which it has been derived.
/s/ Michael Johnson & Co., LLC
Michael Johnson & Co., LLC
Denver, Colorado
November 12, 2003
FORCE PROTECTION, INC.
(formerly Sonic Jet Performance, Inc.)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
(Unaudited)
ASSETS:
Current Assets:
Cash $ 13,019
Accounts Receivable 522,453
Investment
Inventories 2,005,960
Other Current Assets 143,360
Total Current Assets 2,684,792
Property and Equipment, net 251,607
Other Assets:
Licensing Rights 100,000
Goodwill 1,434,873
Total Other Assets 1,534,873
Total Assets 4,471,272
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable 1,139,971
Accrued Payroll Taxes and Other 89,105
Reserves for Warranty and Restructuring 524,099
Deferred Revenue 1,095,876
Short-Term Loan 839,620
Current Portion of Capitalized Lease Obligations 58,610
Total Current Liabilities 3,747,281
Long-Term Liabilities: Cap. Lease (Net) and Other 195,867
Total Long-Term Liabilities 195,867
Total Liabilities 3,943,148
Stockholders' Equity:
Common, No Par Value, 300,000,000 Authorized,
114,727,992 Issued and Outstanding Shares 19,700,320
Shares Committed to be Issued 324,721
Preferred, No Par Value: -
Series B Convertible Preferred (10 shares issued and
outstanding) 25,000
Series C convertible preferred (44 shares issued and
outstanding) 434,000
Retained Earnings (16,382,535)
Current Income (Loss) (3,573,382)
Total Stockholders' Equity 528,124
Total Liabilities and Shareholders' Equity 4,471,272
See accompanying accountant's review report and notes to financial statements
FORCE PROTECTION, INC.
(formerly Sonic Jet Performance, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
Revenues $ 2,738,901 $ 1,192,241 $ 3,442,035 $ 1,554,874
Cost of Sales 1,861,614 814,025 2,698,051 1,023,639
Gross Profit 877,287 378,216 743,984 531,235
Operating Expenses:
Selling, General and Admin. Expenses 621,930 2,715,292 3,614,378 3,734,748
Total Operating Expenses 621,930 2,715,292 3,614,378 3,734,748
Loss From Operations 255,357 (2,337,076) (2,870,394) (3,203,513)
Restructuring Expense - - 514,499 -
Profit (loss) after Restructuring Expense 255,357 (2,337,076) (3,384,893) (3,203,513)
Other Income/Expense:
Other Income 16,869 197 (28,483) 31,623
Interest Expense (88,981) (9,466) (160,006) (6,254)
Total Other Income (Expense) (72,112) (9,269) (188,489) 25,370
Net Profit (Loss) 183,246 (2,346,345) (3,573,382) (3,178,143)
Basic Profit (Loss) Per Share 0.0017 (0.1058) (0.0367) (0.1432)
Diluted Profit (Loss) Per Shares 0.0012 (0.1058) (0.026) (0.1432)
Weighted average common shares outstanding:
Basic 109,885,783 22,186,505 97,542,491 22,186,505
Diluted 150,008,346 22,186,505 137,665,054 22,186,505
See accompanying accountant's review report and notes to financial statements
FORCE PROTECTION, INC.
(formerly Sonic Jet Performance, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ending
September 30,
2003 2002
Cash Flows From Operating Activities:
Net Loss $ (3,573,382) $ (3,178,142)
Depreciation and Amortization 138,546 111,053
Impaired Assets 1,087,500
Goodwill in Consolidation - (1,796,850)
Beneficial Interest on Warrants - 309,173
Provision for Inventory - 389,474
Common and Preferred Stock Issued
for Services/Termination 1,808,309 441,083
Stock for Settlement of Vendor Claim 210,000
Changes in Assets and Liabilities:
(Increase) in Accounts Receivable (356,210) (20,608)
(Increase) in Inventories (1,819,497) (538,160)
(Increase) Decrease in Other Assets 103,514 (476,050)
(Decrease) Increase in Accounts Payable 266,427 1,070,063
(Decrease) Increase in Payroll
Liabilities and Other 50,284 (23,458)
(Decrease) Increase in Accrued
Expenses & Deferred Revenue 1,095,876 218,046
(Decrease) Increase in Reserves (23,716) 751,280
Total Adjustments 1,473,532 1,522,546
Net Cash Used in Operating Activities (2,099,849) (1,655,596)
Cash Flow From Investing Activities:
Purchase of Equipment (53,650) (167,716)
Proceeds from Sale of Property and Equipment - -
Net Cash Provided By Investing Activities (53,650) (167,716)
Cash Flow From Financing Activities:
Net Proceeds from Issuance of Common Stock 1,299,900 878,552
Proceeds from Issuance of Preferred Stock (20,000) 290,000
Restricted Cash Realized 201,004
Long Term Liabilities (99,279) 198,793
Short Term Loans and Lease Obligations 841,423 443,741
Net Cash Provided By Financing Activities 2,022,044 2,012,090
Increase in Cash (131,455) 188,778
Beginning Balance 144,476 42,760
Ending Balance 13,020 231,538
See accompanying accountant's review report and notes to financial statements
FORCE PROTECTION, INC.
(formerly Sonic Jet Performance, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of Force Protection, Inc. and its
subsidiary, Technical Solutions Group, Inc. ("TSG") (collectively,
"Company"), the accompanying unaudited consolidated financial
statements include all normal adjustments considered necessary to
present fairly the financial position as of September 30, 2003, and
the results of operations for the three months and nine months ended
September 30, 2003 and 2002, and for cash flows for the nine months
ended September 30, 2003 and 2002. Interim results are not
necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as
permitted by Form 10-QSB, and do not contain certain information
included in the Company's audited consolidated financial statements
and notes for the fiscal year ended December 31, 2002.
NOTE 2 - FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant inter-company
balances, transactions, and stockholdings have been eliminated.
NOTE 3 - INVENTORIES
Inventories at September 30, 2003 consisted of the following:
Raw materials and supplies $322,875
Work in process 1,875,210
Finished Goods 120,906
Less: Provision (313,031)
Total Inventories $2,005,960
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2003 consisted of the following:
Furniture and fixtures $184,022
Machinery and equipment 421,680
Tooling - new products -
Design rights -
Vehicles 500
Demo vehicles 192,530
Less depreciation and
amortization (547,125)
Total property and equipment 251,607
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Leases.
On October 10, 2003, TSG entered into a lease agreement with Intertech
Group, Inc. to lease 86,000 square feet of manufacturing and
administrative space and transfer the Company's executive offices at
the end of October, 2003 to new facilities at 9801 Highway 78,
Building No. 3, Ladson, South Carolina. The term of the lease is five
years starting October 15, 2003, with an option to renew for another
five years. The space substantially increases the Company's ability
to qualify for and fulfill larger contracts for its mine-protected
vehicles. Annual rent is $215,000 for the first year plus utilities,
taxes and maintenance, and $258,000 base rental for the next four
years. The prior landlord has agreed to terminate its lease at the
Company's prior headquarters located at 2031 Avenue B, Building 44,
North Charleston, South Carolina, in exchange for payment of rent at
this prior facility through November 30, 2003.
The Company has terminated its month-to-month lease in Stanton,
California and transferred its headquarters to Ladson, South Carolina.
Additionally, the month-to-month warehouse lease in Riverside,
California was terminated with no penalty to the Company. The Company
has no remaining obligations under the terminations. The Company's
wholly owned subsidiary in China has been dissolved. The Company has
no ongoing obligations in Nanning, China.
Employment Agreements.
During the second quarter of 2003, the Company negotiated certain
changes in employment agreements with certain of its officers.
Under a previous agreement, dated June 20, 2002 and effective on July
1, 2002, the Company was to issue its CEO, Michael Watts, 2,000,000
restricted shares of common stock vesting immediately and delivered no
later than one-year from the date of this agreement. In addition, he
was to receive a warrant for 2,000,000 restricted shares of common
stock, exercisable at $0.07 per share, vesting on the first and second
anniversary dates of the agreement. Finally, he was to receive a
warrant to purchase 10 shares of Company Series C preferred stock or
its equivalent in Company common stock. These issuances were modified
to be grants, effective July 1, 2002, of 2,000,000 restricted shares
of common stock, plus a warrant for 1,000,000 restricted shares of
common stock at $0.07 a share vesting on June 20, 2003, plus a warrant
for 1,000,000 restricted shares of common stock vesting on June 20, 2004.
Garth Barrett is to receive a salary plus a grant of 10 shares of
series "C" preferred stock.
On April 1, 2003, the Company entered into an agreement with Frank
Kavanaugh, the Company's director of business development, for a
salary, and a grant of 500,000 restricted shares of the Company's
common stock. Also, during June 2003, Mr. Kavanaugh was granted
750,000 restricted shares of common stock that were committed in June
of 2002, for consulting services as interim general manager during the
second and third quarters of 2002.
In connection with the restructuring of the Company, it entered into a
verbal termination agreement with Madhava Rao Mankal in connection
with his prior employment agreement with the Company. The agreement
stipulates that he remain chief financial officer of the Company
until November 30, 2003 and then act as a consultant for the Company
until December 31, 2003 at the same salary, without benefits, and
receive a grant of 600,000 restricted shares of stock in September,
2003. On December 31, 2003 Mr. Mankal will be paid 90 days
termination based on his annual rate of salary of $64,800. In June
2003, Mr. Mankal received 200,000 restricted shares of common stock
for the first and second quarters of 2003 in connection with his
employment contract dated March 17, 2003, and in September 2003 he
received 600,000 restricted shares of common stock in connection with
his termination agreement.
During the third quarter of 2003, the Company also negotiated a
termination agreement with Hratch Khedesian, the Company's former
production manager. Mr. Khedesian received 660,000 restricted shares
of common stock in 2003 in connection with his employment contract
dated January 2, 2002 and termination agreement. In addition Mr.
Khedesian will receive future payments totaling $58,000 over the next
two years. Executive officer compensation is subject to review on a
periodic basis by the board of directors.
Acquisition of TSG International, Inc.
As part of the purchase of TSG International, Inc. (which owns 100% of
Technical Solutions Group, Inc.,) in July 2002 (see 2002 Form 10-KSB),
Ashford Capital, LLC, an advisor to the transaction and a shareholder
of the Company, received shares equal to 10% of TSG International,
Inc. in the form of a Series A preferred stock. An agreement was
reached in April of 2003 under which Ashford Capital, LLC could
exchange each shares of TSG International, Inc. Series A preferred
stock for 50 shares of the Company's Series C preferred shares, by
notifying the Company prior to October 15, 2003.
In September 2003, Ashford Capital, LLC and the Mr. Watts reached an
agreement under which the TSG Series A preferred shares and the rights
associated with the Series A preferred shares were purchased by Mr.
Watts in a private sale between the parties and the right to exchange
the shares was assigned to Mr.Watts by Ashford Capital LLC. On
October 12, 2003, the Company was notified of Mr. Watts' intention to
exercise his option to exchange his TSG International, Inc. preferred
stock for the Company's Series C preferred stock. Under the terms of
the agreement, Mr. Watts will exchange all his shares of TSG
International, Inc. stock for 50 shares of Company Series C preferred
stock effective October 15, 2003. As a result, the Company will hold
100% of TSG International, Inc.
Redemption of Series C Preferred Stock.
Under the terms of the Series C preferred stock, as reflected in an
amended Certificate of Designation, shareholders could redeem each
preferred share for $12,000 after a certain date. Under these terms,
Mr. Noriaki Sasaki notified the Company of his request to redeem 10
shares of the Series C preferred stock at a schedule to be provided by
the Company. The Company has agreed to a redemption schedule and has
redeemed 2 of the 10 shares. The remaining 8 shares should be
redeemed by January 2004. Subsequently, the remaining Series C
shareholders have waived the redemption rights in return for an
extension of the mandatory conversion dates (see 2002 Form 10-KSB).
Royalty/Licensing Agreements
On December 27, 2001, the Company entered into a new license agreement
covering the design and other rights, with Mardikian Marine Design, an
entity that includes two of the Company's larger shareholders, and a
principal of the holder of the Company's Series B preferred stock.
The Company paid all outstanding obligations under the agreement for
2002 in the first quarter of 2003; in addition the Company paid all
outstanding obligations under the agreement through June 2003. The
remaining obligation under the agreement remain in dispute and is the
subject of a claim by a member of Mardikian Marine Design and a
counter suit against a member of Mardikian Marine Design. One of the
principals of Mardikian Marine Design has informed the Company of his
intention to revoke the licensing agreement to the Company and has
filed a lawsuit against the Company (discussed in Part 2, Item 1 of
this Form 10-QSB).
NOTE 6 - STOCK COMPENSATION PLAN
On September 30, 2003, the Company adopted a Directors and Consultants
Retainer Stock Plan. A total of 5,000,000 shares can be issued under
this plan and were registered under a Form S-8 registration statement
filed with the Securities and Exchange Commission on November 7, 2003,
and declared effective on that date. The purposes of the plan are to
enable the Company to promote the interests of the Company and its
shareholders by attracting and retaining both employee and non-
employee directors and consultants by paying their retainer or fees in
the form of free trading shares of the Company's common stock. No
shares have yet been issued under this plan.
The Company's July 2000 Employee Stock Compensation Plan provides for
the granting of stock options to employees and certain consultants of
the Company. A total of 2,000,000 shares of common stock have been
reserved for issuance upon exercise of options granted under the plan.
Securities authorized for issuance under equity compensation plans:
Plan Category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available
exercise of outstanding options for future
outstanding options
Equity compensation plans (a) 1,987,829 (b) $0.11 (c) 12,171
approved by security holders
Equity compensation plans
not approved by security holders ________ ____ _____
Total: (a) 1,987,829 (b) $0.11 (c) 12,171
NOTE 7 - SALE OF ASSETS
Effective July 1, 2003 and modified on September 15, 2003, the Company
transferred the sales activity and right to use the Stanton,
California facility, and is obligated to transfer certain boat assets
of the fire and rescue operations to its subsidiary, Rockwell Power
Systems Inc. ("RPSI"), whose ownership the Company will control until
completion of certain obligations by the management and investors of
RPSI. In return, upon satisfaction by the investors in RPSI of
certain financial and business obligations of the aforementioned
agreement, the Company will control one third of the shares of RPSI.
The Company agreed to distribute the shares of RPSI to its
shareholders no later than December 15, 2003. In addition, upon a
successful merger or listing of RPSI on the Over the Counter Bulletin
Board or its successor, the Company intends to sell the bulk of
RPSI's remaining tangible and intangible assets associated with the
fire rescue business for $500,000 in preferred Series A stock of RPSI.
Finally, the parties agreed that RPSI has the option to purchase
certain remaining recreational boat business assets for "book value"
on March 1, 2004. The Company was notified by RPSI that a successful
merger with a listed company was achieved in October 2003 with Xtreme
Companies, which is listed on the OTCBB and that the payment to
complete the transaction would be made during the fourth quarter of 2003.
NOTE 8 - OTHER TRANSACTIONS
Rights of Series B and Series C Preferred Shareholders.
Under the original agreements for Series B and Series C preferred
shares, the conversion rights were extended to December 27, 2004 from
the previous mandatory conversion of December 27, 2003. The extension
was agreed to in exchange for waiving the time provisions for the
filing of the registration statement by the registrant.
Capital Stock Transactions.
During the three months ended September 30, 2003, two restricted
shares of Series C preferred stock were redeemed.
The Company issued to Scott Ervin, a director, as compensation in such
capacity, 250,000 restricted shares of common stock during the three
months ended September 30, 2003.
During the three months ended September 30, 2003, the Company also
issued the following restricted shares of common stock
(a) 10,000 shares of common stock to one employee for services
rendered to the company.
(b) A total of 424,836 shares of common stock to three companies
for services rendered in connection with the private offering below.
(c) 800,000 shares of common stock to the Company's president in
connection with the termination of his employment agreement with
the Company, and 660,000 shares of common stock to the Company's
former production manager in settlement of his employment
agreement with the Company.
(d) 375,000 shares of common stock to one individual for legal
services rendered to the company, a total of 250,000 shares of
common stock to one ex-employee in connection with services
rendered to the Company, and a total of 1,250,000 shares of
common stock to three individuals in connection with the
repayment of certain loans made to the Company.
During the three months ended September 30, 2003, the Company sold a
total of 2,245,000 and 25,924,000 restricted shares of common stock
and warrants, respectively, to investors pursuant to its private
placement memorandum, generating net proceeds of $88,981 and
$1,299,900 respectively, pursuant to the sale of common stock units.
Each common stock unit consists of (a) 50 restricted shares of common
stock of the Company, (b) one warrant to purchase 25 restricted shares
of common stock of the Company at an exercise price of $0.20 per
share, and (c) one warrant to purchase 25 restricted shares of common
stock, at an exercise price of $0.30 per share (which was subsequently
reduced to $0.01 per share) (which has been exercised).
Subsequent Event.
Not later than December 15, 2003, the Company intends to issue 50
shares of its Series C preferred stock to its CEO, Michael Watts, in
exchange for his shares of TSG International, Inc. Series A preferred
stock he currently owns. This transaction will make TSG
International, Inc. a 100% owned subsidiary of the Company. See Note
5, Acquisition of TSG International, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
financial statements of the Registrant and notes thereto contained
elsewhere in this report.
Results of Operations.
(a) Comparison of Three Months and Nine Months Ended September 30,
2003 and 2002.
The following table sets forth the Registrant's consolidated
statements of operations:
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
Revenues $ 2,738,901 $ 1,192,241 $ 3,442,035 $ 1,554,874
Cost of Sales 1,861,313 814,025 2,697,751 1,023,639
Gross Profit 877,588 378,216 744,284 531,235
Operating Expenses:
Selling, General and Administrative Expenses 621,930 2,715,292 3,614,378 3,734,748
Gain (Loss) from Operations 255,357 (2,337,076) (2,870,394) (3,203,513)
Restructuring Expense - - 514,499 -
Profit (Loss) after Restructuring Expense 255,357 (2,337,076) (3,384,893) (3,203,513)
Other Income/Loss
Other Income 16,869 197 (28,483) 31,623
Interest Expense (89,981) (9,466) (160,006) (6,254)
Total other Income (Expense) (72,112) (9,269) (188,489) 25,370
Net Profit (Loss) 183,246 (2,346,345) (3,573,382) (3,178,143)
In an effort to focus on Technical Solutions Group, Inc.'s
("TSG") mine protected vehicles and achieve profitable operations in
the third quarter, and as a result of the poor performance of the boat
division and the long lead times necessary to achieve success in that
business, the Registrant has, effective July 1, 2003, downsized and
transferred the fire and rescue operations to a subsidiary company,
Rockwell Power Systems, Inc. (See note 7, "Sale of Assets"). The
Registrant has set up adequate financial reserves for warranty
expenses on past sales and restructuring costs, and expects minimal
internal resources to be devoted to Rockwell.
(b) Revenue.
Net sales for the three and nine months ended September 30, 2003
increased by approximately $1,500,000 and $1,900,000, respectively,
compared to the three months and nine months ended September 30, 2002.
On June 30, 2002 the Registrant acquired TSG, whose sales for the
three-month and nine month periods ended September 30, 2003 were
approximately $2,600,000 and $3,300,000, respectively. The increase
in sales is attributable to TSG. Sales of boats actually declined for
the nine months compared to last year. TSG began shipping production
Buffalos under a U.S. Army contract in June of 2003, which contract
comprised over 90% of the sales of that division.
(c) Consolidated Operating Income.
Third quarter consolidated income was approximately $256,000 in
2003, compared to a loss of approximately $2,300,000 in 2002. The loss
for the nine months in 2003 decreased approximately 10% to
approximately $2,900,000 from approximately $3,200,000 in 2002. The
improvement in operations is due to the sales increase in the TSG
division and the downsizing of the boat operations.
(d) Segment Product Revenue and Operating Income (Loss).
The following table presents our segment revenue and operating
income in accordance with U.S. GAAP:
Revenue Operating Income (Loss)
3rd Qtr 9 Months 3rd Qtr 9 Months
Boats 118,537 152,750 5,483 (907,928)
TSG 2,620,364 3,289,285 369,541 (570,117)
Corporate (119,667) (1,392,349)
Consolidated 2,738,901 3,442,035 255,357 -2,870,394
(e) Cost of Sales.
Cost of sales for the three months and nine months ended
September 30, 2003 was approximately $1,000,000 and $1,700,000 higher
than the three months and nine months of 2002 respectively. Cost of
sales percent was 68% and 78% of sales for the three months and nine
months ended 2003 compared to approximately 78% and 66% for
comparative periods in 2002. The ten-percentage points decrease in
cost of sales in the 3rd quarter 2003 is the result of ramping up
production of Buffalos.
(f) Selling, General and Administrative Expenses.
Selling, general and administrative expenses decreased for the
three months ended September 30, 2003 from the corresponding period in
2002 by approximately $2,100,000. Last year the Registrant wrote-off
non-performing and obsolete assets, settled with vendors related to
the TSG purchase, and paid stock and cash for services incurred to
finance the businesses and attract consultants to help with
operations. For the nine months ended September 30, 2003, selling,
general and administrative expenses were substantially the same in
both years and reflected asset write downs, financing costs, outside
professional services, and grants of stock to employees
(g) Restructuring Expenses.
Restructuring expenses are related to writing down the boat
division assets to fair market value, direct expenses and employee
termination agreements involved with the reorganization, transfer of
the boat business, and the settling of liabilities related to the
purchase of TSG.
(h) Net Profit and Loss.
Net profit of $183,333 for three months ended September 30, 2003
compared to a loss of $2,346,345 in the corresponding period of 2002.
The turnaround in profit can be attributable to the government program
selling TSG's Buffalos to the Army. The loss for the nine months of
2003 compared to the equivalent period last year increased by
approximately $400,000. The increase is attributed to restructuring
expenses and an increase in interest expense, offset by 3rd quarter
profits from TSG.
(i) Operating Activities.
Operations for the three months were funded by factored sales.
For the nine months operations were primarily funded by combination of
sales from operations and funding activity (see Financing Activities).
(j) Investing Activities.
The Registrant's capital expenditures for the three months and
nine months ended September 30, 2003 were $31,182 and $64,964
respectively, related to investments in office and manufacturing
equipment. The Registrant anticipates that its capital expenditures
during the remainder of 2003 will increase because of improvements to
operating efficiencies, and relocation of the company's primary facilities.
(k) Financing Activities.
During the three months and nine months ended September 30, 2003,
the Company sold a total of 2,245,000 and 25,924,000 restricted shares
of common stock and warrants, respectively, to investors pursuant to
its private placement memorandum, generating net proceeds of $88,981
and $1,299,900, respectively pursuant to the sale of common stock
units. For details about this transaction, see Note 8 - Capital Stock
Transactions. The Registrant believes the issuance of the shares and
warrants was exempt from registration under the private placement
exemption available under Section 4(2) of the 1933 Securities Act.
On March 31, 2003, the Registrant began securing capital
commitments through the issuance of promissory notes. Under the
terms of the promissory notes, the loans are payable in six months
with 8% interest; however, at the end of the term the loan has an
option to convert into Series C preferred stock. As of June 30, 2003,
the Registrant had obtained $725,000 in capital from note holders for
2003. Of this amount, $50,000 was converted into series C preferred
stock. The terms of the remaining notes are being negotiated to be
extended and management anticipates that a significant portion will convert to
equity over the next six months.
TSG has entered into an agreement with GC Financial Service, Inc.
by which this firm may purchase from Registrant certain accounts
receivable and other rights, including without limitations, all liens,
security interest, warrants and guarantees to secure payments of the
accounts receivables. As of September 30, 2003 TSG had drawn
approximately $3,800,000 gross, all of which has been repaid at September 30,
2003.
On September 20, 2003, the registrant entered into an equity line
of credit agreement with Dutchess Capital Management LLC. Under this
agreement, Dutchess committed to purchase up to $3,500,000 of the
Registrant's restricted common stock over the course of 36 months,
after the date either free trading shares are deposited in an escrow
account or a registration statement of the stock has been declares
effective by the Securities and Exchange Commission. See Exhibit 4.9
to this Form 10-QSB. The amount that the Dutchess will be entitled to
request from each of the purchase "puts" will be equal to 200% of the
averaged daily volume ("ADV") multiplied by the average of the 3 daily
closing prices immediately preceding the put date. The ADV shall be
computed using the ten (10) trading days prior to the put date. The
purchase price will be the 93% of the market price, which is defined
as the average of the lowest closing bid price of the common stock
during the pricing period (which is the 5 consecutive trading days
immediately after the put date).
Liquidity and Capital Resources.
As of September 30, 2003, cash and cash equivalents were
approximately $13,000 compared to approximately $144,000 as of
December 31, 2002. The Registrant has raised net proceeds of
approximately $88,981 and $1,299,900 through a private placement
during the three and nine months ended September 30, 2003,
respectively. The Registrant's principal sources of capital have been
cash flow from its operations, the sale of common stock, promissory
notes mentioned in financing activities, and borrowings from G.C.
Financial Services. Based on its current operating plan, the
Registrant anticipates that additional financing will be required to
finance growth in operations and capital expenditures, possibly in
2003 and definitely in 2004.
Presently, the Registrant is generating sufficient revenue to
cover expenses and hire employees. However, the Registrant's future
liquidity will depend on its ability to obtain necessary financing
from outside sources.
The Registrant's currently anticipated levels of revenues and
cash flow are subject to many uncertainties and cannot be assured. The
amount of funds required by the Registrant will depend upon many
factors, including without limitation, the extent and timing of sales
of the Registrant's products, future inventory costs, the timing and
costs associated with the establishment and/or expansion, as
appropriate, of the Registrant's manufacturing, development,
engineering and customer support capabilities, the timing and cost of
the company's product development and enhancement activities and the
company's operating results. Until the Registrant generates cash flow
from operations that will be sufficient to satisfy its cash
requirements, the company will continue to seek alternative means for
financing its operations and capital expenditures and/or postpone or
eliminate certain investments or expenditures. Potential alternative
means for financing may include leasing capital equipment, obtaining a
line of credit, or obtaining additional debt or equity financing.
There can be no assurance that, if and when needed, additional
financing will be available, or available on acceptable terms. The
inability to obtain additional financing or generate sufficient cash
from operations could require the Registrant to reduce or eliminate
expenditures for capital equipment, research and development,
production or marketing of its products, or otherwise curtail or
discontinue its operations, which could have a material adverse effect
on the Registrant's business, financial condition and results of
operations. Furthermore, if the Registrant raises funds through the
sale of additional equity securities, the common stock currently
outstanding may be further diluted.
Inflation.
The Registrant does not believe that inflation has had or is likely to
have any significant impact on its operations.
Critical Accounting Policies.
The Securities and Exchange Commission has issued Financial
Reporting release No. 60, "Cautionary Advice Regarding Disclosure
About Critical Accounting Policies" ("FRR 60"), suggesting companies
provide additional disclosure and commentary on their most critical
accounting policies. In FRR 60, the SEC defined the most critical
accounting policies as the ones that are most important to the
portrayal of a company's financial condition and operating results,
and require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters
that are inherently uncertain. Based on this definition, the
Registrant's most critical accounting policies include: non-cash
compensation valuation that affects the total expenses reported in the
current period. The methods, estimates and judgments the Registrant
uses in applying these most critical accounting policies have a
significant impact on the results the Registrant reports in its
financial statements.
Forward Looking Statements.
The foregoing management's discussion and analysis of financial
condition and results of operations contains "forward looking
statements" within the meaning of Rule 175 of the Securities Act of
1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as
amended, including statements regarding, among other items, the
Registrant's business strategies, continued growth in the Registrant's
markets, projections, and anticipated trends in the Registrant's
business and the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. These forward-
looking statements are based largely on the Registrant's expectations
and are subject to a number of risks and uncertainties, certain of
which are beyond the Registrant's control. The Registrant cautions
that these statements are further qualified by important factors that
could cause actual results to differ materially from those in the
forward looking statements, including, among others, the following:
reduced or lack of increase in demand for the Registrant's products,
competitive pricing pressures, changes in the market price of
ingredients used in the Registrant's products and the level of
expenses incurred in the Registrant's operations. In light of these
risks and uncertainties, there can be no assurance that the forward-
looking information contained herein will in fact transpire or prove
to be accurate. The Registrant disclaims any intent or obligation to
update "forward looking statements."
ITEM 3. CONTROLS AND PROCEDURES.
Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
Within the 90 days prior to the end of the period covered by this
report, the Registrant carried out an evaluation of the effectiveness
of the design and operation of its disclosure controls and procedures
pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
("Exchange Act"). This evaluation was done under the supervision and
with the participation of the Registrant's president and chief
financial officer. Based upon that evaluation, they concluded that
the Registrant's disclosure controls and procedures are effective in
gathering, analyzing and disclosing information needed to satisfy the
Registrant's disclosure obligations under the Exchange Act.
(b) Changes in internal controls.
The most significant changes in the Registrant's internal
controls or in its factors that could significantly affect those
controls was the addition of a chief executive officer and the
issuance of an authorization procedure for commitment of resources.
PART II B OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 26, 2003 Albert Mardikian, a major company shareholder
and patent holder of certain designs and components of the
Registrant's boats, filed a complaint against the Registrant in the
Orange Country Superior Court. The complaint alleges breach of
contract of the license agreement dated December 27, 2001 between Mr.
Mardikian, Mardikian Marine Design, and the Registrant. The complaint
further alleges breach of an employment and agency agreement between
the Registrant and Mr. Mardikian, and fraud, conversion and unfair
competition. The Registrant has filed an answer denying these
allegations, and on July 28, 2003 filed a cross-complaint against Mr.
Mardikian and Mardikian Marine Design. While the Registrant's
management believes that the matter will be resolved in its favor,
this case is in the early stages of litigation and there can be no
assurance as to the outcome of the lawsuit. Litigation is subject to
inherent uncertainties, and unfavorable rulings could occur. Were
unfavorable rulings to occur, there exists the possibility of a
material adverse impact of money damages on the Registrant's financial
condition, results of operations, or liquidity of the period in which
the ruling occurs, or future periods.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The Registrant sold the following unregistered (restricted)
securities during the quarter ended September 30, 2003:
(a) On July 15, 2003 and August 11, 2003, the Registrant issued
a total of 126,123 shares of common stock to one company for services
rendered in connection with the private offering discussed above
valued at $12,613 ($0.10 per share).
(b) On July 31, 2003, the Registrant issued 10,000 shares of
common stock to one employee for services rendered to the company
valued at $700 ($0.07 per share).
(c) On August 11, 2003 and August 18, 2003, the Registrant
issued a total of 660,000 shares of common stock to the company's
former production manager in settlement of his employment agreement
with the Registrant; these shares were valued at $46,200 ($0.07 per share).
(d) On August 11, 2003 and September 13, 2003, the Registrant
issued a total of 800,000 shares of common stock to the company's
president in connection with the termination of his employment
agreement with the Registrant; these shares were valued at $62,000
(average of $0.0775 per share).
(e) On September 13, 2003, the Registrant issued a total of
298,713 shares of common stock to two companies for services rendered
in connection with the private offering discussed above; these shares
were valued at $26,871 (average of $0.0899 per share). On this date,
the Registrant also issued 375,000 shares of common stock to one
individual for legal services rendered to the company valued at
$26,250 ($0.07 per share). On this date, the Registrant also issued a
total of 500,000 shares of common stock to two individuals (one a
director and one an ex-employee of the company) in connection with
services rendered to the Registrant valued at $35,000 ($0.07 per
share). Finally, on this date the Registrant issued a total of
1,250,000 shares of common stock to three individuals in connection
with the repayment of certain loans made to the company; these shares
were valued at $87,500 ($0.07 per share).
(f) During the quarter, the Registrant sold a total of 2,245,000
shares of common stock to investors pursuant to its private placement
memorandum, generating net proceeds of $88,981 (gross proceeds of
$164,650 less offering fees and commissions of $75,669) pursuant to
the sale of common stock units. Each common stock unit consists of
(a) 50 shares of common stock of the Registrant, (b) one warrant to
purchase 25 shares of common stock of the Registrant at an exercise
price of $0.20 per share, and (c) one warrant to purchase 25 shares of
common stock, at an exercise price of $0.30 per share (which was
subsequently reduced to $0.01 per share and which has been exercised).
The sales set forth above were undertaken under Rule 506 of
Regulation D under the Securities Act of 1933, as amended ("Act"), by
the fact that:
- the sales were made to a sophisticated or accredited investors,
as defined in Rule 502;
- the Registrant gave each purchaser the opportunity to ask
questions and receive answers concerning the terms and conditions
of the offering and to obtain any additional information which
the Registrant possessed or could acquire without unreasonable
effort or expense that is necessary to verify the accuracy of
information furnished;
- at a reasonable time prior to the sale of securities, the
Registrant advised each purchaser of the limitations on resale in
the manner contained in Rule 502(d)2;
- neither the Registrant nor any person acting on its behalf sold
the securities by any form of general solicitation or general
advertising; and
- the Registrant exercised reasonable care to assure that each
purchaser of the securities is not an underwriter within the
meaning of Section 2(11) of the Securities Act of 1933 in
compliance with Rule 502(d).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 21, 2003, the annual shareholders meeting of the
Registrant was held at the TSG manufacturing facility in North
Charleston, South Carolina. At that meeting, at which a quorum was
present in person or by proxy, the following items were submitted and
adopted:
Election of the Board of Directors.
The following individuals were elected to serve as directors of
the Registrant:
(a) Michael Watts: 66,548,858 votes in favor and 418,014 votes
withheld.
(b) Madhava Rao Mankal: 66,622,858 votes in favor and 343,014
votes withheld.
(b) R. Scott Ervin: 66,632,848 votes in favor and 343,014 votes
withheld.
Appointment of Auditors.
Michael Johnson & Co, LLC was appointed as auditor for the
Registrant for the fiscal year that commenced on January 1, 2003:
66,455,059 votes in favor, 118,014 votes against, and 387,659 votes
abstaining.
Amendment of Articles.
An amendment to the Articles of Association of the Registrant was
adopted to change the name of the company to "Force Protection, Inc.":
66,248,358 votes in favor, 193,014 votes against, and 525,000 votes
abstaining.
ITEM 5. OTHER INFORMATION.
Employment Agreements.
During the second quarter of 2003, the Registrant negotiated
certain changes in employment agreements with certain of its executive
officers:
(a) Under a previous agreement dated June 20, 2002 and effective
on July 1, 2002 (see Exhibit 10.1 to this Form 10-QSB), the Registrant
was to issue its CEO, Michael Watts, 2,000,000 restricted shares of
common stock vesting immediately and delivered no later than one-year
from the date of this agreement. In addition, he was to receive a
warrant for 2,000,000 restricted shares of common stock, exercisable
at $0.07 per share, vesting on the first and second anniversary dates
of the agreement. Finally, he was to receive a warrant to purchase 10
shares of Registrant Series C preferred stock or its equivalent in
Registrant common stock. These issuances were modified by the board
of directors to be grants, effective July 1, 2002, of 2,000,000
restricted shares of common stock, plus a warrant for 1,000,000
restricted shares of common stock at $0.07 a share vesting on June 20,
2003, plus a warrant for 1,000,000 restricted shares of common stock
vesting on June 20, 2004.
(b) On April 1, 2003, the Registrant entered into an agreement
with Frank Kavanaugh, the Registrant's director of business
development, for a salary, and a grant of 500,000 restricted shares of
the Registrant's common stock (see Exhibit 10.3 to this Form 10-QSB).
Also, during June 2003, Mr. Kavanaugh was granted 750,000 restricted
shares of common stock that were committed in June of 2002, for
consulting services as interim general manager during the second and
third quarters of 2002.
(c) In connection with the restructuring of the Registrant, it
entered into a verbal termination agreement with Madhava Rao Mankal in
connection with his prior employment agreement with the Registrant
(see Exhibit 10.2 to this Form 10-QSB). The agreement stipulates that
he remain chief financial officer of the Registrant until November
30, 2003 and then act as a consultant for the Registrant until
December 31, 2003 at the same salary, without benefits, and receive a
grant of 600,000 restricted shares of stock in September, 2003. On
December 31, 2003 Mr. Mankal will be paid 90 days termination based on
his annual rate of salary of $64,800. In June 2003, Mr. Mankal
received 200,000 restricted shares of common stock for the first and
second quarters of 2003 in connection with his employment contract
dated March 17, 2003, and in September 2003 he received 600,000
restricted shares of common stock in connection with his termination
agreement.
Conversion of TSG International, Inc. Shares.
As part of the purchase of TSG International, Inc. (which owns
100% of Technical Solutions Group, Inc.,) in July 2002 (see Exhibit
2.2 to this Form 10-QSB and the 2002 Form 10-KSB), Ashford Capital,
LLC, an advisor to the transaction and a shareholder of the
Registrant, received shares equal to 10% of TSG International, Inc. in
the form of a Series A preferred stock. An agreement was reached in
April of 2003 (see Exhibit 4.9 to this Form 10-QSB) under which
Ashford Capital, LLC could exchange each shares of TSG International,
Inc. Series A preferred stock for 50 shares of the Registrant's Series
C preferred shares, by notifying the Registrant by October 15, 2003.
In September 2003, Ashford Capital, LLC and the Mr. Watts reached
an agreement under which the TSG Series A preferred shares and the
rights associated with the Series A preferred shares were purchased by
Mr. Watts in a private sale between the parties and the right to
exchange the shares was assigned to Mr.Watts by Ashford Capital LLC.
On October 12, 2003, the Registrant was notified of Mr. Watt's
intention to exercise its option to exchange its TSG International,
Inc. preferred stock for the Registrant's Series C preferred stock.
Under the terms of the agreement, Mr. Watts will exchange all his
shares of TSG International, Inc. stock for 50 shares of Registrant
Series C preferred stock effective October 15, 2003. As a result, the
Registrant will hold 100% of TSG International, Inc.
Redemption of Series C Preferred Stock.
Under the terms of the Series C preferred stock, as reflected in
an amended Certificate of Designation, shareholders could redeem each
preferred share for $12,000 after a certain date. Under these terms,
Mr. Noriaki Sasaki notified the Registrant of his request to redeem 10
shares of the Series C preferred stock at a schedule to be provided by
the Registrant. The Registrant has agreed to a redemption schedule
and has redeemed 2 of the 10 shares. The remaining 8 shares should be
redeemed by January 2004. Subsequently, the remaining Series C
shareholders have waived the redemption rights in return for an
extension of the mandatory conversion dates (see 2002 Form 10-KSB).
Sale of Assets.
Effective July 1, 2003 and modified on September 15, 2003, the
Registrant transferred the sales activity and right to use the
Stanton, California facility, and is obligated to transfer certain
boat assets of the fire and rescue operations to its subsidiary,
Rockwell Power Systems Inc. ("RPSI"), whose ownership the Registrant
will control until completion of certain obligations by the management
and investors of RPSI. In return, upon satisfaction by the investors
in RPSI of certain financial and business obligations of the
aforementioned agreement, the Registrant will control one third of the
shares of RPSI. In addition, upon a successful merger or listing of
RPSI on the Over the Counter Bulletin Board or its successor, the
Registrant intends to sell the bulk of RPSI's remaining tangible and
intangible assets associated with the fire rescue business for
$500,000 in preferred Series A stock of RPSI. Finally, the parties
agreed that RPSI has the option to purchase certain remaining
recreational boat business assets for "book value" on March 1, 2004.
The Registrant was notified by RPSI that a successful merger with a
listed Registrant was achieved in October 2003 with Xtreme Companies,
which is listed on the OTCBB and that the payment to complete the
transaction would be made during the fourth quarter of 2003.
Subsequent Events.
(a) Effective on November 7, 2003, Mr. Kavanaugh, the principal
of Ashford Capital LLC, and Gale Aguilar were appointed to the
Registrant's board of directors.
(b) Effective on November 30, 2003, Mr. Mankal will resign as
president and chief financial officer, and on that date, Thomas H.
Thebes will assume the position of chief financial officer of the
Registrant. Mr. Mankal will remain a member of the board of directors.
(c) Not later than December 15, 2003, the Registrant intends to
distribute all common shares held in Xtreme Companies received in
exchange for its holdings in Rockwell Power Systems, Inc. to its
shareholders.
(d) Not later than December 15, 2003, the Registrant intends to
issue 50 shares of its Series C preferred stock to Mr. Watts, in
exchange for his shares of TSG International, Inc. Series A preferred
stock he currently owns. This transaction will make TSG
International, Inc. a 100% owned subsidiary of the Registrant.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits.
Exhibits included or incorporated by reference herein are set
forth in the attached Exhibit Index.
Reports on Form 8-K.
No reports on Form 8-K were filed during the third quarter of the
fiscal year covered by this Form 10-QSB.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Force Protection, Inc.
Dated: November 14, 2003 By: /s/ Michael Watts
Michael Watts, Chief Executive Officer
Dated: November 14, 2003 By: /s/ Madhava Rao Mankal
Madhava Rao Mankal,
President/Chief Financial Officer
EXHIBIT INDEX
Number Description
2.1 Share Exchange Agreement between the Registrant and
Sonic Jet Performance, LLC, dated June 15, 1998
(incorporated by reference to Exhibit 7.1 to the Form 8-K
filed on July 6, 1998).
2.2 Stock Purchase Agreement between the Registrant,
Garth Barrett, and T S Group, LLC., dated June 13, 2002
(incorporated by reference to Exhibit 2.1 to the Form 8-K
filed on June 28, 2002).
2.3 Modification of Business Asset Sale, License Agreement &
Assignment of Rights between the Registrant and Rockwell
Power Systems, Inc., dated September 15, 2003 (including the
following exhibits: Exhibit A: Bill of Sale; Exhibit B:
Employee Transfer Consent; Exhibit C: Disclosure Notice; and
Exhibit D: Post Acquisition Capital Structure) (see below).
3.1 Articles of Incorporation, dated November 27, 1996
(incorporated by reference to Exhibit 3.1 of the Form 10-SB
filed on March 24, 1997).
3.2 Articles of Amendment to the Articles of
Incorporation, dated December 24, 1996 (incorporated by
reference to Exhibit 3 of the Form 10-KSB filed on April 15, 1998).
3.3 Articles of Amendment to the Articles of
Incorporation, dated December 16, 1998 (incorporated by
reference to Exhibit 3 of the Form 8-K filed on December 16, 1998).
3.4 Bylaws, dated November 27, 1996 (incorporated by
reference to Exhibit 3.2 of the Form 10-SB filed on March 24, 1997).
4.1 Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock, dated June
12, 1998 (incorporated by reference to Exhibit 7.4 of the
Form 8-K filed on July 6, 1998).
4.2 2000 Stock Plan of the Registrant, dated May 1, 2000
(incorporated by reference to Appendix A of the Schedule 14C
filed on June 30, 2000).
4.3 Certificate of Designation for Series B Convertible
Preferred Stock, dated December 27, 2001 (incorporated by
reference to Exhibit 3.1 of the Form 8-K filed on January 7, 2002).
4.4 Certificate of Designation for Series C Convertible
Preferred Stock, dated December 27, 2001 (incorporated by
reference to Exhibit 3.2 of the Form 8-K filed on January 7, 2002).
4.5 Series B Convertible Preferred Stock Purchase
Agreement between the Registrant and Ashford Capital, LLC,
dated December 27, 2001 (incorporated by reference to
Exhibit 10.1 of the Form 8-K filed on January 7, 2002).
4.6 Series C Convertible Preferred Stock Purchase Agreement
between the Registrant and eFund Capital Partners, LLC,
dated December 27, 2001 (incorporated by reference to
Exhibit 10.2 of the Form 8-K filed on January 7, 2002).
4.7 Amendment to Certificate of Designation of Series C
Convertible Preferred Stock, dated November 14, 2002
(incorporated by reference to Exhibit 10.6 of the Form 10-
QSB filed on November 18, 2002).
4.8 Amendment to Certificate of Designation of Series B
Convertible Preferred Stock, dated December 20, 2002
(incorporated by reference to Exhibit 10.7 of the Form 10-
KSB filed on April 16, 2003).
4.9 Letter Agreement between the Registrant and Ashford Capital
LLC, dated April 15, 2003 (see below).
4.10 Investment Agreement between the Registrant and Dutchess
Private Equities Fund, L.P., dated September 22, 2003,
including the following exhibit: Exhibit A: Registration
Rights Agreement (the following exhibits have been omitted:
Exhibit B: Opinion of Company's Counsel; Exhibit C:
[reserved]; Exhibit D: Broker Representation Letter; Exhibit
E: Board Resolution; Exhibit F: Put Notice; and Exhibit G:
Put Settlement Sheet) (the following schedules have been
omitted: Schedule 4(a): Subsidiaries; Schedule 4(c):
Capitalization; Schedule 4(e): Conflicts; Schedule 4(g):
Material Changes; Schedule 4(h): Litigation; Schedule 4(l):
Intellectual Property; Schedule (n) Liens; and Schedule 4(t)
Certain Transactions) (see below).
10.1 Employment Offer Letter between the Registrant and Michael
Watts, dated June 20, 2002 (see below).
10.2 Modified Employment Offer Letter dated March 17, 2003
between the Registrant and Madhava Rao Mankal, dated March
17, 2003 (incorporated by reference to Exhibit 10.14 of the
Form 10-KSB filed on April 16, 2003).
10.3 Employment Offer Letter between the Registrant and Frank
Kavanaugh, dated March 31, 2003 (incorporated by reference
to Exhibit 10.16 of the Form 10-KSB filed on April 16, 2003).
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 of the Form 10-QSB filed on August 19, 2003).
31.1 Rule 13a-14(a)/15d-14(a) Certification (see below).
31.2 Rule 13a-14(a)/15d-14(a) Certification (see below).
32 Section 1350 Certification (see below).