-----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, Hdo9c6X0qhuafKm1S43JH4tK254Fkr3LKXwLviQFPrTtGDTVfcfZTgw733kUp5ZA vL3VzD6CkKJniK+Z2D91Pg== 0000914317-98-000549.txt : 19980826 0000914317-98-000549.hdr.sgml : 19980826 ACCESSION NUMBER: 0000914317-98-000549 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980825 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: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 001-13112 FILM NUMBER: 98697048 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 10KSB/A 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB/A No. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from_______ to ________ Commission File No. 0-22429 DHB CAPITAL GROUP INC. (Name of small business issuer in its charter) Delaware 11-3129361 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) 11 Old Westbury Road, Old Westbury, New York 11568 (Address of principal executive offices) Issuer's telephone number: (516) 997-1155 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 Par Value (Title of Class) Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B and no disclosure will be contained, to the best of the registrant's knowledge, in the definitive proxy or information statements incorporated by Reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [ ] Issuer's revenues for the most recent fiscal year: $33,271,607 Aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock sold, or the average bid and asked price of such stock, as of March 20, 1998: $26,067,436. Number of shares outstanding of the issuer's common equity, as of March 20, 1998 (exclusive of securities convertible into common equity) : 24,837,229 The filing Form 10-KSB/A No. 1 amends the Annual Report on Form 10KSB Dated March 20, 1998 of DHB Capital Group Inc. (the Company). The undersigned Registrant hereby amends the following items, the weighted average number of shares on the statements of operations and retained earnings in the financial statements on Form 10-KSB dated March 20, 1998. DHB CAPITAL GROUP, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS CONTENTS INDEPENDENT AUDITORS' REPORT Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 Consolidated Notes to the Financial Statements Schedule II Valuation and Qualifying Accounts 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, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. 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 audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 audit 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, 1997 and the results of its operations and its cash flows for the year ended December 31, 1997 in conformity with generally accepted accounting principles. /s/Paritz and Company P.A. - ------------------------- Paritz and Company P.A. Hackensack, New Jersey March 11, 1997 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, 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. 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 audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 audit 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, 1996 and the results of its operations and its cash flows for the year ended December 31,1996 in conformity with generally accepted accounting principles. /s/Capraro, Centofranchi, and Kramer Co P.C. - -------------------------------------------- Capraro, Centofranchi, and Kramer Co P.C. So. Huntington, NY March 21, 1997
DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 1996 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents ..................................... $ 882,884 $ 1,249,655 Marketable securities ......................................... 1,703,806 1,342,027 Accounts receivable, less allowance for doubtful accounts of $353,320 and $303,320 ....................... 6,285,181 3,499,535 Inventories ................................................... 12,543,474 7,290,205 Prepaid expenses and other current assets ..................... 727,421 255,218 ----------- ----------- Total Current Assets ........................... 22,142,766 13,636,640 ----------- ----------- PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization ........................... 2,374,085 1,834,777 ----------- ----------- OTHER ASSETS Intangible assets, net ...................................... 588,017 214,213 Investments in non-marketable securities .................... 1,688,750 2,316,750 Deferred tax assets ......................................... 455,300 819,300 Deposits and other assets ................................... 425,711 338,739 ----------- ----------- Total Other Assets ............................. 3,157,778 3,689,002 ----------- ----------- TOTAL ASSETS ................................... $27,674,629 $19,160,419 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Note payable - bank ......................................... $ 2,675,000 $ 1,400,000 Current maturities of long term debt ........................ 65,192 61,664 Accounts payable ............................................ 5,072,929 3,019,804 Accrued expenses and other current liabilities .............. 708,631 254,774 ----------- ----------- Total Current Liabilities ...................... 8,521,752 4,736,242 ----------- -----------
DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 1996 ----------- ----------- LONG TERM LIABILITIES Long term debt, net of current maturities .................... 111,258 144,091 Notes Payable shareholder .................................. 1,300,000 1,300,000 ----------- ----------- Total Long Term Debt ........................... 1,411,258 1,444,091 ----------- ----------- Total Liabilities .............................. 9,933,010 6,180,333 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY .......................................... 17,741,619 12,980,086 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... $27,674,629 $19,160,419 =========== ===========
See accompanying notes to financial statements.
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 1996 ------------ ----------- Net sales ................................................... $ 33,271,607 $ 23,378,698 Cost of sales ............................................... 22,153,925 19,027,741 ------------ ------------ Gross Profit .......................................... 11,117,682 4,350,957 Selling, general and administrative expenses ............... 9,641,655 8,668,950 ------------ ------------ Income(Loss) before other income (expense) ............ 1,476,027 (4,317,993) ------------ ------------ Other Income (Expense) Interest expense, net of interest income .............. (339,754) (327,347) Other income .......................................... 51,599 24,350 Write-down of net assets in Subsidiary ................ -- (529,578) Loss on holding of equity investments ................. 372,000 (1,000,000) Realized gain on marketable securities ................ (72,175) 381,337 Unrealized gain on marketable securities .............. 449,702 69,168 ------------ ------------ Total Other Income (Expense) ................. 461,372 (1,382,070) ------------ ------------ Income (loss) before income taxes (benefit) ........... 1,937,399 (5,700,063) Income taxes (benefit) ................................ 396,509 (834,191) ------------ ------------ Net Income (loss) ..................................... $ 1,540,890 $ (4,865,872) ============ ============ Earnings (loss) per common share Primary ...................................... $ 0.06 ($ 0.22) ============ ============ Fully Diluted ................................ $ 0.05 ($ 0.20) ============ ============ Primary weighted average number of shares outstanding . 24,837,771 22,530,504 Warrants .............................................. 2,695,719 2,349,017 ------------ ------------ Fully Diluted weighted average number of shares outstanding ........................................ 27,533,490 24,879,521 ============ ============
See accompanying notes to financial statements.
DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 Number of Number of Additional Preferred Par Common Par Paid-in Shares Value Shares Value Capital ------ ----- ------ ----- ------- Balance December 31, 1995 ............... 21,875 $ 219 20,761,991 $ 20,762 $ 12,123,470 Net Loss for the year ended Dec 31, 1996 -- -- -- -- -- Issuance of stock to purchase subsidiary -- -- 180,000 180 578,820 Stock issued to buy-out lease ........... -- -- 6,000 6 79,994 Sale of common stock .................... -- -- 1,345,000 1,345 4,806,154 Conversion of preferred stock into Common Stock ....................... (21,875) (219) 43,750 44 175 Common Stock - 50% dividend ............. -- -- 717,828 718 -- Preferred Dividend - Common Stock ....... -- -- 7,939 8 -- Fee for services regarding dividends .... -- -- -- -- (5,000) Stock issued for services ............... -- -- 83,500 83 372,417 ------- ---------- ---------- ------------ ------------ Balance December 31, 1996 ............... 0 0 23,146,008 $ 23,146 $ 17,956,030 Net Income for the year ended 12-31-97 .. -- -- -- -- -- Issuance of stock to purchase subsidiary -- -- 666,000 666 999,334 Stock issued to purchase lease .......... -- -- 144,200 144 209,856 Sale of common stock .................... -- -- 1,825,000 1,825 3,648,175 Stock issued for services ............... -- -- 13,500 13 67,487 Exercise of warrants .................... -- -- 100,000 100 149,900 Fee for services regarding stock issued . -- -- -- -- (9,171) Stock issued in settlement of a lawsuit . -- -- 75,000 75 149,925 Stock returned in settlement of a lawsuit -- -- (38,625) (38) (73,596) Effect of foreign currencytranslation ... -- -- -- -- -- Purchase of treasury stock .............. -- -- (583,859) (584) (2,144,833) ------- ---------- ---------- ------------ ------------ Balance December 31, 1997 ............... 0 0 25,347,224 $ 25,347 $ 20,953,107 ======= ========== ============ ============ ============
Common Stock Foreign Subscription Currency Retained Receivable Translation Earnings Total ---------- ----------- -------- ----- Balance December 31, 1995 ............... $ (437,500) $ 0 $ 95,017 $ 11,801,968 Net Loss for the year ended Dec 31, 1996 -- -- $ (4,865,872) $ (4,865,872) Issuance of stock to purchase subsidiary -- -- -- 579,000 Stock issued to buy-out lease ........... -- -- -- 80,000 Sale of common stock .................... 210,000 -- -- 5,017,499 Conversion of preferred stock into Common Stock ....................... -- -- -- -- Common Stock - 50% dividend ............. -- -- (718) -- Preferred Dividend - Common Stock ....... -- -- (17) (9) Fee for services regarding dividends .... -- -- -- (5,000) Stock issued for services ............... -- -- -- 372,500 ------------ ----------- ------------ ------------ Balance December 31, 1996 ............... $ (227,500) $ 0 $ (4,771,590) $ 12,980,086 Net Income for the year ended 12-31-97 .. -- -- 1,540,890 1,540,890 Issuance of stock to purchase subsidiary -- -- -- 1,000,000 Stock issued to purchase lease .......... -- -- -- 210,000 Sale of common stock .................... 227,500 -- -- 3,877,500 Stock issued for services ............... -- -- -- 67,500 Exercise of warrants .................... -- -- -- 150,000 Fee for services regarding stock issued . -- -- -- (9,171) Stock issued in settlement of a lawsuit . -- -- -- 150,000 Stock returned in settlement of a lawsuit -- -- -- (73,634) Effect of translation ................... -- (6,135) -- (6,135) Purchase of treasury stock .............. -- -- -- (2,145,417) ------------ ------------ ------------ ------------ Balance December 31, 1997 ............... 0 (6,135) $ (3,230,700) $ 17,741,619 ============ ============ ============ ============
See accompanying notes to financial statements.
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss) .............................................. $ 1,540,890 $(4,865,872) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................... 440,650 343,564 Valuation allowances/reserves ........................... (372,000) 2,462,898 Stock issued for services ............................... 67,500 452,500 Stock issued in settlement of a lawsuit ................. 150,000 -- Stock returned in settlement of a lawsuit ............... (73,596) -- Stock issued to purchase a lease ........................ 210,000 -- Unrealized gain on transfer from investment in non-marketable securities to marketable securities (598,900) -- Deferred income taxes ................................... 364,000 (843,000) Changes in assets and liabilities (Increase) Decrease in: Accounts receivable ..................................... (2,663,565) 86,716 Marketable securities ................................... 1,237,121 487,829 Inventories ............................................. (5,018,686) (134,006) Prepaid expenses and other current assets ............... (472,203) (46,708) Deposits and other assets ............................... (86,972) (177,918) Increase (decrease) in: Accounts payable ........................................ 2,013,134 172,114 Accrued expenses and other current liabilities .......... 439,377 (57,304) State income taxes payable .............................. (14,134) (39,772) ----------- ----------- Net cash used by operating activities ............................. (2,837,384) (2,158,959) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for purchase of assets of subsidiary, net of cash acquired ................................. 134,356 -- Payments made for property and equipment ................ (801,150) (1,123,739) ----------- ----------- Net Cash (used) by investing activities ........................... (666,794) (1,123,739) ----------- -----------
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 1996 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds (Repayments) of note payable- bank ............. 1,275,000 (1,150,000) Proceeds from issuance of long-term debt ................ -- 243,573 Repayments of note payable- shareholder ................. -- (590,000) Principal payments on long-term debt .................... (45,657) (37,818) Dividends Paid .......................................... -- (7,656) Proceeds from the exercise of warrants - common stock ... 150,000 -- Foreign Currency Translation ............................ (6,135) -- Purchase of treasury stock .............................. (2,145,417) -- Net proceeds from sale of common stock .................. 3,909,616 5,599,146 ----------- ----------- Net cash provided (used) by financing activities .................. 3,137,407 4,057,245 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ................... (366,771) 774,547 CASH AND CASH EQUIVALENTS - BEGINNING ............................. 1,249,655 475,108 ----------- ----------- CASH AND CASH EQUIVALENTS - END ................................... $ 882,884 $ 1,249,655 =========== ===========
See accompanying notes to financial statements DHB CAPITAL GROUP, INC. NOTES TO FINANCIAL STATEMENTS Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of DHB Capital Group, Inc. and its subsidiaries ("DHB"), all of which are wholly-owned. DHB has two major divisions, DHB Armor Group and DHB Sports Group. DHB Armor Group consists of Protective Apparel Corporation (PACA), Point Blank Body Armor Inc. and Zunblindage S.A. DHB Sports Group consists of NDL Products Inc. (NDL) and Orthopedic Products Inc. (OPI). All material inter-company balances and transactions have been eliminated. Business description DHB Armor Group develops, manufactures, and distributes bullet and projectile resistant garments, bullet resistant and fragmentation vests, bomb projectile blankets, and related ballistic accessories. DHB Sports Group manufactures and distributes specialized protective athletic apparel and equipment and orthopedic products. Uses of estimates in the preparation of financial statements 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 net revenue and expenses during each reporting period. Actual results could differ from those estimates. Revenue recognition Revenue from product sales is recognized at the time the product is shipped. Inventories Inventories, consisting of merchandise purchased for resale, are valued at the lower of cost or market, determined on the first-in, first-out basis (replacement cost). Property, plant and equipment and depreciation Property, plant and equipment are stated at cost. Major additions, improvements, and renewals, which substantially increase the useful lives of assets, are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Depreciation is provided for both financial reporting and income tax purposes using the straight-line and accelerated methods. Marketable/Non-Marketable Securities Investments in marketable securities are accounted for according to the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). Management of DHB classified all its marketable securities as trading securities and, accordingly, unrealized gains and losses are reflected in earnings. Non-marketable securities are valued at historical cost and if necessary, reduced by a valuation allowance to the net realizable value. Intangible assets Intangible assets are stated at cost and are amortized over their estimated useful lives (see Note 7). Income taxes DHB and its domestic subsidiaries file a consolidated Federal income tax return and separate state income tax returns. DHB accounts for deferred income taxes in accordance with SFAS Statement No. 109 which requires that deferred tax assets and liabilities be recognized for the future tax consequence attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, SFAS No. 109 requires recognition of future tax benefits, such as net operating loss carryforwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely that not that some portion of the deferred tax asset will not be realized. Stock based compensation Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123) encourages, but does not require companies to record compensation cost for stock-based employee compensation at fair value. DHB has chosen not to adopt SFAS 123 and to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, of any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Impairment of long-lived assets DHB accounts for the impairment of long-lived assets in accordance with SFAS No. 121 which requires that long-lived assets and identifiable intangibles held and used by a company be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Reclassification Certain items on the 1996 financial statements have been reclassified to conform to 1997 presentation.. Note 2 SUPPPLEMENTAL CASH FLOWS INFORMATION
1997 1996 ------- ------- Cash paid for: Interest 269,450 535,859 Taxes 11,971 33,301
During the years ended December 31, 1997 and 1996, the Company had non-cash investing activities when in issued common stock to acquire all of the outstanding stock of Zunblindage and of OPI, respectively. Note 3 BUSINESS ACQUISITIONS In February, 1997 DHB acquired 100% of the issued and outstanding common stock of Zunblindage S.A. ("ZSA"), a Belgian corporation, in exchange for 666,000 shares of DHB common stock valued at an aggregate of $1,000,000. ZSA manufactures and distributes bullet resistant equipment, apparel and related products generally in Europe and the Middle East. In March, 1996 DHB acquired 100% of the issued and outstanding common stock of Orthopedic Products, Inc. ("OPI"), a manufacturer and distributor of orthopedic products to the medical industry, in exchange for 270,000 shares of DHB common stock. In 1997, 38,625 of these shares were returned as a result of a lawsuit which DHB won against the former shareholders for misrepresentation and violating a covenant not to compete. An additional 6,625 shares will be returned in 1998. The above acquisitions were accounted for using the purchase method of accounting, pursuant to which the purchase price was allocated based upon the estimated fair values of the assets acquired as of the dates of acquisition. The purchase of Zunblindage resulted in goodwill of $541,000. Note 3 BUSINESS ACQUISITIONS (continued) In the opinion of management, if the results of operations of the acquired businesses had been included in the consolidated financial statements since the beginning of the year, it would not have a materially effect on the results of operations. Note 4 MARKETABLE SECURITIES/NON-MARKETABLE SECURITIES The following is a comparison of the cost and market value of marketable securities included in current assets:
1997 1996 ---------- ---------- Cost .......... $1,254,104 $1,272,859 Unrealized gain 449,702 69,168 ---------- ---------- Market Value .. $1,703,806 $1,342,027 ========== ==========
The Company's has acquired minority interests in non-marketable securities, at December 31, 1997 the historical cost was $2,316,750 reduced by a valuation allowance of $628,000 to bring the carrying value of these securities to the net realizable value of $1,688,750. Note 5 INVENTORIES Inventories consist of the following:
1997 1996 ----------- ----------- Finished goods ........... $ 5,776,562 $ 2,638,256 Work in process .......... 1,646,610 997,308 Raw materials and supplies 5,120,302 3,654,641 ----------- ----------- $12,543,474 $ 7,290,205 =========== ===========
Note 6 PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment and the estimated lives used in the computation of depreciation is as follows:
Estimated 1997 1996 useful life ---------- ---------- ----------- Land ............................ $ 47,500 $ 47,500 -- Buildings ....................... 427,500 427,500 39 years Machinery and equipment ......... 1,225,812 1,025,072 5-10 years Furniture, fixtures and computer equipment ........... 819,019 343,098 5-7 years Transportation equipment ........ 244,510 144,361 3-5 years Leasehold improvements .......... 480,928 372,240 5-31.5 years ---------- ---------- 3,245,269 2,359,771 Less accumulated depreciation and amortization .................... 871,184 524,994 ---------- ---------- $2,374,085 $1,834,777 ========== ==========
Note 7 INTANGIBLE ASSETS A summary of intangible assets and the estimated lives used in the computation of amortization is as follows:
Estimated 1997 1996 useful life ---------- ---------- ----------- Goodwill .................... $ 694,473 $ 226,209 15 years On-going government contracts ............... 312,086 312,086 1-5 years Other ....................... 129,563 129,563 1-7 years ---------- --------- 1,136,122 667,858 Less accumulated amortization 548,105 453,645 ---------- --------- $ 588,017 $ 214,213 ========== =========
Note 8 NOTES PAYABLE - BANK Notes payable - bank are due on demand and are collateralized by marketable securities owned by the majority stockholder of the Company. The weighted average interest rate on these borrowings was 6.6% at December 31, 1997. Note 9 NOTE PAYABLE STOCKHOLDER These notes bear interest at 12% per annum and are due, as extended, in November, 1999 (see Note 15 in connection with additional loans made by the majority stockholder in 1998.) Note 10 LONG-TERM DEBT Long-term debt consists of the following:
1997 1996 -------- -------- Notes payable in monthly principal installments of $112,798 $155,998 $3,600. Interest at the rate of 9% per annum accrues and is payable upon maturity in 2001. Note payable in monthly installments of $1,876 32,754 49,757 inclusive of interest at 9.71% per annum. This note is collateralized by certain equipment originally costing approximately $90,000. Capital lease obligation payable in monthly 20,109 -- installments of $432 inclusive of interest at 9.87%. This note is collateralized by certain equipment originally costing approximately $23,000. Other 10,789 -- -------- -------- 176,450 205,755 Less Current Portion 65,192 61,664 -------- -------- $111,258 $144,091 ======== ========
Long-term debt matures as follows: 1998 $58,917 1999 39,332 2000 4,069 2001 4,489 2002 4,451 ------- 111,258 ======= Note 11 STOCKHOLDERS' EQUITY Common and preferred stock (1) During 1996, DHB amended its certificate of incorporation increasing the number of authorized shares of its $.001 par value Common Stock from 25,000,000 to 100,000,000. In addition, DHB is authorized to issue 1,500,000 shares of Class A 10% convertible Preferred Stock. (2) In July, 1996, DHB declared a 50% stock dividend on the outstanding Common Stock. Note 11 STOCKHOLDERS' EQUITY (continued) Stock option plan In October, 1995, the Company adopted a plan (the "1995 Stock Option Plan" or the "Plan") pursuant to which the Board of Directors is authorized to award options to purchase up to 3,500,000 shares of Common Stock to selected officers, employees, agents, consultants and other persons who render services to the Company. The options may be issued on such terms and conditions as determined by the Board or Committee, and may be issued so as to qualify as incentive stock options under Internal Revenue Code Section 422A. No options have been granted under this plan. Stock warrants During 1997, the Board of Directors granted 50,000 stock warrants exercisable at $2.00 per share to a key employee expiring in June 2000. Pursuant to employment agreements (See Note 14), the Company has 1,549,500 stock warrants outstanding exercisable at $1.33 per share and expiring in 2001. In December 1994, in consideration for monies loaned to the Company, the Board of Directors granted a relative of the majority stockholder, stock warrants to purchase 3,750,000 shares of common stock for $1.33 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 with 150,000 warrants still outstanding exercisable at $1.33 and expiring in June 1998. Note 12 RELATED PARTY TRANSACTIONS A summary of related party transactions for the years ended December 31, 1997 and 1996 is as follows:
1997 1996 -------- -------- Rental expense paid or accrued to the relatives of the majority stockholder $546,000 $480,000 Rental expense paid to the President of a subsidiary of DHB 48,000 48,000 Interest paid or accrued on a loan from DHB's majority stockholder. 177,340 170,142
See Note 14 for details of the lease with a related party Note 13 RISKS AND UNCERTAINTIES The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company's accounts at these institutions may, at times, exceed the Federally insured limits. The Company has not experienced any losses in such accounts. Note 13 RISKS AND UNCERTAINTIES (continued) Approximately 27% and 23% for the years ended December 31, 1997 and 1996, respectively, of DHB's sales were made to the United States Government or its agencies. Certain factors relating to the industries in which DHB operates and the Company's business should be carefully considered. All of the products sold by DHB are used in situations which could result in serious personal injuries or death, whether on account of the failure of such products, or otherwise. Although DHB maintains substantial amounts of insurance coverage to cover such risks, there is no assurance that these amounts would be sufficient to cover the payment of any potential claims. In addition, there is no assurance that this or any other insurance coverage will remain available or, if available, that DHB would be able to obtain such insurance at a reasonable cost. The inability to obtain such insurance coverage would prohibit DHB from bidding for certain orders for bullet resistant products from certain governmental customers. Substantially all of the raw materials used in the manufacturing of ballistic-resistant garments are made from fabrics which are patented by major corporations and which are purchased from three independent weaving companies. Although, in the opinion of management of DHB, DHB enjoys a good relationship with these vendors, should any of the manufacturers cease to produce these products for any reason, DHB would be required to use other fabrics. In such an event, an alternative fabric would have to be selected and ballistic test would have to be performed. Until this was done, DHB's sale of ballistic resistant products would be severely curtailed and DHB's financial condition would be materially adversely affected. Note 14 COMMITMENTS AND CONTINGENCIES Leases DHB leases a warehouse and manufacturing facility from a partnership indirectly owned by the majority stockholder of DHB. The lease provides for annual rentals of $480,000 for 1996 and 4% annual increases through expiration in 1999. In addition, DHB must pay real estate taxes and certain operating expenses of this property. DHB leases a warehouse and manufacturing facility from the president of one of its subsidiaries. The lease provides for annual rentals of $43,200, plus real estate taxes. The space is occupied pursuant to a five-year lease which expired in October 1997 and is currently leased on a month to month basis. In April 1997, the Company entered a one year lease for a 60,000 square foot warehouse adjacent to the existing Florida facility with an annual rental of approximately $210,000, and an option to extend the lease for four years. In association with the acquisition of Zunblindage, the Company assumed a lease for their warehouse and store in Liege, Belgium. This space is occupied pursuant to a nine year lease with annual rentals of approximately, $42,000. Note 14 COMMITMENTS AND CONTINGENCIES (continued) Rent and real estate taxes expense charged to operations for the years ended December 31, 1997 and 1996 aggregated approximately $962,000 and $616,000, respectively. Employment agreements The Company is committed under an employment agreement with its majority stockholder which expires in April, 2001 and provides for an annual salary of $250,000 through April, 1997 and annual increases of $25,000 thereafter. In addition, the contract provides for the annual grant of 750,000 warrants to the principal stockholder, which are exercisable at $2.33 per share and expire five years from date of grant. Concurrent with the purchase of PACA, the President of PACA was given a five year employment agreement which expired in 1997. This agreement calls for annual salaries of $115,000 with annual increases of $10,000 plus certain fringe benefits. During the year ended December 31, 1995, the vice president of NDL was given a three year employment contract. This agreement calls for an annual base salary of $100,000 and 16,500 stock warrants per year exercisable at $1.33 and expiring in February 2001, as extended. In 1997, the Company entered into an employment agreement with a salesman for DHB Armor Group, expiring in 2000 with an annual salary of $100,000 plus certain fringe benefits. Litigation DHB is a defendant in a lawsuit filed in the United States District Court for the Southern District of New York. The lawsuit seeks, among other things, compensatory damages of not less than $2,500,000, punitive damages of not less than $500,000 breach of contract and an order enabling the plaintiff to execute certain stock purchase warrants. DHB has filed an Answer and Counter-Claim and intends to vigorously defend the claim and to pursue its Counter-Claims. Due to the preliminary status of this litigation, counsel to DHB is unable to predict the outcome of this litigation. In the opinion of management of DHB, the ultimate outcome of this litigation will not have a material adverse effect on the financial condition of DHB. The Company is subject to other legal proceedings and claims which have risen in the ordinary course of its business and have not been finally adjudicated. These actions when ultimately concluded and determined will not, in the opinion of management, have a material adverse effect on the results of operations or the financial condition of the Company. Note 15 INCOME TAXES Components of income taxes are as follows:
1997 1996 ----------- ----------- Current: Federal .................. $ 455,000 $ 0 State .................... 22,509 8,809 Benefit of net operating loss carryforward (455,000) -- ----------- ----------- Total current ...... 22,509 8,809 Deferred: Federal .................. 690,000 (1,686,000) State .................... 430,700 (562,000) Less: valuation allowance (1,494,700) 1,406,000 ----------- ----------- Total Deferred ... 374,000 (843,000) ----------- ----------- Total income taxes (benefits) $ 396,509 $ (834,191) =========== ===========
The composition of the federal and state deferred taxes at December 31, 1997 was arrived at as follows:
Operating Loss Carryforward $ 1,762,600 Allowance for Doubtful Accounts 141,200 Valuation Allowance - Non marketable securities 51,200 Net write down of investment in subsidiaries 175,000 Unrealized gain on Marketable Securities (180,000) ---------- Subtotal 1,950,000 Less: Valuation Allowance 1,494,700 ---------- Net Deferred Taxes $ 455,300 ==========
Note 16 SUBSEQUENT EVENTS On January 16, 1998, DHB signed an exclusive (except for certain rights in the field of products for horses) licensing agreement, to make, use and sell magnetic products covered by certain US and Canadian patents, along with the technical know how related to the magenetic products in the possession of Magnesystems. On February 9, 1998, the Company purchased the common stock of two privately held Delaware corporations, Lanxide Armor Products Inc. (LAP) and Lanxide Electronic Components Inc. (LEC). The purchase price was approximately $4.8 million and was funded by increasing loans from the majority shareholder of $7 million, including amounts for working capital. LAP specializes in the design, development and manufacture of ceramic/metal matrix composites for protective armor applications. LEC is a leading supplier of Silicon Carbide / Aluminum composites. This transaction was accounted for as a purchase. Since December 31, 1997, the Company has repurchased and retired an additional 536,495 shares of the Company's common stock in open market transactions for approximately $2,111,000 as authorized by the Board of Directors. This was funded in part by an additional shareholder loan of $2.2 million. DHB CAPITAL GROUP INC. AND SUBSIDIARIES SCHEDULE II TO THE FINANCIAL STATEMENTS VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 1997 Allowances deducted from related balance sheet accounts:
Additions Subtractions Balance at charged to charged to Balance the beginning costs and costs and at end of of the year expenses expenses year ------------- ------------ ------------ ---------- Accounts Receivable ...... $ 303,230 $ 50,000 -- $ 353,230 Inventory ................ 700,000 -- (700,000) 0 Investment in Non- marketable securities .... 1,000,000 0 (372,000) 628,000 Net Write down of ........ $ 529,578 -- -- $ 529,578 Investment in subsidiaries
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 on this the 24th day of August, 1998. DHB Capital Group Inc. /S/ David Brooks ---------------- David Brooks Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 23, 1998. Signature Capacity Date - --------- -------- ---- /S/David H. Brooks Chairman of the Board August 24, 1998 - ------------------- and Director David H. Brooks /S/Mary Kreidell Treasurer/Director August 24, 1998 - ----------------- Principal Financial Officer Mary Kreidell Principal Accounting Officer /S/Gary Nadelman Director August 24, 1998 - ---------------- Gary Nadelman -----END PRIVACY-ENHANCED MESSAGE-----