-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AmdJEHWi0CSsXsf+EqELtRT/Tsm4lsg1bMNg/gzRNQSlbPw53tZGzPAF8upQX6r5 UU/F3gY7+Vw8TmY72aH/OQ== 0000914317-97-000013.txt : 19970127 0000914317-97-000013.hdr.sgml : 19970127 ACCESSION NUMBER: 0000914317-97-000013 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960322 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970124 SROS: BSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DHB CAPITAL GROUP INC /DE/ CENTRAL INDEX KEY: 0000899166 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 113129361 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13112 FILM NUMBER: 97510072 BUSINESS ADDRESS: STREET 1: 11 OLD WESTBURY RD CITY: OLD WESTBURY STATE: NY ZIP: 11568 BUSINESS PHONE: 5166212552 MAIL ADDRESS: STREET 1: 11 OLD WESTBURY RD CITY: OLD WESTBURY STATE: NY ZIP: 11568 8-K/A 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 8-K/A NO.1 Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): March 22, 1996 --------------- DHB CAPITAL GROUP INC. (exact name of registrant as specified in its charter) 0-22429 (Commission File Number) DELAWARE 11-3129361 (State or other jurisdiction of IRS Employer incorporation or organization) Identification Number) 11 Old Westbury Road, Old Westbury, New York 11568 (Address, including zip code or registrant's principal executive offices) (516) 997-1155 (Telephone number, including area code, of agent for service) This filing of Form 8-K/A No. 1 amends the Current Report on Form 8-K dated April 5, 1996 of DHB Capital Group Inc. (the "Registrant"). The undersigned Registrant hereby amends the following items, financial statements, exhibits or other portions of such report on Form 8-K date April 5, 1996 (the "Form 8- K") as set forth below: ITEM. 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of business acquired. The following financial statements are annexed hereto: 1. The Company: Independent Auditors' Report (Capraro, Centofranchi, Kramer & Co PC) Report on Financial Statements as of and for the Year ended 12/31/95. Consolidated Balance Sheet as of 12/31/95 Consolidated Statements of Income(Loss) for the Years ended 12/31/95 and 12/31/94. Consolidated Statements of Stockholders' Equity for the Years ended 12/31/95 and 12/31/94. Consolidated Statements of Cash Flows for the Years ended 12/31/95 and 12/31/94. Notes to the Consolidated Financial Statements 2. Orthopedic Products, Inc. Independent Auditors' Report (Jay Howard Linn, CPA) Report on the Financial Statements as of and for the Year ended 9/30/95. Balance Sheet as of 09/30/95 Statements of Operations and Retained Earnings for the Years ended 09/30/95 and 09/30/94. Statements of Cash Flows for the Years ended 09/30/95 and 09/30/94. Notes to the Consolidated Financial Statements 3. Interim Financial Information The Company: Unaudited Consolidated Balance Sheet as of 09/30/96 Unaudited Consolidated Statements of Income(Loss) for the three months ended 09/30/96 and 09/30/95. Unaudited Consolidated Statements of Income(Loss) for the nine months ended 09/30/96 and 09/30/95. Unaudited Consolidated Statements of Cash Flows for the nine months ended 09/30/96 and 09/30/95. Unaudited Notes to the Consolidated Financial Statements Orthopedic Products, Inc.: Unaudited Balance Sheet as of 12/31/95 Unaudited Statements of Operations and Retained Earnings for the three months ended 12/31/95. Unaudited Consolidated Statements of Cash Flows for the three months ended 12/31/95. 4.Unaudited Proforma Combined Financial Statements Introduction Unaudited proforma Consolidated Statement of Income for the Year ended 12/31/95. Unaudited Proforma Consolidated Statement of Income(Loss) for the Nine Months Ended 09/30/96. INDEPENDENT AUDITORS' REPORT The Board of Directors of DHB Capital Group Inc. We have audited the accompanying consolidated balance sheet of DHB Capital Group Inc. and Subsidiaries as of December 31, 1995 and the related consolidated statements of income (loss), stockholders' equity and cash flows for the years ended December 31, 1995 and 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DHB Capital Group Inc. and Subsidiaries as of December 31, 1995, and the results of its operations and its cash flows for the years ended December 31, 1995 and 1994, in conformity with generally accepted accounting principles. /s/Capraro, Centofranchi, Kramer & Co., P.C. -------------------------------------------- Capraro, Centofranchi, Kramer & Co., P.C. South Huntington, New York March 14, 1996
DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995 ASSETS ------ CURRENT ASSETS Cash and cash equivalents $ 475,108 Marketable securities 1,829,856 Accounts receivable, less allowance for doubtful accounts of $70,000 3,819,571 Inventories 7,856,199 Prepaid expenses and other current assets 208,510 ------------ Total Current Assets $ 14,189,244 PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $325,454 1,077,066 OTHER ASSETS Intangible assets, net 721,327 Investments in non-marketable securities 3,316,750 Deposits and other assets 160,821 ------------ Total Other Assets 4,198,898 ------------ TOTAL ASSETS $ 19,465,208 ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Note Payable $ 2,550,000 Accounts Payable 2,847,690 Due to shareholders 1,890,000 Accrued expenses and other current liabilities 301,068 Deferred taxes payable 23,700 State income taxes payable 50,782 ------------ Total Current Liabilities $ 7,663,240 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock 219 Common stock 20,762 Additional paid-in capital 12,116,549 Common stock subscription receivable (437,500) Retained earnings 101,938 ------------ Total Stockholders' Equity 11,801,968 ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,465,208 ============ See accompanying notes to financial statements.
DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 1995 1994 ------------ ------------ Net sales $ 14,494,094 $ 9,102,373 Cost of sales 9,088,617 6,621,617 ------------ ------------ Gross Profit 5,405,477 2,480,756 Selling, general and administrative expenses 5,140,399 2,250,550 ------------ ------------ Income before other income (expense) 265,078 230,206 ------------ ------------ Other Income (Expense) Interest expense, net of interest income (303,615) (65,072) Dividend income 1,710 1,140 Payment to rescind restrictive covenant (250,000) Write-off of uncollectible loan receivable -- (57,889) Realized gain (loss) on marketable securities 675,743 (360,817) Unrealized gain (loss) on marketable securities 347,481 (293,854) ------------ ------------ Total Other Income (Expenses) 471,319 (776,492) ------------ ------------ Income (loss) before minority interest and income tax (benefit) 736,397 (546,286) Minority interest of consolidated subsidiary -- 91,655 ------------ ------------ Income (loss) before income tax (benefit) 736,397 (454,631) Income taxes (benefit) 491,922 (379,388) ------------ ------------ Net Income (loss) $ 244,475 $ (75,243) ============ ============ Earnings (loss) per common share Primary $ 0.01 ($ 0.005) ============ ============ Fully Diluted $ 0.01 ($ 0.004) ============ ============ Weighted average number of common share outstanding: Primary 21,167,754 16,701,220 ============ ============ Fully Diluted 21,689,754 16,854,861 ============ ============ See accompanying notes to financial statements
DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 Number of Number of Additional Common Stock Preferred Par Common Par Paid-in Subscription shares Value shares Value Capital Receivable ------- ------ ---------- ------- ----------- ---------- Balance, December 31, 1993 104,687 $1,047 10,504,452 $10,504 $5,002,499 -- Loss for the year ended December 31, 1994 Sale of common stock 812,500 812 2,007,668 Conversion of preferred stock into common stock (40,625) (406) 81,250 82 324 Issuance of common stock to acquire subsidiary 100,000 100 299,900 ------- ------ ---------- ------- ----------- ---------- Balance- December 31, 1994 64,062 641 11,498,202 11,498 7,310,391 -- Net income for the year ended December 31, 1995 Sale of common stock 1,955,000 1,955 3,863,045 (437,500) Conversion of preferred stock into common stock (42,187) (422) 84,374 84 338 Exercise of stock warrants 303,750 304 949,696 Common stock-50% stock dividend 6,920,665 6,921 (6,921) ------- ------ ---------- ------- ----------- ---------- Balance- December 31, 1995 21,875 $219 20,761,991 $20,762 $12,116,549 ($437,500) ======= ====== ========== ======= =========== ========== See accompanying notes to financial statements. DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 Retained Earnings Total -------- ----------- Balance, December 31, 1993 ($67,294) $4,946,756 Loss for the year ended December 31, 1994 (75,243) (75,243) Sale of common stock 2,008,480 Conversion of preferred stock into common stock -- Issuance of common stock to acquire subsidiary 300,000 -------- ----------- Balance- December 31, 1994 (142,537) 7,179,993 Net income for the year ended December 31, 1995 244,475 244,475 Sale of common stock 3,427,500 Conversion of preferred stock into common stock -- Exercise of stock warrants 950,000 Common stock-50% dividend -- -- -------- ----------- Balance- December 31, 1995 $101,938 $11,801,968 ======== ===========
See accompanying notes to financial statements.
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 1994 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss) $ 244,475 ($ 75,243) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 254,956 217,091 Minority interest in loss of consolidated subsidiary -- (91,655) Realized (gain) loss on marketable securities (675,743) 360,817 Unrealized (gain) loss on marketable securities (347,481) 293,854 Write-off of uncollectible loan receivable -- 57,889 Deferred income taxes 440,000 (416,300) Changes in assets and liabilities (Increase) Decrease in: Accounts receivable (1,276,870) (346,261) Marketable securities 1,150,655 (1,201,224) Inventories (3,093,118) (94,863) Prepaid expenses and other current assets 148,538 (22,102) Deposits and other assets (76,962) (2,403) Increase (decrease) in: Accounts payable 2,336,854 104,322 Accrued expenses and other current liabilities 34,854 148,302 State income taxes payable 22,282 28,500 ----------- ----------- Total Adjustments (1,082,035) (964,033) ----------- ----------- Net cash provided (used) by operating activities (837,560) 1,039,276) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for purchase of assets of subsidiary, net of cash acquired (2,000,000) (2,934,854) Payments to acquire subsidiary -- (425,000) Payments to acquire non-marketable securities (1,938,750) (1,378,000) Collection of loan receivable acquired by issuance of common stock -- 150,000 Collections of loan receivable -- 9,000 Payments made for property and equipment (269,230) (142,555) Payments for software development costs -- (10,691) Payments of capitalized acquisition cost ( 14,277) -- ----------- ----------- Net Cash provided (used) by investing activities (4,222,257) (4,732,100) ----------- ----------- (Continued) DHB CAPITAL GROUP, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 1994 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from note payable- bank -- 1,150,000 Net proceeds from note payable- shareholder 750,000 1,140,000 Net proceeds from sale of common stock 4,377,500 2,008,480 ----------- ----------- Net cash provided (used) by financing activities 5,127,500 4,298,480 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 67,683 (1,472,896) CASH AND CASH EQUIVALENTS - BEGINNING 407,425 1,880,321 ----------- ----------- CASH AND CASH EQUIVALENTS - END $ 475,108 $ 407,425 =========== ===========
See accompanying notes to financial statements DHB CAPITAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION/REPORTING ENTITIES The consolidated financial statements of DHB Capital Group, Inc. and Subsidiaries (the "Company") include the following entities: DHB Capital Group, Inc. DHB Capital Group Inc. ("DHB") was incorporated on October 22, 1992 under the laws of the State of New York. DHB was organized to seek, acquire and finance, as appropriate, one or more operating companies. On February 15, 1995, the holders of the common stock approved a re-incorporation of DHB as a Delaware corporation, through a merger with a newly formed Delaware corporation. Protective Apparel Corporation of America Protective Apparel Corporation of America ("PACA") was organized in 1975 and is engaged in the development, manufacture and distribution of bullet and projectile resistant garments, including bullet resistant vests, fragmentation vests, bomb projectile blankets and tactical load bearing vests. In addition, PACA distributes other ballistic protection devices including helmets and shields. PACA is dependent upon a few suppliers for the raw materials utilized to manufacture its products. On November 6, 1992, PACA became a wholly-owned subsidiary of DHB, when DHB purchased all of the issued and outstanding stock of PACA from PACA's former parent, E.S.C. Industries, Inc, for $800,000. The transaction was accounted for as a purchase and resulted in an excess purchase price over the fair market value of the identifiable assets acquired and liabilities assumed of $465,278, of which $312,086 was allocated to on-going government contracts and $153,192 was allocated to goodwill. Intelligent Data Corp. On April 1, 1994, the Company acquired 4,530,000 common shares (60.4% interest) and 1,100,000 preferred shares of stock in Intelligent Data Corp. ("ID"), in exchange for 425,000 shares of the Company's common stock. ID is engaged in the development of sophisticated telecommunication systems. On July 1, 1994, a put option was exercised by certain shareholders of ID resulting in an increase in the Company's ownership to 89.58%. In December 1994, the Company converted all of its preferred shares to common shares, increasing the Company's ownership to 98.35%. This transaction was accounted for as a purchase, and resulted in an excess purchase price over the fair value of identifiable assets acquired and liabilities assumed of $472,666 which was allocated to patents owned by ID. DHB Media Group, Inc. On April 15, 1994, DHB Media Group, Inc. ("Media"), a wholly-owned subsidiary of the Company acquired all of the outstanding common stock of Royal Acquisition Corp. in exchange for 100,000 shares of the Company's common stock, for a purchase price of $300,000. Subsequent negotiations resulted in the reduction of the acquisition cost by $36,550. Royal Acquisition Corp.'s primary assets were a film library and a loan receivable of $150,000. The transaction was accounted for as a purchase and resulted in the excess purchase price over the fair market value of $113,450, of which $54,000 was allocated to the film library and $59,450 was allocated to goodwill. Media intends to syndicate and market these films. The loan receivable was collected in full during the year ended December 31, 1994. NDL Products, Inc. On December 20, 1994, the Company through a newly organized, wholly-owned subsidiary, DHB Acquisition, Inc., ("Acquisition") purchased certain assets from a debtor-in-possession, N.D.L. Products, Inc. for $3,080,000. Acquisition did not assume any continuing obligations of the debtor-in-possession, nor did the management of the debtor-in- possession continue. On February 21, 1995, Acquisition changed its corporate name to NDL Products, Inc. NDL manufactures and distributes specialized protective athletic apparel and equipment. DHB Armor Group, Inc. On August 8, 1995, the Company formed a new Delaware Corporation which is a wholly-owned subsidiary of the Company. The subsidiary, DHB Armor Group, Inc., ("Armor"), now wholly owns PACA and Point Blank Body Armor, Inc., ("Point Blank"). Point Blank Body Armor, Inc. In August 1995, the Company, through a wholly-owned subsidiary known as USA Fitness & Protection Corp, a Delaware Corporation, acquired from a trustee in bankruptcy certain assets of Point Blank Body Armor, L.P. and an affiliated company ("Old Point Blank"), for a cash payment of $2,000,000, free of all liabilities. Prior to the filing of the petition in bankruptcy, Old Point Blank had been a leading U.S. manufacturer of bullet-resistant garments and related accessories. After acquiring the Old Point Blank, USA Fitness & Protection Corp., amended its articles of incorporation to change their name to Point Blank Body Armor, Inc. ("Point Blank"). PRINCIPLES OF CONSOLIDATION All material intercompany transactions have been eliminated in the consolidated financial statements. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include those relating to the valuation of inventories and non-marketable securities, and collectibility of receivables. REVENUE RECOGNITION Revenue is recognized on product sales upon shipment to the customer. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company includes cash on deposit, money market funds and amounts held by brokers in cash accounts to be cash equivalents. MARKETABLE/NON-MARKETABLE SECURITIES Effective for calendar year 1994, the Company adopted Financial Accounting Standards Board Statement No. 115 "Accounting for Certain Investments in Debt and Equity Securities." In accordance with this standard, Securities which are classified as "trading securities" are recorded in the Company's balance sheet at fair market value, with the resulting unrealized gain or loss recognized as income in the current period. Securities which are classified as "available for sale" are also reported at fair market value, however, the unrealized gain or loss on these securities is listed as a separate component of shareholder's equity. Non-marketable securities, such as investments in privately-held companies are carried at historical cost, if necessary, reduced by a valuation allowance to net realizable value. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out) or market. PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment is stated at cost. Major expenditures for property and those which substantially increase useful lives are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses are included in income. Depreciation is provided by both straight-line and accelerated methods over the estimated useful lives of the assets. INTANGIBLE ASSETS Goodwill is being amortized on a straight-line basis over ten years. The amount allocated to on-going government contracts is being amortized over the life of the individual contracts, which are typically 1-5 years. Patents are being amortized on a straight-line basis over 17 years. Other intangible assets are being amortized on a straight-line basis over their estimated lives, typically 5-15 years. Accumulated amortization was $409,297 and $301,033 as of December 31, 1995 and 1994, respectively. EARNINGS PER SHARE The computation of earnings per common share is based on the weighted average number of outstanding common shares outstanding during the period. Primary earnings per share and fully diluted earnings per share amounts assume the conversion of the Cumulative Convertible Preferred Stock, and the exercise of the stock warrants. INCOME TAXES The Company files a consolidated Federal tax return, which includes all of the subsidiaries. Accordingly, Federal income taxes are provided on the taxable income of the consolidated group. State income taxes are provided on a separate company basis, if and when taxable income, after utilizing available carryfoward losses, exceeds certain levels. DEFERRED INCOME TAXES Deferred taxes arise principally from net operating losses and capital losses available for carryfoward against future years taxable income, and the recognition of unrealized gains(losses) on marketable securities for financial statement purposes, which are not taxable items for income tax purposes. 2. SUPPLEMENTAL CASH FLOW INFORMATION 1995 1994 -------- ------- Cash paid for: Interest $261,829 $78,602 Income taxes $ 35,774 $ 7,983 Additionally, during, the year ended December 31, 1995 the Company had a non-cash financing activity of $437,500 for a stock subscription receivable. During the year ended December 31, 1994, the Company had non-cash investing activities and it issued common stock to acquire all of the outstanding common stock of Media at a value of $273,450. The Company also purchased a majority interest in a subsidiary through the issuance of 425,000 shares of its common stock. 3. MARKETABLE SECURITIES/NON-MARKETABLE SECURITIES Following is a comparison of the cost and market value of marketable securities included in current assets: 1995 1994 ----------- ----------- Cost $ 1,482,375 $ 2,251,141 Unrealized gain (loss) 347,481 (293,854) ----------- ----------- Market value $ 1,829,856 $ 1,957,287 =========== =========== The Company's portfolio value of trading securities has been pledged as collateral for the bank loans (see Note 6). However, the bank has placed no restrictions on the Company's ability to trade freely in their portfolio. The Company's investments in non-marketable securities is summarized as follows: 1995 1994 ---------- ---------- Darwin Molecular Corporation (approximately 3.9% interest) $1,000,000 $1,000,000 Zydacron, Inc. (approximately 3.1% interest) 941,750 378,000 Pinnacle Diagnostics, Inc. (approximately 16.7% interest) 500,000 -- FED Corporation (approximately 2.9% interest) 375,000 -- Solid Manufacturing Co. - 10% convertible debentures (approximately 9.5% interest, if converted) 500,000 -- ---------- ---------- Totals $3,316,750 $1,378,000 ========== ========== All of these investments are carried at historical cost on the financial statements of the Company, and are included under the caption "Investment in non-marketable securities" on the balance sheet. 4. INVENTORIES Inventories are summarized as follows: 1995 ---------- Finished products $3,844,506 Work-in process 1,209,849 Raw materials and supplies 2,801,844 ---------- Total $7,856,199 ========== 5. PROPERTY AND EQUIPMENT Major classes of property and equipment consist of the following: Estimated useful life-years 1995 ---------------- ---------- Deposit on building 39 $ 47,500 Machinery and equipment 5-10 759,797 Furniture and fixtures 5-7 249,986 Computer equipment 3-5 41,959 Transportation equipment 3-5 41,862 Leasehold improvements 5-31.5 261,416 ---------- 1,402,520 Less: accumulated depreciation and amortization 325,454 ---------- Net property and equipment $1,077,066 ========== 6. NOTES PAYABLE- FINANCIAL INSTITUTIONS The Company has borrowed $2,550,000 in the form of two term loans. The first is with the Bank of New York for $1,400,000 with interest at 6.43%, maturing in June, 1996. The second loan is with Chase Manhattan Bank for $1,150,000 with interest at 6.255%. This loan matures in September, 1996. These loans are secured by substantially all of the Company's marketable securities portfolio value, and certain personal investments of the majority shareholder. Both of these loans require monthly payments of interest only. 7. DUE TO SHAREHOLDER The amount due to shareholder represent notes payable which bear interest at 9%, payable April and September, 1996. 8. RELATED PARTY TRANSACTIONS DHB: DHB leased its office location from a relative of the former president of DHB. Included in DHB's statement of income (loss) for the years ended December 31, 1995 and 1994 is $16,514 and $15,424 of rent paid or accrued under this lease, respectively (see note 10). Effective January 1996, the Company vacated the premises and purchased a building for use as the corporate headquarters. PACA: PACA leases its location (see note 10) from the President of PACA. Included in the statement of income (loss) for the years ended December 31, 1995 and 1994 is $48,000 of rent paid under this lease for each period. ID: ID leased its office location from a relative of the former President of DHB. Included in DHB's statement of income (loss) for the year ended December 31, 1995 and 1994 is $5,511 and $13,175 of rent paid or accrued under this lease, respectively (see note 10). The premises were vacated in April, 1995. NDL and POINT BLANK: NDL Products, Inc. and Point Blank Body Armor, Inc. lease their facilities from a partnership indirectly owned by relatives of the majority shareholder of DHB (note 10). Included in the statement of income (loss) for the year ended December 31, 1995 is $300,000 of rent paid or accrued under the lease. 9. COMMITMENTS AND CONTINGENCIES LEASES PACA: PACA is obligated under a lease for its manufacturing facility with a related party (note 9). This lease expires October 31, 1997, and provides for minimum annual rentals of $43,200, plus increases based on real estate taxes and operating costs. ID: ID was obligated under a lease for its office space with a related party (note 9), which expired in April, 1995 for minimum annual rentals of $15,000, plus increases based on real estate taxes and operating costs. The space was relinquished in April, 1995 and there are no further obligations. Media: Media leases its facilities for storing its film library on a month-to-month basis. The current rental rate is $210 per month. The company relinquished this space in January 1996 and is storing the film library at the corporate headquarters. NDL Products, Inc. and Point Blank Body Armor, Inc. NDL Products, Inc. and Point Blank Body Armor are obligated under a lease for its facilities with a related party (note 9). The lease commenced January 1, 1995 and expires December, 1999. The lease provides for minimum annual rentals of $300,000 for the initial year and then $480,000 the following year with scheduled increases of 4% per year thereafter, plus real estate taxes, operating costs and capital expenditures. The following is a schedule by year of future minimum lease obligations under noncancellable leases as of December 31,1995 1996 $ 523,200 1997 542,400 1998 562,368 1999 583,135 ----------- Total minimum obligation $ 2,211,103 =========== Total rental expense under cancelable and noncancellable operating leases was $440,269 and $85,989 for the years ended December 31, 1995 and 1994, respectively. EMPLOYMENT AGREEMENT Concurrent with the purchase of PACA, the President of PACA was given a five year employment agreement. This agreement calls for annual salaries ranging from $115,000 in 1993 to $155,000 in 1997, plus certain fringe benefits. During the year ended December 31, 1995, Two of NDL's officers were given three year employment contracts. These agreement calls for annual base salaries of 100,000 and 96,000 plus certain fringe benefits. OPEN LETTERS OF CREDIT At December 31, 1995 the Company was contingently liable for open unused letters of credit totaling $120,253. LITIGATION Media brought suit against an individual, corporation and others with respect to alleged representations involving the acquisition of the film library. Media is seeking compensatory and punitive damages. No determination of the outcome can be made at this time, and accordingly, there is no provision for any recoverable amount, if any included in the financial statements. ID is also involved in a lawsuit with a former consultant to the Company regarding his alleged misappropriation of several of the Company's confidential computer programs, and to restrain their dissemination. Management has commenced prosecuting its position, however, no determination of the outcome can be made at this time. 10. CAPITAL STOCK Capital stock is as follows:
1995 1994 ----------- ----------- DHB: - --- Class A Preferred stock, 10% convertible, $.01 par value, 1,500,000 shares authorized (see amendment below) Shares issued and outstanding 21,875 64,062 =========== =========== Par Value $ 219 $ 641 =========== =========== Common stock, $.001 par value, 25,000,000 shares authorized, Shares issued and outstanding 20,761,995 17,247,303 =========== =========== Par Value $ 20,762 $ 17,247 =========== ===========
Amendment to Certificate of Incorporation: In January, 1993, DHB amended its certificate of incorporation, as follows: a) To expand and qualify the relative rights and preferences of the previously authorized Preferred shares as follows: Class A Preferred stock, $.40 per annum dividend, non-voting, cumulative, convertible, $.01 par value, 1,500,000 shares authorized, no shares issued and outstanding, (redeemable in liquidation at $4 per share, or callable at $.01 per share after November 30, 1994, convertible into 2 shares of common stock.) These shares were called in November, 1995. As of December 31, 1995, the outstanding preferred shares represent shares which have not yet been surrendered for conversion. b) To eliminate preemptive rights. c) To provide for indemnification of officers and directors. d) To permit the holders of a majority of the outstanding shares of voting stock to take action by written consent. 11. PRIVATE PLACEMENTS Common Stock: During June, July, and August, 1995 the Company sold 1,955,000 shares of common stock in private placements for proceeds of $3,910,000. Out of these proceeds $45,000 of direct expenses were paid. These shares have not been registered with the Securities and Exchange Commission. During June, October, and November, 1994 the Company sold 387,500 shares of common stock in private placements for proceeds of $875,000. Out of these proceeds, direct expenses of $8,703 were paid. 12. STOCK WARRANTS During 1995, various warrants which would have expired in November, 1995 from the Company's original private placement were exercised by certain shareholders. These shareholders were issued 303,750 shares of the Company's common stock for net proceeds of $950,000. All remaining warrants for the original private placement have expired. In December, 1994, in consideration for monies loaned to the Company, the Board of Directors granted Mrs. Terry Brooks, a related party, stock warrants to purchase 2,500,000 shares of common stock for $2 per share for a five year period commencing December 19, 1994. In June, 1993, the board of directors granted stock warrants to certain individuals and organizations to purchase 295,000 shares of the Company's common stock for $2 per share during the three year period commencing July 1, 1994. The Company has reserved these shares for issuance upon the exercise of the warrants. Certain of these individuals are also employees of the Company, and the warrants issued to these employees are contingent based upon continued employment until July 1, 1994. 210,000 of the warrants issued in 1993 have been terminated by the Company. 13. STOCK DIVIDEND Subsequent to year end, the Board of Directors declared a preferred stock dividend of 7,944 common shares with a market value of $3.77 per share for the years ended December 31, 1995 and 1994, which has not yet been paid. All earnings per share data has been restated giving retroactive effect to the intended stock dividend. 14. INCOME TAXES Components of income taxes are as follows:
1995 1994 --------- --------- Current: Federal $ 5,400 $ 72,350 State 58,922 36,912 Benefit of net operating loss carryfoward (12,400) (72,350) --------- --------- Total current 51,922 36,912 --------- --------- Deferred: Federal 451,500 (459,100) State 60,300 (104,900) Less: valuation allowance (71,800) 147,700 --------- --------- Total deferred 440,000 (416,300) --------- --------- Total income taxes (benefit) $ 491,922 $(379,388) ========= =========
The composition of the federal and state deferred taxes at December 31, 1995 was arrived at as follows:
Federal State -------- -------- Net Operating Loss $ 36,000 $ -- Allowance for Doubtful Accounts 10,500 5,600 Capital Loss Carryforwards -- 70,300 Unrealized gain on Marketable Securities (52,100) (31,300) -------- -------- Subtotal (5,600) 44,600 Less: Valuation Allowance -- 75,900 -------- -------- Net Deferred Taxes $ (5,600) $(31,300) ======== ========
The Valuation Allowance changed from $147,700 at December 31, 1994 to $75,900 at December 31, 1995, for a decrease of $71,800. At December 31, 1995 the Company has operating losses available for carryfoward against future years' taxable income of approximately $240,000 for tax purposes, which would expire in 2008. The deferred tax assets for the future benefit of the capital loss carryfoward was reduced in full by a valuation allowance of $70,300 as the Company estimates that sufficient future taxable capital gains on a separate company basis for state tax purposes may not be available to provide the full realization of such an asset. 15. SUBSEQUENT EVENT As of March 7, 1996, the entire subscription received of $437,500 has been collected. 16. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS On July 16, 1996, the Company paid a 50% Stock Dividend. All data in the accompanying financial statements and related notes have been restated to give effect to the dividend. JAY HOWARD LINN Certified Public Accountant 1160 KANE CONCOURSE SUITE 205 BAY HARBOR ISLANDS, FLORIDA 33154 -------- TELEPHONE: (305) 866-8700 FAX: (305)866-8782 INDEPENDENT AUDITOR'S REPORT Board of Directors Orthopedic Products, Inc. I have audited the accompanying balance sheets of Orthopedic Products, Inc. and subsidiaries as of September 30, 1995 and 1994, and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I have conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. I believe that my audits provide a reasonable basis for my opinion In my opinion, the financial statements referred to above present fairly, in all materials respected, the financial position of Orthopedic Products, Inc. as of September 30, 1995 and 1994, and the results of its operations and its cash flows for the two years then ended in conformity with generally accepted accounting principles. APRIL 25, 1996 /s/JAY HOWARD LINN ------------------ Jay Howard Linn ----------------------------------------------------- MEMBER FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTS
ORTHOPEDIC PRODUCTS, INC. BALANCE SHEET SEPTEMBER 30, 1995 1994 ---------- ---------- ASSETS Current Assets Accounts receivable (Net of allowance for uncollectible accounts of $3,195 in both years) $ 431,254 $ 556,422 Inventories 585,248 579,637 Prepaid insurance 8,407 7,350 Income tax refund receivable 43,334 25,406 Deferred income tax benefit 12,600 -0- ---------- ---------- Total current assets 1,080,843 1,168,815 ---------- ---------- Property and Equipment (Net of accumulated depreciation of $155,793 in 1995 and 130,377 in 1994) 29,184 46,335 ---------- ---------- Other Assets: Deposits 6,230 6,230 Intangible assets (Net of accumulated amortization of $8,000 in 1995 and $7,200 in 1994) 12,000 12,800 ---------- ---------- Total other assets 18,230 19,030 ---------- ---------- TOTAL ASSETS $1,128,257 $1,234,180 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 202,571 $ 184,780 Note payable - bank 311,627 283,239 Current portion of long-term debt 41,868 14,834 ---------- ---------- Total current liabilities 556,066 482,853 ---------- ---------- Other Liabilities: Long-term debt 236,554 280,446 Due to related parties 149,100 149,100 ---------- ---------- Total other liabilities 385,654 429,546 ---------- ---------- Total liabilities 941,720 912,399 ---------- ---------- (Continued) ORTHOPEDIC PRODUCTS, INC. BALANCE SHEET SEPTEMBER 30, 1995 1994 ---------- ---------- Stockholders' Equity: Common stock - $1. Par value, 7,500 shares authorized, 1,170 shares issued and outstanding 1,170 1,170 Additional paid-in capital 90,308 90,308 Retained earnings 95,059 230,303 ---------- ---------- Total stockholders' equity 186,537 321,781 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,128,257 $1,234,180 ========== ==========
See Accompanying Notes to Financial Statements
ORTHOPEDIC PRODUCTS, INC. STATEMENT OF OPERATIONS AND RETAINED EARNINGS FISCAL YEAR ENDED SEPTEMBER 30, 1995 1994 ----------- ----------- Sales $ 3,229,249 $ 3,524,824 Cost of Goods Sold 2,195,576 2,264,585 ----------- ----------- Gross Profit 1,033,673 1,260,239 ----------- ----------- Operating Expenses: Selling 654,587 712,883 Administrative 544,858 661,418 ----------- ----------- Total operating expenses 1,199,445 1,374,301 ----------- ----------- Income (Loss) Before Income Taxes (165,772) (114,062) Income Tax Benefit; Current 17,928 8,785 Deferred 12,600 -0- ----------- ----------- Total income tax benefit 30,528 8,785 ----------- ----------- Net Loss (135,244) (105,277) Retained Earnings - Beginning 230,303 335,580 ----------- ----------- Retained Earnings - End $ 95,059 $ 230,303 =========== ===========
See Accompanying Notes to Financial Statements.
ORTHOPEDIC PRODUCTS, INC. STATEMENTS OF CASH FLOWS FISCAL YEAR ENDED SEPTEMBER 30, 1995 1994 --------- --------- Cash Flows from Operating Activities: Net Income $(135,244) $(105,277) --------- --------- Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 22,540 20,469 Sales tax audit expense 0 184,998 Deferred income tax benefit (12,600) 0 Changes in assets and liabilities: Decrease (increase) in accounts receivable 125,168 (19,542) Increase in inventory (5,611) (65,066) Increase in prepaid insurance (1,057) (7,350) Increase in income tax refund receivable (17,928) (23,782) Increase (decrease) in accounts payable and accrued expenses 17,791 (93,237) --------- --------- Net adjustments 128,303 (3,510) --------- --------- Net cash used by operating activities (6,941) (108,787) --------- --------- Cash flows From Investing Activities: Purchase of Equipment (4,589) (1,511) Additional security deposits 0 (810) --------- --------- Net cash used by investing activities (4,589) (2,321) --------- --------- Cash Flows from Financing Activities: Net bank borrowings 28,388 106,990 Principal payment on long-term debt (16,858) (8,867) --------- --------- Net cash provided by financing activities 11,530 98,123 --------- --------- Net Change in Cash 0 (12,985) Cash - October 1, 0 12,985 --------- --------- Cash - September 30, $ 0 $ 0 ========= ========= Cash Paid For: Interest $ 37,350 $ 21,061 Income Taxes 0 14,997 Non Cash Acquisition of Equipment 0 49,581
See Accompanying Notes to Financial Statements ORTHOPEDIC PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 NOTE 1. SIGNIFICANT ACCOUNTING POLICIES: Organization - The company sells orthopedic and other medical supplies primarily throughout the Southeastern United States. Accounts Receivable - The allowance for uncollectible accounts is determined on the basis of the company's experience with its customers. Inventories - Inventories, consisting primarily of finished goods for resale and raw materials are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis. Property and Equipment - Property and equipment is recorded at cost and depreciated in amounts sufficient to relate the cost of the assets to operations over their estimated useful lives, using accelerated methods. Intangible Asset - Goodwill is being amortized, using the straight line method, over 25 years. Income Taxes - The Company has adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." There are no temporary differences between financial statement and income tax reporting. NOTE 2. NOTE PAYABLE - BANK The Company has revolving credit facility of $450,000 from First Union National Bank. It bears interest at 1% above prime. It is collateralized by inventories, accounts receivable, property and equipment and guarantees by the stockholders. Under the terms of the credit facility, the bank advances funds (up to the credit limit) to cover the Company's checks as they are presented. The Company has $218,754 outstanding against that line and a net overdraft of $62,964 or a total of $281,718 at September 30, 1995 and $274,735 outstanding and a net overdraft of $8,504 or a total of $283,239 at September 30, 1994. NOTE 3. LONG TERM DEBT Long-term debt consists of: 9.71%, note payable, due in monthly installments of $1,876, including interest, with final payment due June 1999. Equipment with an original cost of $89,943 is pledged as collateral $ 70,449 $ 85,282 9.0%, note payable, (Note 5), due in monthly installments of $3,600 per month, with a final payment due September 2001 207,973 209,998 -------- -------- 278,422 295,280 Less current maturities 41,868 14,834 -------- -------- Long-Term Debt $236,554 $280,446 ======== ========
As of September 30, 1995, annual maturities of long-term debt outstanding for the next five years are as follows: 1996 $ 41,868 1997 61,221 1998 63,062 1999 59,416 2000 and thereafter 52,855 -------- Total $278,422 NOTE 4. DUE TO RELATED PARTIES The Company owes its stockholder-officers $149,100 as accrued salaries from prior years. It is anticipated that this amount will not be repaid within the next twelve months. NOTE 5. SALES TAX AUDIT SETTLEMENT: The Florida Department of Revenue conducted an audit of Sales and Use Tax collections for the period January 1, 1985 to October 31, 1992. The Company settled the audit for $209,998, with interest accruing at 9% per annum. The note is payable in seventy-two monthly payments of $3,600. Initially the payments are applied in full to the tax liability. Once the tax liability is paid in full, July 15, 2000 the payments are applied to the accrued interest. Although the settlement was concluded in 1995, effect was given to it in the year ended September 30, 1994. The company now collects and remits Florida sales taxes on those sales deemed to be taxable. NOTE 6. INCOME TAXES Components of income taxes benefit (expense) are as follows:
1995 1994 ------- ------- Current: Federal $17,928 $ 8,875 State -0- -0- ------- ------- Total current $17,928 $ 8,875 ------- ------- Deferred: Federal 12,600 -0- State -0- -0- ------- ------- Total deferred benefit 12,600 -0- ------- ------- Total income taxes benefit (expense) $30,528 $8,875 ======= ======
The composition of deferred taxes at September 30, 1995 was $12,600 for Federal taxes. The Company has not provided for valuation allowance at September 30, 1995, because the Company anticipates they will be able to utilize the carryforward losses before they expire. At September 30, 1995 the Company has operating losses available for carryforward against future years' taxable income of approximately $84,000 for tax purposes, which would expire in 2010. NOTE 7. COMMITMENT AND CONTINGENCY: The following is a schedule by year of future minimum lease obligations under noncancellable leases as of September 30, 1995. 1996 $ 83,602 1997 83,602 1998 83,602 1999 76,635 --------- $327,441 ========= Total rental expense under cancelable and noncancellable operating leases was $84,814 and $80,374 for the years ended September 30, 1995 and 1994, respectively.
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------ ------------ (UNAUDITED) ASSETS Current Assets Cash and cash equivalents ..................... $ 198,314 $ 475,108 Marketable securities ........................ 3,277,246 1,829,856 Accounts receivable, less allowance for doubtful accounts of $80,695 & $70,000 ....... 5,510,197 3,819,571 Inventories .................................. 8,178,886 7,856,199 Prepaid expenses and other current assets .... 839,846 208,510 ------------ ------------ Total Current Assets ......................... 18,004,489 14,189,244 ------------ ------------ Property, and Equipment, at cost, less accumulated depreciation of $498,313 and $325,454 ........ 1,632,438 1,077,066 ------------ ------------ Other Assets Intangible assets, net ....................... 733,895 721,327 Investment in non-marketable securities ...... 3,316,750 3,316,750 Deposits and other assets .................... 431,538 160,821 ------------ ------------ Total Other Assets ........................... 4,482,183 4,198,898 ------------ ------------ Total Assets ................................. $ 24,119,110 $ 19,465,208 ============ ============ LIABILITIES AND EQUITY Current Liabilities Note payable ................................. $ 1,400,000 $ 2,550,000 Current Maturities ........................... 60,000 -- Accounts payable ............................. 2,133,923 2,847,690 Accrued expenses and other liabilities ....... 110,594 301,068 Deferred taxes payable ....................... 11,100 23,700 Income taxes payable ......................... 486,007 50,782 ------------ ------------ Total Current Liabilities .................... 4,201,624 5,773,240 ------------ ------------ Long Term Debt Long Term Debt ............................... 160,765 -- Due to shareholder ........................... 1,300,000 1,890,000 ------------ ------------ Total Long Term Debt ......................... 1,460,765 1,890,000 ------------ ------------ Total Liabilities ............................ 5,662,389 7,663,240 ------------ ------------ DHB CAPITAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------ ------------ (UNAUDITED) Stockholders' Equity Preferred stock .............................. -- 219 Common stock ................................. 22,890 20,762 Additional paid-in capital ................... 17,058,770 12,116,549 Common stock subscription receivable ......... (227,500) (437,500) Retained earnings ............................ 1,602,561 101,938 ------------ ------------ Total Stockholders' Equity ................... 18,456,721 11,801,968 ------------ ------------ Total Liabilities and Shareholders' Equity ....... $ 24,119,110 $ 19,465,208 ============ ============ See Accompanying notes to financial statements
DHB CAPITAL GROUP INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 ---- ---- Net Sales ........................................ $ 6,226,028 $ 4,402,281 Cost of sales .................................... 3,908,427 3,094,346 ------------ ------------ Gross Profit .................................. 2,317,601 1,307,935 Selling, general and administrative expenses .... 1,911,889 1,535,331 ------------ ------------ Income (loss) before other income (expense) ... 405,712 (227,396) Other Income (Expense) Interest expense, net of interest ............. (85,389) (107,570) Dividend income ............................... 8,199 -- Realized gain (loss) on marketable securities . (94,799) 607,184 Unrealized gain (loss) on marketable securities 343,039 (96,812) ------------ ------------ Total Other Income (Expense) ................ 171,050 402,802 ------------ ------------ Income before income taxes .................... 576,762 175,406 Income taxes .................................. 176,890 4,453 ------------ ------------ Net Income .................................... 399,872 170,953 Retained Earnings - Beginning ................ 1,210,316 36,920 Stock Dividend Paid ........................... (7,627) -- ------------ ------------ Retained Earnings - End ...................... $ 1,602,561 $ 207,873 ============ ============ Earnings per common share: Primary ..................................... $ 0.018 $ 0.009 Fully Diluted ............................... $ 0.018 $ 0.009 Weighted average number of common shares outstanding after giving effect to the 50% stock dividend.: Primary ..................................... 22,216,440 19,467,222 Fully Diluted ............................... 22,738,440 19,467,222 See accompanying notes to financial statements.
DHB CAPITAL GROUP INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ------------ ------------ Net Sales ............................................ $ 19,875,112 $ 9,671,801 Cost of sales ........................................ 13,448,751 6,583,232 ------------ ------------ Gross Profit ....................................... 6,426,361 3,088,569 Selling, general and administrative expenses ......... 5,674,660 3,683,942 ------------ ------------ Income (loss) before other income (expense) ........ 751,701 (595,373) Other Income (Expense) Interest expense, net of interest .................. (247,990) (195,955) Dividend income .................................... 24,329 -- Realized gain (loss) on marketable securities ...... (383) 646,271 Unrealized gain (loss) on marketable securities .... 1,469,702 513,580 ------------ ------------ Total Other Income (Expense) ..................... 1,245,658 963,896 ------------ ------------ Income before income taxes ......................... 1,997,359 368,523 Income taxes ....................................... 489,109 18,113 ------------ ------------ Net Income ......................................... 1,508,250 350,410 Retained Earnings (Deficit) - Beginning ............ 101,938 (142,537) Stock Dividend Paid ................................ (7,627) -- ------------ ------------ Retained Earnings - End ............................ $ 1,602,561 $ 207,873 ============ ============ Earnings per common share: Primary .......................................... $ 0.068 $ 0.018 Fully Diluted .................................... $ 0.066 $ 0.018 Weighted average number of common shares outstanding after giving effect to 50% stock dividend Primary .......................................... 22,216,440 19,467,222 Fully Diluted .................................... 22,738,440 19,467,222 See accompanying notes to financial statements.
DHB CAPITAL GROUP INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income ..................................... $ 1,508,250 $ 350,410 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................ 193,084 76,431 Changes in assets and liabilities (Increase) Decrease in: Accounts receivable .......................... (1,690,626) (1,286,734) Marketable securities ........................ (1,447,390) (748,853) Inventories .................................. (322,687) (2,711,948) Prepaid expenses and other current assets .... (631,336) (228,548) Other assets ................................. (270,717) (201,862) Increase (Decrease) in: Accounts payable ............................. (713,767) 642,017 Accrued expenses and other current liabilities (190,473) 629,351 Deferred taxes payable ....................... (12,600) -- State income taxes payable ................... 435,224 -- ----------- ----------- Net cash used by operating activities ........... (3,143,038) (3,479,736) CASH FLOWS FROM INVESTING ACTIVITIES Cash payments for the purchase of property ..... (761,024) (239,432) Net advances to broker ......................... -- (1,938,750) ----------- ----------- Net cash used by investing activities .......... (761,024) (2,178,182) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long term debt .......... (22,808) -- Proceeds from the issuance of debt ............ 243,573 -- Net repayments on line of credit .............. (1,150,000) -- Net borrowings (repayment) of shareholder loans (590,000) 750,000 Net proceeds from sale of common stock ........ 5,146,503 4,582,500 ----------- ----------- Net cash provided by financing activities ...... 3,627,268 5,332,500 ----------- ----------- NET DECREASE IN CASH AND EQUIVALENT ............. (276,794) (325,418) CASH AND CASH EQUIVALENTS - BEGINNING ............ 475,108 407,425 ----------- ----------- CASH AND CASH EQUIVALENTS - END .................. $ 198,314 $ 82,007 =========== ===========
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION/REPORTING ENTITIES The consolidated financial statements of DHB Capital Group, Inc. and Subsidiaries (the "Company") are unaudited and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The consolidated Company includes the following entities: DHB Capital Group, Inc. DHB Capital Group Inc. ("DHB") was incorporated on October 22, 1992 under the laws of the State of New York. DHB was organized to seek, acquire and finance, as appropriate, one or more operating companies. On February 15, 1995, the holders of the common stock approved a re-incorporation of DHB as a Delaware corporation, through a merger with a newly formed Delaware corporation. Protective Apparel Corporation of America Protective Apparel Corporation of America ("PACA") was organized in 1975 and is engaged in the development, manufacture and distribution of bullet and projectile resistant garments, including bullet resistant vests, fragmentation vests, bomb projectile blankets and tactical load bearing vests. In addition, PACA distributes other ballistic protection devices including helmets and shields. PACA is dependent upon a few suppliers for the raw materials utilized to manufacture its products. On November 6, 1992, PACA became a wholly-owned subsidiary of DHB, when DHB purchased all of the issued and outstanding stock of PACA from PACA's former parent, E.S.C. Industries, Inc, for $800,000. The transaction was accounted for as a purchase and resulted in an excess purchase price over the fair market value of the identifiable assets acquired and liabilities assumed of $465,278, of which $312,086 was allocated to on-going government contracts and $153,192 was allocated to goodwill. Intelligent Data Corp. On April 1, 1994, the Company acquired 4,530,000 common shares (60.4% interest) and 1,100,000 preferred shares of stock in Intelligent Data Corp. ("ID"), in exchange for 425,000 shares of the Company's common stock. ID is engaged in the development of sophisticated telecommunication systems. On July 1, 1994, a put option was exercised by certain shareholders of ID resulting in an increase in the Company's ownership to 89.58%. In December 1994, the Company converted all of its preferred shares to common shares, increasing the Company's ownership to 98.35%. This transaction was accounted for as a purchase, and resulted in an excess purchase price over the fair value of identifiable assets acquired and liabilities assumed of $472,666 which was allocated to patents owned by ID. DHB CAPITAL GROUP, INC. AND SUBSIDIARIES UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 DHB Media Group, Inc. On April 15, 1994, DHB Media Group, Inc. ("Media"), a wholly-owned subsidiary of the Company acquired all of the outstanding common stock of Royal Acquisition Corp. in exchange for 100,000 shares of the Company's common stock, for a purchase price of $300,000. Subsequent negotiations resulted in the reduction of the acquisition cost by $36,550. Royal Acquisition Corp.'s primary assets were a film library and a loan receivable of $150,000. The transaction was accounted for as a purchase and resulted in the excess purchase price over the fair market value of $113,450, of which $54,000 was allocated to the film library and $59,450 was allocated to goodwill. Media intends to syndicate and market these films. The loan receivable was collected in full during the year ended December 31, 1994. NDL Products, Inc. On December 20, 1994, the Company through a newly organized, wholly-owned subsidiary, DHB Acquisition, Inc., ("Acquisition") purchased certain assets from a debtor-in-possession, N.D.L. Products, Inc. for $3,080,000. Acquisition did not assume any continuing obligations of the debtor-in-possession, nor did the management of the debtor-in-possession continue. On February 21, 1995, Acquisition changed its corporate name to NDL Products, Inc. NDL manufactures and distributes specialized protective athletic apparel and equipment. DHB Armor Group, Inc. On August 8, 1995, the Company formed a new Delaware Corporation which is a wholly-owned subsidiary of the Company. The subsidiary, DHB Armor Group, Inc., ("Armor"), now wholly owns PACA and Point Blank Body Armor, Inc., ("Point Blank"). Point Blank Body Armor, Inc. In August 1995, the Company, through a wholly-owned subsidiary known as USA Fitness & Protection Corp, a Delaware Corporation, acquired from a trustee in bankruptcy certain assets of Point Blank Body Armor, L.P. and an affiliated company ("Old Point Blank"), for a cash payment of $2,000,000, free of all liabilities. Prior to the filing of the petition in bankruptcy, Old Point Blank had been a leading U.S. manufacturer of bullet-resistant garments and related accessories. After acquiring the Old Point Blank, USA Fitness & Protection Corp., amended its articles of incorporation to change their name to Point Blank Body Armor, Inc. ("Point Blank"). Orthopedic Products, Inc. On March 22 and March 26, 1996, the Company exchanged a total of 180,000 shares of its registered common stock to acquire 100% of the common stock of OPI, a Florida Corporation engaged in the manufacturing and distribution of orthopedic products to the medical industry. This transaction was accounted for as a purchase, and resulted in an excess purchase price over the fair value of identifiable assets acquired and liabilities assumed which was allocated to goodwill. Fifty thousand of these shares are restricted as follows: 25,000 shares cannot be sold until March 22, 1997 and 25,000 shares cannot be sold until March 22, 1998. DHB CAPITAL GROUP, INC. AND SUBSIDIARIES UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 PRINCIPLES OF CONSOLIDATION All material intercompany transactions have been eliminated in the consolidated financial statements. MARKETABLE/NON-MARKETABLE SECURITIES Effective for calendar year 1994, the Company adopted Financial Accounting Standards Board Statement No. 115 "Accounting for Certain Investments in Debt and Equity Securities." In accordance with this standard, Securities which are classified as "trading securities" are recorded in the Company's balance sheet at fair market value, with the resulting unrealized gain or loss recognized as income in the current period. Securities which are classified as "available for sale" are also reported at fair market value, however, the unrealized gain or loss on these securities is listed as a separate component of shareholder's equity. Non-marketable securities, such as investments in privately-held companies are carried at historical cost, if necessary, reduced by a valuation allowance to net realizable value. The Company actively seeks to acquire and finance, as appropriate, additional operating companies or interest therein. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and taxes 1996 1995 ---- ---- Interest 285,238 51,106 Taxes 33,301 24,612
Noncash transactions: The Company had noncash transactions in March 1996 when the Company issued 180,000 shares of their common stock in lieu of a cash payment of $579,000 to acquire OPI and in June 1996 when the Company's preferred stock was converted into two shares of Common Stock for each share of preferred stock outstanding. 50% STOCK DIVIDEND On July 1, 1996, the Board of Directors of the Company declared a 50% Stock Dividend payable on July 16, 1996, to shareholders of record as of July 15, 1996. As a result thereof, the number of outstanding shares of the Common Stock has been increased from 15,303,019 to 22,954,529. The weighted average number of shares and earnings per share have been restated to give effect to the 50% stock dividend. EARNINGS PER SHARE The computation of earnings per common share is based on the weighted average number of outstanding common shares outstanding during the period. Primary earnings per share and fully diluted earnings per share amounts assume the conversion of the Cumulative Convertible Preferred Stock, and the exercise of the stock warrants. DHB CAPITAL GROUP, INC. AND SUBSIDIARIES UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 2. SUBSEQUENT EVENTS Merger with The Lehigh Group On July 8, 1996, the Company and The Lehigh Group, Inc. entered into a definitive merger agreement whereby the Company would merge into a wholly-owned subsidiary of Lehigh. Lehigh, whose common stock is listed on the New York Stock Exchange, is engaged in the distribution of electrical supplies for export and import. On October 11, 1996 the Company terminated the merger agreement. This action was taken pursuant to the provisions of the merger agreement which provided for termination if any action or proceeding is brought before a court to prohibit the transaction contemplated. A lawsuit was recently filed against Lehigh seeking to restrain or prohibit the transaction. The Company experienced no material expenses associated with this transaction or the termination of this transaction.
ORTHOPEDIC PRODUCTS, INC. BALANCE SHEET DECEMBER 31, 1995 Unaudited --------- ASSETS Current Assets: Accounts receivable (Net of allowance for uncollectible accounts of $3,195) $ 459,645 Inventories 593,650 Prepaid income taxes 43,334 Deferred income tax benefit 12,600 ---------- Total Current Assets $1,109,229 Property and Equipment (Net of accumulated depreciation of $154,874) 26,427 Other Assets: Deposits 6,230 Intangible assets (Net of accumulated amortization of $8,201) 11,799 ---------- Total Other Assets 18,029 ---------- TOTAL ASSETS $1,153,685 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 238,631 Note payable - bank 310,173 Current portion of long-term debt 42,849 ---------- Total Current Liabilities $ 591,653 Other Liabilities: Long-term debt 225,467 Due to related parties 149,100 ---------- Total Other Liabilities 374,567 ---------- Total Liabilities 966,220 ========== Stockholders' Equity: Common stock - $1. Par value, 7,500 shares authorized, 1,170 shares issued and outstanding 1,170 Additional paid-in capital 90,308 Retained earnings 95,987 ---------- Total Stockholders' Equity 187,465 ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,153,685 ==========
ORTHOPEDIC PRODUCTS, INC. STATEMENT OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 Unaudited --------- Sales $738,823 Cost of Goods Sold 481,214 -------- Gross Profit $257,609 Operating Expenses: Selling 142,090 Administrative 114,591 -------- Total Operating Expenses 256,681 -------- Income Before Income Taxes 928 Provision for Income Taxes 0 -------- Net Income 928 Retained Earnings - October 1, 1995 95,059 -------- Retained Earnings - December 31, 1995 $ 95,987 ========
ORTHOPEDIC PRODUCTS, INC. STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 Unaudited --------- Cash Flows from Operating Activities: Net Income $ 928 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization $ 2,958 Changes in Current Assets and Liabilities: Increase in accounts receivable (28,391) Increase in inventory (8,402) Decrease in prepaid insurance 8,407 Increase in accounts payable and accrued expenses 36,060 -------- Net Adjustments 10,632 -------- Net cash provided by operating activities 11,560 Cash Flows from Financing Activities: Net bank repayments (1,454) Principal payment on long-term debt (3,940) Payment on sales tax audit settlement (6,166) -------- Net cash used by financing activities (11,560) -------- Net Change in Cash -0- Cash - October 1, 1994 -0- -------- Cash - December 31, 1995 $ -0- ======== Cash Paid For: Interest $ 13,559 Income Taxes -0-
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS INTRODUCTION The unaudited pro forma data presented in the unaudited pro forma combined financial statements are included in order to illustrate the effect on the Company's financial statements of the transactions described below. The pro forma information is based on the historical financial statements of the Companies. The unaudited pro forma combined statement of operations data for the year ended December 31, 1995 and the six months ended June 30, 1996 present adjustments for the combinations of the Company with Orthopedic Products Inc. On March 22, 1996, the Company exchanged a total of 270,000 shares of its common stock with a value of approximately $376,000 to acquire 100% of the common stock of Orthopedic Products, Inc, a Florida corporation. This transaction was accounted for as a purchase, and resulted in an excess purchase price over the fair value of identifiable assets acquired and liabilities assumed of approximately $57,000 which was allocated to goodwill. In the opinion of management, all adjustments have been made that are necessary to present fairly the pro forma data. The unaudited pro forma combined financial statements should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto, and the Financial Statements and the Notes thereto of Orthopedic Products Inc, appearing elsewhere in this Prospectus. The pro forma combined statement of income (loss) data are not necessarily indicative of the results that would have been reported had such events actually occurred on the date specified, nor are they indicative of the Company's future results.
DHB CAPITAL GROUP INC. AND SUBSIDIARIES and ORTHOPEDIC PRODUCTS, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS) DHB Capital and Orthopedic Pro forma Subsidiaries Products Adjustments Consolidated ------------ ---------- ----------- ------------ Net sales ....................................................... $ 14,494 $ 3,086 $ -- $ 17,580 Cost of sales ................................................... 9,089 2,087 -- 11,176 -------- -------- -------- -------- Gross Profit ................................................ 5,405 999 0 6,404 (44) (1) Selling, general and administrative expenses .................... 5,140 1,238 4 (2) 6,338 -------- -------- -------- -------- Income before other income (expense) ........................ 265 (239) 40 66 -------- -------- -------- -------- Other Income (Expense) Interest expense, net of interest income .................... (304) -- -- (304) Dividend income ............................................. 2 -- -- 2 Payment to rescind restrictive covenant ..................... (250) -- -- (250) Write-off of uncollectible loan receivable .................. -- -- -- 0 Realized gain on marketable securities ...................... 676 -- -- 676 Unrealized gain on marketable securities .................... 347 -- -- 347 -------- -------- -------- -------- Total Other Income (Expense) ............................. 471 -- -- 471 -------- -------- -------- -------- Income (loss) before discontinued operations .................... 736 (239) 40 537 Income from discontinued operations ......................... -- -- -- 0 -------- -------- -------- -------- Income (loss) before income tax (benefit) ....................... 736 (239) 40 537 Income taxes (benefit) ................................... 492 (40) 0 452 -------- -------- -------- -------- Net Income (loss) ............................................... $ 244 ($ 199) $ 40 $ 85 ======== ======== ======== ========
(1) Assuming DHB acquired Orthopedic Products as of January 1, 1995, the debt would have been repaid as of January 1, 1995 and accordingly, the interest expense of $44,000 pertaining to the debt would have been eliminated. (The repayment of the debt was a stipulation in the purchase agreement) (2) To amortize the $56,751 goodwill on OPI acquisition based over a 15 year life with an annual expense of $3,783.
DHB CAPITAL GROUP INC. AND SUBSIDIARIES and ORTHOPEDIC PRODUCTS, INC UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS) DHB Capital Jan 1 - March 22 and Orthopedic Pro forma Subsidiaries Products Adjustments Consolidated ------------ ---------------- ----------- ------------ Net sales .................................................... $19,875 $ 643 $ -- $20,518 Cost of sales ................................................ 13,449 442 -- 13,891 ------- ------- ------- ------- Gross Profit .............................................. 6,426 201 0 6,627 (10) (1) Selling, general and administrative expenses ................. 5,675 75 1 (2) 5,741 ------- ------- ------- ------- Income before other income (expense) ...................... 751 126 9 886 ------- ------- ------- ------- Other Income (Expense) Interest expense, net of interest income .................. (248) -- -- (248) Dividend income ........................................... 24 -- -- 24 Unrealized gain on marketable securities .................. 1,470 -- -- 1,470 ------- ------- ------- ------- Total Other Income (Expense) .......................... 1,246 -- -- 1,246 ------- ------- ------- ------- Income (loss) before discontinued operations ................. 1,997 126 9 2,132 Income from discontinued operations ....................... -- -- -- 0 ------- ------- ------- ------- Income (loss) before income tax (benefit) .................... 1,997 126 9 2,132 Income taxes (benefit) ................................ 489 22 0 511 ------- ------- ------- ------- Net Income (loss) ............................................ $ 1,508 $ 104 $ 9 $ 1,621 ======= ======= ======= =======
(1) Upon the acquisition date DHB paid an debt of Orthopedic Products, an accordingly, the the interest expense of $10,000 pertaining to this debt would have been eliminated. ( The repayment of the debt was a stipulation in the purchase agreement) (2) To Record the $946 amoritization of the $56,751 goodwill on the OPI acquisition for three months based on a 15 year life SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DHB CAPITAL GROUP INC. Date: January 21, 1997 By: /s/ Mary Kreidell ------------------ Mary Kreidell, Treasurer EX-23.1 2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm, Capraro, Centofranchi, Kramer & Co., P.C., under the caption "Experts," and to the use of our report dated March 14, 1996, on the consolidated balance sheet of DHB Capital Group, Inc. and Subsidiaries, as of December 31, 1995, and the related consolidated statements of income (loss), stockholders' equity (deficit) and cash flows for the years ended December 31, 1995 and 1994, in its Form 8-K dated January 21, 1997. /s/ Capraro, Centofranchi, Kramer & Co., P.C. --------------------------------------------- Capraro, Centofranchi, Kramer & Co., P.C. South Huntington, New York January 21, 1997 CONSENT OF INDEPENDENT AUDITORS I consent to the reference to my firm, Jay Howard Linn, Certified Public Accountant, under the caption "Expert," and to the use of my report dated April 25, 1996, on the balance sheet of Orthopedic Products, Inc., as of September 30, 1995 and 1994, and the related statements of operations and retained earnings and cash flows for the years ended September 30, 1995 and 1994, in its Form 8-K dated January 21, 1997. /s/ Jay Howard Linn ------------------- Jay Howard Linn Bay Harbor Islands, Florida January 21, 1997 -----END PRIVACY-ENHANCED MESSAGE-----