Force Protection

(FRPT) - Get Report

has been stuck in neutral for a while.

As it turns out, the military-vehicle maker's profits never budged at all last year. The company's latest quarterly reports -- which showed profits escalating over the course of the year -- have been deemed unreliable because of accounting errors.

Force Protection's stock tumbled 16% to $3.45 on the news.

To be sure, Force Protection sold plenty of mine-resistant ambush-protected vehicles last year. The company saw its sales more than quadruple to $875 million. But Force Protection had to split a lot of that business with its joint-venture partner,

General Dynamics

(GD) - Get Report

, while shouldering much of the costs itself.

"In other words," Force Protection explained on Monday, "vehicles produced by our joint-venture partner are purchased by us from them at the sales price we sell the vehicles to the U.S. military -- resulting in a zero gross profit for such sales." Therefore, "although revenues increased significantly in 2007, we do not expect our net income to be significantly different than the $16.6 million that we reported for year ended Dec. 31, 2006."

Just a few months ago, Force Protection was reporting a surge in sales and profits alike. Of the two, in fact, profits seemed to be growing faster by far.

Last fall, Force Protection reported that its third-quarter profits had jumped by almost 50-fold to $11.4 million. All told, the company said that it had earned $23.5 million during the first nine months of the year. Now, however, the company expects to report a much smaller profit of $16.6 million for the entire year.

Force Protection has uncovered other accounting issues as well. Following a review with its auditors, the company determined that it may have improperly recorded accounts payable associated with items purchased under a contract that has been terminated. The company blamed the mistake on continued weakness in its internal controls.

Force Protection has been warning about its internal controls for some time. Last quarter, in fact, the company reported that it had fielded complaints from government officials, with a particularly scathing review from the U.S. Defense Contract Audit Agency.

"The DCAA has issued audit reports that have been highly critical of our finances and financial accounting system, that have questioned our ability to perform our government contracts and that have questioned or disallowed significant proposed charges under some of our government contracts," Force Protection stated in its third-quarter report.

Importantly, the company added, "an adverse finding under a DCAA audit could result in the disallowance of our costs under a U.S. government contract, termination of U.S. government contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government."

Force Protection has been sliding downhill ever since. A month after issuing that third-quarter report, the company fielded a smaller-than-expected MRAP order as rivals


( NAVZ) and


gained market share. The company overhauled its management team, ousting CEO Gordon McGilton, early this year in response.

Some fear that Force Protection did too little too late, however. Certainly, the company's stock continues to suffer. All told, the shares have lost almost 90% of their value in less than one year.