10-Q 1 f10q_1stqtr-2002.htm DHB FIRSTQTR 10Q - 2002 f10q_1stqtr-2002

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

   
(Mark One)
 
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  For the quarterly period ended March 31, 2002
 
  OR
 
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 

Commission File Number: 0-22429

DHB INDUSTRIES INC.
(Exact name of registrant as specified in its charter)

     
Delaware   11-3129361
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer Identification No.)
 
555 Westbury Avenue, Carle Place, New York 11514
(Address of principal executive offices)

Registrant's telephone number, including area code: (516) 997-1155

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   [ X ]    No   [   ]

As of April 23, 2002, there were 31,865,247 shares of Common stock, $.001 par value outstanding.

TABLE OF CONTENTS

Page

         
PART I - Financial Information  
 
Item 1. Financial Statements  
 
Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001   3
 
Unaudited Consolidated Statements of Income and Retained Earnings  
  For The Three Months Ended March 31, 2002, 2001 and 2000 4
 
Unaudited Consolidated Statements of Cash Flows For The Three Months  
  Ended March 31, 2002, 2001 and 2000 5
 
Unaudited Notes to Consolidated Financial Statements 6
 
Item 2. Management's Discussion and Analysis of Results of
          Operations and Financial Condition
6-9
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
 
PART II  -  Other Information 9
 
Signatures 9

PART I.    FINANCIAL INFORMATION

ITEM 1.    CONSOLDIATED FINANCIAL STATEMENTS

DHB Industries Inc. and Subsidiaries
Consolidated Balance Sheets
As of March 31, 2002 (Unaudited) and December 31, 2001

                 
  Unaudited  
  March 31, 2002   December 31, 2001
 
ASSETS  
 
CURRENT ASSETS  
 
Cash and cash equivalents $ 136,348   $ 145,384  
Accounts receivable, less allowance for doubtful accounts  
  of $840,451 and $792,451   15,285,787   11,252,577  
Inventories   31,051,074   24,582,313  
Prepaid expenses and other current assets       661,945      1,401,650  
 
Total Current Assets      47,135,154      37,381,924  
 
PROPERTY AND EQUIPMENT      1,956,999      2,017,012  
 
OTHER ASSETS  
Investments in non-marketable securities   941,750   941,750  
Deferred tax assets   259,300   259,300  
Deposits and other assets       230,820       296,130  
 
Total Other Assets      1,431,870      1,497,180  
 
TOTAL ASSETS $ 50,524,023
—————		   $ 40,896,116
—————		  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES  
Accounts payable $ 13,342,938   $ 13,298,185  
Accrued expenses and other current liabilities   2,951,202   2,515,127  
Current maturities of long term debt       755,488       772,318  
Total Current Liabilities      17,049,628      16,585,630  
 
LONG TERM LIABILITIES  
Notes payable-bank   12,165,456   8,442,414  
Long term debt, net of current maturities   737,500   862,500  
Note payable - stockholder       7,000,000       10,000,000  
Total Long Term Debt       19,902,956       19,304,914  
 
TOTAL LIABILITIES   36,952,584
—————		   35,890,544
—————		  
 
COMMITMENTS AND CONTINGENCIES
 
STOCKHOLDERS' EQUITY  
Common stock $.001 par value, 100,000,000 shares
authorized, 31,865,254 issued and outstanding		  
31,865		  
31,482		  
Preferred Stock   3,000,000   ----  
Additional paid in capital   24,908,881   24,109,264  
Accumulated deficit   (14,324,756 )   (19,082,444 )
Other comprehensive income (loss)       (44,551 )       (52,730 )
STOCKHOLDERS' EQUITY (DEFICIENCY)      13,571,439      5,005,572  
 
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 50,524,023
—————		   $ 40,896,116
—————


See accompanying note to financial statements



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DHB INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31,

                     
  2002   2001   2000  
 
Net sales $ 33,635,519   $ 20,174,944   $ 13,575,648  
 
Cost of sales      24,181,997      15,223,433      9,594,341  
 
Gross Profit   9,453,522   4,951,511   3,981,307  
 
Selling, general and administrative expenses      4,227,661      3,333,258      2,886,689  
 
Income before other expense      5,225,861      1,618,253      1,094,618  
 
Other Income (expense)  
  Interest Expense   (463,827 )   (614,236 )   (791,608 )
  Other Income         22,549         24,441         6,574  
Total Other Income (expense)      (441,278 )      (589,795 )      (785,034 )
 
Income from Continuing Operations   4,784,583   1,028,458   309,584  
 
Discontinued operations  
Loss from discontinued operations   ----   ----   (517,288 )
Gain on disposal of discontinued operations         ----         ----       857,860  
Total income from discontinued operations   ----   ----   340,572  
 
Income before income taxes   4,784,583   1,028,458   650,156  
 
Income taxes        26,895        5,901        27,773  
 
Net income   4,757,688   1,022,557   622,383  
 
Accumulated Deficit Beginning     (19,082,444 )     (29,215,460 )     (35,222,811 )
 
Accumulated Deficit Ending $ (14,324,756
—————		 ) $ (28,192,903
—————		 ) $ (34,600,428
—————		 )
 
Earnings per common share  
Basic shares   .15
—————		   .03
—————		   .02
—————		  
Diluted shares   .12
—————		   .03
—————		   .02
—————		  
 
Weighted shares outstanding  
Basic shares   31,486,391   31,230,898   32,332,181  
Warrants       9,799,655       5,529,725         ----  
Diluted shares   41,286,046
—————		   36,760,623
—————		   32,332,181
—————


See accompanying note to financial statements



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DHB INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,

                     
CASH FLOWS FROM OPERATING ACTIVITIES   2002   2001   2000  
 
Net Income (loss)   $4,757,688   $1,022,557   $622,383  
 
Adjustments to reconcile net income to net cash
provided by operating activities:		  
  Depreciation and amortization   137,769   112,893   105,025  
  Stock issued for services   ----   109,680   ----  
Changes in assets and liabilities
(Increase) Decrease in:  
  Accounts receivable   (4,033,210 )   1,169,249   (378,362 )
  Marketable securities   ----   (343,649 )   ----  
  Inventories   (6,468,761 )   (2,941,867 )   (454,090 )
  Prepaid expenses and other current assets   739,705   252,752   (3,041 )
  Deposits and other assets   65,040   192   28,279  
Increase (decrease) in:  
  Accounts payable   44,753   2,428,163   219,443  
  Accrued expenses and other current liabilities       436,075        (669,497 )        412,263  
Net cash provided (used) by operating activities      (4,320,941 )      1,140,473        551,900  
 
CASH FLOWS FROM INVESTING ACTIVITIES  
  Payments for purchase of assets of subsidiary,
net of cash acquired		  
----		  
----		  
3,933,980		  
  Payments made for property and equipment      (77,486 )      (173,751 )   (160,034 )
Net Cash provided (used) by investing activities      (77,486 )      (173,751 )      3,773,946  
 
CASH FLOWS FROM FINANCING ACTIVITIES  
  Proceeds (repayments) of note payable- bank   3,723,042   ----   (5,000,000 )
  Repayments from shareholder note   (3,000,000 )   ----   ----  
  Principal payments on long-term debt   (141,830 )   (68,275 )   (173,158 )
  Other comprehensive income   8,179   (6,611 )   (37,628 )
  Purchase of treasury stock   ----   (775,509 )   ----  
  Exercise of a warrant   800,000   ----   ----  
  Proceeds from the sale of convertible preferred   3,000,000   ----   ----  
  Net proceeds from sale of common stock            ----            ----       691,125
Net cash provided by financing activities       4,389,391       (850,395 )       (4,519,661 )
 
NET DECREASE IN CASH AND EQUIVALENTS   (9,036 )   116,327   (193,815 )
CASH AND CASH EQUIVALENTS - BEGINNING       145,384       566,887       473,441  
CASH AND CASH EQUIVALENTS - END   $136,348
—————		   $683,214
—————		   $279,626
—————		  
 
Supplemental cash flow information  
Cash paid for:  
Interest   $463,827   $6,606   $88,272  
Taxes   $22,402   $4,704   $23,829  


See accompanying note to financial statements



-5-

DHB INDUSTRIES INC AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002, 2001 AND 2000

   
1. Basis of Presentation
 
  The consolidated balance sheet at the end of the preceding year has been derived from the audited consolidated balance sheet contained in the Company's Form 10-K and is presented for comparative purposes. All other financial statements are unaudited. All unaudited amounts are subject to year-end adjustments and audit, but the Company believes all adjustments, consisting only of normal and recurring adjustments, necessary to present fairly the financial condition, results of operations and changes in cash flows for all interim periods have been made. The results of operations for interim periods are not necessarily indicative of the operating results for the full year.

Footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with published rules and regulations of the Securities and Exchange Commission. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the most recent fiscal year.
 
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Results of Operations

Three Months Ended March 31, 2002, Compared to the Three Months Ended March 31, 2001

      Consolidated net sales increased 67% to $33,635,519 for the three months ended March 31, 2001 as compared to consolidated net sales of $20,174,944 for the first quarter of 2001. This increase is primarily attributable to the increased volumes from the U.S. military and domestic law enforcement customers. The gross margin improved to 28% as compared to 25% during the first quarter of 2002, primarily as a result of the plant shutdown and relocation of the manufacturing facility of the Company's subsidiary, Protective Apparel Corporation of America ("PACA") during the first quarter of 2001.

      The Company's selling, general and administrative expenses for the three months ended March 31, 2002 as a percentage of revenues improved to 13% as compared to 17% of revenues for the first quarter of 2001. Operating margins increased to 16% of revenues or $5,225,861 million for the first quarter ended March 31, 2002 as compared to 8% of revenues or $1,618,253 million for the first quarter ended March 31, 2001. This increase is a result of the manufacturing operating efficiencies resulting from higher sales volumes, volume discounts from our vendors, and management control of expenses.



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      Interest expense for the three months ended March 31, 2002 decreased by approximately $150,000 to approximately $464,000 as a result of lower interest rates under the Company's credit facility with LaSalle Business Credit. Other income declined by approximately $2,000 to $22,548 for the first quarter of 2002 compared to $24,441 for the first quarter of 2001.

      The effective tax rate for 2002 and 2001 was nominal due to the utilization of net operating loss carryforwards. The Company had available an estimated loss carryfoward of $26 million as of 2000, of which $10.1 million was utilized in 2001 and the balance of approximately $15 million is available in subsequent years to offset taxable income in those years through 2019.

      As a result of the foregoing, net income reached a record $4.8 million for the three months ended March 31, 2002 as compared to just over $1 million for the three months ended March 31, 2001, a 365% increase. Fully diluted earnings per share for the three months ended March 31, 2002 was $0.12 per share with 41,286,046 fully diluted shares outstanding versus $0.03 per share on 36,760,623 fully diluted shares outstanding for the three months ended March 31, 2001. To calculate the number of fully diluted shares outstanding, the Company uses the treasury method. Using this method, the increase in the Company's fully diluted shares outstanding as of March 31, 2002 over March 31, 2001 is primarily a result of the higher average market price of the Company's stock. The increased average market price results in a higher number of incremental shares (the excess of the market price over the strike price of all vested and non vested warrants outstanding) to be added to the weighted average basic shares outstanding because the calculation uses the incremental value.

Three Months Ended March 31, 2001, Compared to the Three Months Ended March 31, 2000

      Consolidated net sales increased 48% to $20,174,944 for the three months ended March 31, 2001 as compared to consolidated net sales of $13,575,648 for the three months ended March 31, 2000. This increase is attributable to the increase volumes from Military Customers for the Companies ballistic apparel. Gross profit improved by approximately one million dollars to $4,952,000 for the first quarter of 2001 versus $3,981,000 for the first quarter of 2000. Operating income also increased by 48% to approximately $1,618,000 for the first three months of 2001 over $1,095,000 for the first three months of 2000. These increases are a direct result of the manufacturing operating efficiencies resulting from higher sales volumes, volume discounts from our vendors as a result of the increases in our purchasing volumes, and management's control of expenses.

      The effective tax rate for 2001 was nominal due to the utilization of net operating loss carryforwards. The Company has an estimated loss carryforward of $25 million, which can be utilized until 2019 to offset taxable income in those years.



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      Net income increased to $1,023,000 for the three months ended March 31, 2001 as compared to $622,000 for the three months ended March 31, 2000 as a result of the increased sales volumes and operating efficiencies mentioned above.

Liquidity and Capital Resources

     The Company's sources of liquidity are cash flows from operations and borrowings under its $18.8 million credit facility with LaSalle Business Credit, Inc. (an ABN AMRO Bank, N.V. affiliate), consisting of a $15.5 million asset based revolving loan, a $1.8 million term loan drawn down at closing and a $1.5 million capital expenditures line. The Company's primary capital requirements over the next twelve months are to assist its subsidiaries, PACA, Point Blank Body Armor Inc. and NDL Products Inc. in financing their working capital requirements. Working capital is needed to finance the receivables, manufacturing process and inventory. Working capital at March 31, 2002 was approximately $30 million as compared to $7.78 million at March 31, 2001. The current ratio at March 31, 2002 was 2.76 as compared to 2.25 as of December 31, 2001.

     The Company's cash flow statement showed net cash used by operating activities for the three months ended March 31, 2002 of approximately $4.3 million as compared to cash provided by operating activities of approximately $1.1 million for the period ended March 31, 2001. Inventory levels continued to increase during the first quarter under the Company's program to stockpile certain raw materials. Inventory also increased as a result of the increased sales volumes and the start of the utility coverall contract from the U.S. military. Included in the cash flows from operating activities is the transfer of $3 million in shareholder loan to convertible preferred stock. The Company's cash position remained relatively constant to its position as of December 31, 2001, since the majority of the Company's collections goes directly to repay its asset based loan with LaSalle Business Credit.

Effect of Inflation and Changing Prices

     The Company did not experience any measurable increases in raw material prices during the three months ended March 31, 2002, 2001 and 2000. The Company believes it will be able to increase prices on its products to meet future price increases in raw materials, should they occur.

Special Note Regarding Forward-Looking Statements

     This Quarterly Report contains certain forward-looking statements and information relating to the Company that is based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this document, the words "anticipate," "believe," "estimate", "expect", "going forward", and similar expressions, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements.



8

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

     The Company does not issue or invest in financial instruments or their derivatives for trading or speculative purposes. The Company has an insignificant amount of interest expense and, accordingly, market risk in interest rate exposure in the United Sates is currently not material. The Company does not have any material sales, purchases, assets or liabilities denominated in currencies other than the U.S. Dollar, and as such is not subject to foreign currency exchange rate risk.

PART II.     OTHER INFORMATION

Item 2.   Changes in Securities and Use of Proceeds.

     On January 14, 2002, the Company issued to David H. Brooks, the principal stockholder of the Company, 500,000 shares of Series A Convertible Preferred Stock ("Preferred Stock") in exchange for $3 million of the approximately $10 million of indebtedness due to him. The Peferred Stock has a dividend rate of $.72 per share per annum, an amount equal to the amount that would have been paid as interest on the exchanged indebtedness. Shares of the Preferred Stock are convertible on a one-to-one basis, at the option of the holder, into shares of Common Stock. The shares of Preferred Stock are redeemable at the option of the Company on December 15, 2002 and on each December 15th thereafter. The shares of Preferred Stock were issued to Mr. Brooks without registration under the Securities Act of 1933 (the "Act") in reliance upon Section 3(a)(9) of the Act, because the shares of Preferred Stock were issued to Mr. Brooks in exchange for debt securities held by him and no commission or other renumeration was paid or given directly or indirectly for soliciting such exchange.

Item 6.   Exhibits and Reports on Form 8-K

           
 
  (a)   Exhibit Index  
 
  Exhibit   Description
 
  3.4   Certificate of designations and Preferences, filed with the Delaware Secretary of State on December 26, 2001 (filed as Exhibit 3.4 to the Current Report on form 8-K dated January 28, 2002 and incorporated herein by reference).
 
  4.2   Stock Subscription Agreement dated December 14, 2001 between the Registrant and David H. Brooks (filed as Exhibit 4.2 to the current Report on Form 8-K dated January 28, 2002 and incorporated herein by reference).
       
          (b)     The Company has filed the following Reports on Form 8-K during the quarter ended March 31, 2002:
 
  (i)   Form 8-K filed January 28, 2002 to report the exchange of securities with
a stockholder (see Part II, Item 2 above).
 
  (ii)   Form 8-K filed January 30, 2002 to report the receipt of approval from the
American Stock Exchange of the Company's application for listing.

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 by the undersigned, thereunto duly authorized.

   
Dated:    May 9, 2002 DHB INDUSTRIES INC.
(Registrant)
     
Signature Capacity Date
 
/S/ David H. Brooks Chief Executive Officer
and Chairman of the Board		 May 9, 2002
 
/S/ Dawn Schlegel Chief Financial Officer and
(Principal Accounting Officer)		 May 9, 2002




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