-----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, G5bn0TIDkkMXTOUqAJpXeVdJUaqDOC2khXZu3xrga7/Dfv4yYySq+19L326K5CDW JWfwaUfykDAdQf1OIVFixw== 0001092306-03-000296.txt : 20030724 0001092306-03-000296.hdr.sgml : 20030724 20030724154416 ACCESSION NUMBER: 0001092306-03-000296 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030724 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DHB INDUSTRIES INC 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: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13112 FILM NUMBER: 03800971 BUSINESS ADDRESS: STREET 1: 555 WESTBURY AVE CITY: CARLE PLACE STATE: NY ZIP: 11514 BUSINESS PHONE: 5169971155 MAIL ADDRESS: STREET 1: 555 WESTBURY AVE CITY: CARLE PLACE STATE: NY ZIP: 11514 FORMER COMPANY: FORMER CONFORMED NAME: DHB CAPITAL GROUP INC /DE/ DATE OF NAME CHANGE: 19960518 10-K/A 1 form10ka1.txt FORM 10-K AMENDMENT #1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______ to________ Commission File No. 01-13112 DHB INDUSTRIES, INC. (Name of issuer in its charter) DELAWARE 11-3129361 ____________________________ ___________________ (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) 555 WESTBURY AVENUE, CARLE PLACE, NEW YORK 11514 (Address of principal executive offices) Issuer's telephone number: (516) 997-1155 Securities registered under Section 12(b) of the Exchange Act: COMMON STOCK, $0.001 PAR VALUE (Title of Class) Securities registered under Section 12(g) of the Exchange Act: None Indicate by check mark whether the issuer (1) has 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 [ ] Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K/A [ ]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ] . 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 June 28, 2002: $88,939,397. Number of shares outstanding of the issuer's common equity, as of March 1, 2003 (Exclusive of securities convertible into common equity): 40,413,746 DOCUMENTS INCORPORATED BY REFERENCE: None 1 ITEM 1. BUSINESS GENERAL DHB Industries, Inc., a Delaware corporation organized in 1992 ("DHB" or the "Company"), is a holding company comprised of two divisions: DHB Armor Group and DHB Sports Group. DHB Armor Group consists of Protective Apparel Corporation of America ("PACA"), Point Blank Body Armor Inc. ("Point Blank"), and Point Blank International S.A. ("PB International"). DHB Armor Group develops, manufactures and distributes bullet and projectile-resistant garments, bullet-resistant and fragmentation vests, and related ballistic accessories. DHB Sports Group, which consists of NDL Products, Inc. ("NDL"), manufactures and distributes protective athletic apparel and equipment, including elbow, breast, hip, groin, knee, shin and ankle supports and braces, as well as a line of therapy products. The Company's executive offices are located at 555 Westbury Avenue, Carle Place, New York 11514. Its telephone number is 516-997-1155. The Company's website is www.DHBT.com. The Company's manufacturing facilities are located in Florida, Tennessee and Belgium. DHB reincorporated in Delaware in 1995 and changed its name from DHB Capital Group Inc. to DHB Industries, Inc. in July 2001. Its shares began trading on the American Stock Exchange on February 1, 2002 under the symbol DHB. DHB ARMOR GROUP OVERVIEW. The Armor Group faced unique challenges last year. It resisted a union organizing drive that began in the Summer of 2002. The Union of Needletrades, Industrial and Textile Employees ("UNITE")--then engaged in a corporate campaign aimed at financial analysts and customers in an attempt to disparage the Company and to force it to recognize the union. Another union brought a shareholder derivative action against the Company and its officers and directors parroting the union's allegations, among others. The Company refused to succumb to the union's threats. As a result, it suffered adverse publicity and a decline in its stock price. By year's end, however, DHB had endured the controversy still atop the body armor industry. Indeed, it continues to be the largest provider of body armor to our nation's military as our troops go to war against Iraq. Moreover, during the first quarter of 2003, the Armor Group has expanded to a second production facility in South Florida, reintegrated striking workers into its work force, and won dismissal with prejudice of that shareholder suit. In sum, the Company emerged from a year of tumult in triumph, and is now proudly providing the body armor that is protecting our soldiers in battle. PRODUCTS AND MARKETS. The DHB Armor Group, the preeminent name in the armor industry, principally manufactures three types of body armor: concealable armor, which is designed to be worn beneath the user's clothing; tactical armor, which is worn externally and is designed to protect against more serious ballistic threats; and modular concealable / tactical armor which allows the wearer to customize the armor for either concealable or tactical use. The Armor Group's products are sold predominantly through a network of distributors, sales representatives, private label sales and direct contracts, with few direct orders. All Armor Group products are certified to the applicable NIJ standards. 2 The Armor Group's "Interceptor" contract with the U.S. Department of Defense is an integral and expanding Company program. The Interceptor program is designed as a continually upgradeable modular, soft body armor system for the U.S. Military. The Armor Group has now delivered over 400,000 Interceptors to the U.S. Marine Corps, U.S. Army, and U.S. Air Force. Interceptor was worn throughout Operation Anaconda in Afghanistan and has been credited with saving the lives of U.S. Marines and Soldiers. The Armor Group provides different ballistic models of the Interceptor to different braches of the U.S. Military. Through this diversification of the Interceptor ballistic packages, Point Blank can deliver the Interceptor at a much higher rate of production. In addition to the Interceptor, the Armor Group manufactures a number of other protective armor systems for military use. Fragmentation armor is designed to U.S. government military specification and offers protection against materials and velocities associated with the fragmentation of explosive devices such as grenades, mortars, artillery shells and ballistic projectiles. During 2002, the Armor Group was awarded authorization to proceed with the U.S. Army Countermine program, requiring the delivery of several thousand anti-fragmentation Countermine Ensembles. The Armor Group expanded the sales of its tactical body armor throughout the U.S. during 2002 and continued to offer department-specific modification to standard products. By providing customized tactical armor, the Armor Group was able to increase the Company's market share specifically in the tactical market. Many of the Armor Group's Tactical vests have become recognized as the most advanced tactical armor available in terms of form, fit, and function. The Armor Group's extensive lines of body-armor products also include tactical police jackets, military field jackets, executive vests, K-9 protection, fragmentation and close-quarter-battle systems. During 2002, DHB's Armor Group expanded by establishing a stronger presence in the government and international community, by opening a sales and marketing office strategically located near Washington, D.C. DHB's Government & International liaison office is located in the prestigious Crystal City complex, which is in close strategic proximity to the Pentagon in Washington, D.C. This office has been able to develop special accounts with customized products available for immediate delivery for the Military, Domestic and International law enforcement communities. RAW MATERIALS AND MANUFACTURING. The Armor Group manufactures all of its bullet, fragmentation and projectile-resistant products. The primary woven fabrics used by the Armor Group in the manufacturing of the ballistic-resistant products include Kevlar(TM), Twaron(TM), Zylon(TM), and shield products such as GoldFlex(TM) and Spectra Flex(TM). Research and Development efforts ensure that the materials are combined to suit particular applications. 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 or manufacturing companies. 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 tests would need 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. RESEARCH AND DEVELOPMENT. DHB Armor Group's internal employee research and development team has combined 75 years of ballistic research and development experience, including 30+ years of experience in an NIJ certification environment. Many of its research and development personnel previously held positions of responsibility within the industry. PATENTS AND TRADEMARKS. The Company holds numerous patents and trademarks registered in the United States for various products. A number of these patents are of considerable value and are believed to be critical to the Company's business. No challenges to its patents and trademarks have arisen and 3 the Company has no reason to believe that any such challenge will arise in the future. The Company has numerous patents pending for unique, futuristic protective armor designs and integrated technologies and has been issued 9 additional trademarks during 2002. CUSTOMERS. The Armor Group's products are sold domestically to United States law enforcement agencies, distributors, corrections facilities and the U.S. Military; and internationally to governments and distributors. Sales to the United States Armed Forces directly or as a subcontractor accounted for 57%, 62%, and 57%, of the Armor Group's revenues for the years ended December 31, 2002, 2001 and 2000, respectively. Sales directly and indirectly to domestic state and local law enforcement agencies, security and intelligence agencies, and federal and state correctional facilities, accounted for 22%, 22%, and 30%, respectively, of the Armor Group's revenues in each of the years ended December 31, 2002, 2001 and 2000. Certain sales by the Armor Group to federal agencies are made pursuant to standard purchasing contracts issued by the General Services Administration of the Federal Government, commonly referred to as a "GSA Schedule". GSA Schedule contracts accounted for approximately 16%, 14% and 19%, respectively, of the Armor Group's sales for the years ended December 31, 2002, 2001 and 2000. PACA and Point Blank, as GSA Schedule Contract vendors, are obligated to make all sales pursuant to such contracts at its lowest unit price. Their current GSA Contracts expire on July 31, 2006. With the exception of the U.S. Government, no customer accounted for 10% or more of the Company's revenues in 2002, 2001 and 2000. MARKETING AND DISTRIBUTION. The Armor Group employs 23 customer support representatives and 26 sales representatives under the direction of 4 sales managers. These personnel are responsible for marketing the Armor Group's products to federal, state, and local law enforcement agencies in the United States. Sales to such law enforcement agencies are made primarily through distributorships established by the sales team. However, in areas in which there are no suitable distributors, the Armor Group will fill orders directly. GOVERNMENT AND INDUSTRY REGULATIONS AND STANDARDS. Bullet and fragmentation garments and accessories manufactured and sold by the Armor Group are not currently the subject of government regulations. However, law enforcement agencies and the military specify certain standards of performance, such as NIJ standards for bullet-resistant vests in several categories. In addition, the NIJ has established a voluntary standard for testing stab-resistant armor. The Armor Group regularly submits its vests to independent laboratories for testing under these standards and all of its products have, at the time of manufacture, met or exceeded such standards in their respective categories. COMPETITION. The ballistic-resistant garment business is highly competitive and fragmented. The number of United States manufacturers is estimated to be approximately 20. Management is not aware of published reports concerning the market, and most companies are privately held. Nevertheless, the Company believes that the Armor Group is the largest manufacturer of ballistic-resistant garments in the United States. The Armor Group believes that the principal elements of competition in the sale of ballistic-resistant garments are innovative design, price and quality. The Company believes that the Armor Group enjoys a favorable reputation 4 in the industry with over 30 years of supplying federal, state and municipal governments and agencies. BACKLOG. As of March 1, 2003, the Armor Group had a backlog of approximately $57 million. Backlog at any one date is not a reliable indicator of future sales. In addition to its backlog, from time to time the Armor Group receives contract awards for municipal orders that may be extended over a period of time. The actual dollar amount of products to be delivered pursuant to these and similar contracts cannot be accurately predicted and is generally excluded from reported backlog. POTENTIAL PRODUCT LIABILITY. The products manufactured or distributed by the Armor Group are used as protective devices in situations that could result in serious injuries or death, including injuries that may result from the failure of such products. The Armor Group maintains product liability insurance for PACA and Point Blank in the amount of $21,000,000 each per occurrence, and $22,000,000 in the aggregate, less a deductible of $100,000 for each company. PB International maintains product liability insurance in the amount of $2,000,000 for each occurrence, with a $5,000 deductible. There is no assurance that these amounts would be sufficient to cover the payment of any potential claim. In addition, there is no assurance that this or any other insurance coverage will continue to be available, or, if available, that Point Blank, PACA and PB International would be able to obtain such insurance at a reasonable cost. Any substantial uninsured loss would have to be paid out of the subject subsidiary's assets, as applicable, and may have a material adverse effect on the Company's financial condition and results of operations on a consolidated basis. The inability to obtain product liability coverage may prohibit Point Blank, PACA or PB International in the future from bidding for orders from certain governmental customers. Many governmental agencies currently require such insurance coverage, and any such inability to bid would have a material adverse effect on the Company's financial condition and results of operations on a consolidated basis. EMPLOYEES. As of December 31, 2002, the Armor Group employed approximately 450 full-time employees. There was one officer of the Armor Group, 20 persons employed in supervisory capacities, 365 employed in manufacturing, shipping and warehousing, 30 in customer service and sales, six technical/research development personnel, and 28 office personnel. In the opinion of management, the Armor Group maintains a satisfactory relationship with its employees. DHB SPORTS GROUP PRODUCTS AND MARKETS. DHB Sports Group is a collection of brands that service specific segments of the sporting goods and health care markets with its sports medicine, protective gear, health supports and magnetic therapy products. The Sports Group also offers private label or house brand programs to major retailers and large wholesalers along with specific OEM programs to outside brands that service the same markets. Currently, the Sports Group manufactures and markets products under the brands NDLTM, GRIDTM, MagneSystemsTM, FLEX-AIDTM, and Doctor Bone SaversTM. The Sports Group markets its product to a variety of distribution points with an emphasis on major retailers. Mass merchandisers, chain drug stores, food chains, independent sporting goods and pharmacy retailers, catalog, wholesale and e-commerce offer the various brands to the consumer. The Sports Group account list includes retail and wholesale establishments such as Wal-Mart, Target, Meijer and Phar Mor. Two customers, Wal-Mart and Target, collectively accounted 5 for 75%, 61% and 54% of the Sports Group's revenues for the years ended December 31, 2002, 2001 and 2000, respectively. The Sports Group has negotiated private label programs with three of the largest wholesalers to the retail trade: Amerisource, Cardinal Health and CDMA. These wholesalers have begun servicing their 10,000 store networks with their Family PharmacyTM, LeaderTM and Quality Choice BrandsTM of health support products. The Sports Group is a member of NACDS (National Association of Chain Drug Stores), PLMA (Private Label Manufacturers Association), and SGMA (Sporting Goods Manufacturers Association). POTENTIAL PRODUCT LIABILITY. The products manufactured or distributed by the Sports Group are used as protective devices in situations that could result in serious injuries or death, including injuries that may result from the failure of such products. The Sports Group maintains product liability insurance in the amount of $21,000,000 each per occurrence, and $22,000,000 in the aggregate, less a deductible of $100,000. There is no assurance that these amounts would be sufficient to cover the payment of any potential claim. In addition, there is no assurance that this or any other insurance coverage will continue to be available, or, if available, that the Sports Group would be able to obtain such insurance at a reasonable cost. Any substantial uninsured loss would have to be paid out of the Sport's Group assets and may have a material adverse effect on the Company's financial condition and results of operations on a consolidated basis. EMPLOYEES. As of December 31, 2002, the Sports Group employed approximately 45 full-time employees. There was one officer of the Sports Group, four persons employed in supervisory capacities, 30 employed in manufacturing, shipping and warehousing, three in sales and customer service, and seven office personnel. All of the Sports Group's employees are employed full-time. In the opinion of management, the Sports Group's relationship with its employees is good. The Sports Group also has more than 50 independent sales representatives who, together with the sales executives, are responsible for sales throughout the Untied States, Western Europe, Asia, the Middle East and Latin America. The Sports Group has in-house sales support and state-of-the-art EDI order and invoicing capabilities. SEGMENT INFORMATION As described in detail above, the Company operates in two principal segments: ballistic-resistant equipment and protective athletic/sports products. The Company disposed of its Electronics Group in March 2000, and closed its hard armor company, LAP, in October 1999. These two divestitures are accounted for as discontinued operations. Financial information on the Company's business segments (in thousands) is as follows: NET SALES 2002 2001 2000 _________ ________ _______ _______ Ballistic-resistant equipment $124,860 $93,506 $64,721 Electronic components/LAP -- -- 401 Protective athletic & sports products 5,492 4,520 5,297 ________ _______ _______ 130,352 98,026 70,419 Less inter-segment sales (5) (11) -- Less discontinued operations (3) -- -- (401) ________ _______ _______ Consolidated net sales $130,347 $98,015 $70,018 ======== ======= ======= 6 Income from Operations Ballistic-resistant equipment $17,534 $15,029 $10,591 Electronic components -- -- (517) Protective athletic & sports products 563 94 (166) Corporate and other (1) (4,274) (2,344) (2,226) ________ _______ _______ Sub-total 13,823 12,779 7,682 Income from discontinued operations(3) -- 517 ________ _______ _______ Consolidated operating income $13,823 $12,779 $8,199 ======= ======= ====== Depreciation Expense Ballistic-resistant equipment $ 289 $ 223 $ 147 Protective athletic & sports products 86 157 108 _______ _______ ______ 375 380 255 Corporate and other 88 98 69 _______ _______ ______ Consolidated depreciation expense $ 463 $ 478 $ 324 ======= ======= ====== Interest Expense Ballistic-resistant equipment $ 935 $ 463 $ 33 Protective athletic & sports products -- 77 40 _______ _______ ______ 935 540 73 Corporate and other 710 1,973 2,670 _______ _______ ______ Consolidated interest expense $ 1,645 $ 2,513 $2,743 ======= ======= ====== Income Taxes (Benefit) Ballistic-resistant equipment $ 22 $ 143 $ 1 Protective athletic & sports products 2 -- 2 _______ _______ ______ 24 143 3 Corporate and other (3,696) 32 127 _______ _______ ______ Consolidated tax (benefit) expense $(3,672) $ 175 $ 130 ======= ======= ====== Identifiable Assets Ballistic-resistant equipment $56,471 $36,426 $22,383 Protective athletic & sports products 2,907 2,768 3,517 ________ _______ _______ 59,378 39,194 25,900 Corporate and other (2) 5,993 1,702 2,156 ________ _______ _______ Consolidated net assets $65,371 $40,896 $28,056 ======= ======= ======= Foreign sales accounted for 2%, 2% and 2%, of the total revenues for the years ended December 31, 2002, 2001 and 2000, respectively. Foreign identifiable assets accounted for 1%, 1%, and 1% of the total assets at December 31, 2002, 2001 and 2000, respectively. (1) Corporate and other includes corporate general and administrative expenses. (2) Corporate assets are principally deferred income tax assets, other investment and property and equipment. (3) Discontinued operations included the Electronics Group sold on March 10, 2000, as well as the loss from the shutdown of the LAP plant in 1999. AVAILABLE INFORMATION The Company's internet address/website is www.dhbt.com. As of the date of this Form 10-K/A, due to a late start in establishing the necessary links and certain technical difficulties on the website, the Company does not make available free of charge on its website the Company's reports filed under the Securities Exchange Act of 1934, although the Company anticipates being able to do so some time during the second quarter of 2003, such that these reports can be available promptly after they are filed with the SEC. In the interim, the Company will voluntarily provide electronic copies (or a reasonable number of paper copies) of its filings free of charge upon request. ITEM 2. PROPERTIES CORPORATE HEADQUARTERS. The Company's corporate headquarters are in a 3,750 square foot leased office located at 555 Westbury Avenue, Carle Place, New York 11514. The lease expires on December 31, 2004. 7 PACA. The Company leases a 60,060 square foot manufacturing facility with administrative offices at 179 Mine Lane, Jacksboro, Tennessee 37757, for its subsidiary, PACA. The lease expires on April 15, 2006. NDL/POINT BLANK FACILITY. Point Blank leases a 67,000 square foot office and manufacturing facility (the "Oakland Park Facility") located at 4031 N.E. 12th Terrace, Oakland Park, Florida 33334, from V.A.E. Enterprises, LLC ("V.A.E."), a Limited Liability Corporation controlled by Mrs. Terry Brooks, wife of Mr. David H. Brooks, and beneficially owned by Mr. and Mrs. Brooks' minor children. NDL Products occupies a portion of the space in the Oakland Park facility. The lease expires on December 31, 2010. Management believes that the terms of the lease are no less favorable to the Company than terms that would have been obtained at the time of the lease from an unrelated third party. NDL WAREHOUSE. On October 1, 2002, the Company entered into a two-year lease for a 31,500 square foot warehouse adjacent to the Oakland Park Facility from an unrelated third party. This warehouse is located at 1201 NE 38th Street, Oakland Park, Florida. POINT BLANK-ADDITIONAL FACILITY. In January 2003, the Company leased a 51,246 square foot manufacturing facility with administrative offices in Deerfield, Florida, to expand Point Blank's military operations. The lease expires on April 30, 2008. DC OFFICE. In May 2002, the Company opened a 2,192 square foot government and international liaison sales office at 1215 Jefferson Davis Highway, Arlington, Virginia. The lease expires on April 30, 2006. POINT BLANK INTERNATIONAL FACILITY. PB International leases a 5,700 square foot office and warehouse facility located at Rue Leon Frederiq, 14, 4020 Liege, Belgium. This space is rented on a month-to-month basis. ITEM 3. PENDING LITIGATION The Company has filed a lawsuit in the Supreme Court of the State of New York, County of Nassau, against its insurance carrier and an insurance agent, for negligence and breach of fiduciary duties as a result of the damages the Company incurred during Hurricane Irene in October 1999. The Company is vigorously pursuing this action. On March 17, 2003, the Company entered into a settlement agreement with its insurance agent for a $1 million payment to the Company. The lawsuit against the insurance carrier has been scheduled for trial in the fall of 2003. On or about June 21, 2001, American Body Armor and Equipment Inc. commenced an action against the Company's subsidiary, PACA, in the United States District Court of the Middle District of Florida. In September 2002, the parties filed a joint resolution and settlement with American Body Armor, ending this patent infringement case. This settlement will not have a material adverse effect on the Company's business, result of operations or financial condition. On October 1, 2002, a shareholders' derivative action was commenced in the Supreme Court of the State of New York, County of Nassau, on behalf of the Company against the directors and officers of the Company and the Company as a nominal defendant, by Plumbers & Pipefitters Local 112 Pension Fund, derivatively on behalf of itself and all others similarly situated ("Plaintiff"). This case was dismissed with prejudice on March 13, 2003, without 8 liability to the Company or its officers or directors. The Company is seeking dismissal of another identical suit brought on behalf of a second shareholder on the same grounds that required dismissal in the other suit. The Company maintains $10 million of directors and officers' liability insurance covering this type of claim. On or about October 30, 2002, the Company filed a lawsuit in the United States District Court for the Southern District of Florida against certain union leaders, claiming defamation, conspiracy to defame and tortuous interference with contractual and ongoing business relationships. The case is still in its preliminary stages, and the Company is vigorously pursuing this action. The Company is involved in other litigation, none of which is considered by management to be material to the Company's business or, if adversely determined, would have a material adverse effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of the Company began trading on the American Stock Exchange on February 1, 2002 under the symbol DHB. Previously, the Company was trading on the OTC Bulletin Board under the symbol DHBT. The following table shows the high and low bid prices of the Company's common stock for each quarter in the two-year period ended December 31, 2002. Low High 2002 4th Quarter 1.27 2.33 3rd Quarter 1.69 4.69 2nd Quarter 4.05 7.24 1st Quarter 5.50 8.10 2001 4th Quarter 3.00 6.03 3rd Quarter 1.95 3.00 2nd Quarter 1.95 2.79 1st Quarter 1.69 3.09 The Company pays cash dividends on its Series A, 12% convertible preferred stock (the "Preferred Stock"). The Preferred Stock has a dividend rate of $0.72 per share per annum, an amount equal to the interest that would have been payable on the shareholder indebtedness from which the Preferred Stock was converted (See "Certain Transactions" below). The Company presently retains its income from earnings and anticipates that its future earnings will be retained to finance the expansion of its business. Any determination to pay cash dividends on the Company's common stock in the future will be at the discretion of the Board of Directors after taking 9 into account various factors, including financial condition, results of operations, current and anticipated cash needs, and restrictions, if any, under the Company's credit agreements. On March 1, 2003 there were 134 holders of record of the Company's common stock. However, the number of holders of record includes brokers and other depositories for the accounts of others. The Company estimates that there are approximately 3,700 beneficial owners of its common stock. In 2002, the Company issued 8,931,832 unregistered shares of common stock pursuant to the exercise of warrants, for which the Company received aggregate proceeds of approximately $6,324,000. The Company also issued 275,000 unregistered common stock purchase warrants to its investor relations firm; these warrants have an exercise price of $4.95 per share and expire on June 4, 2006. In addition, the Company issued to directors and executive officers a total of 200,000 unregistered five-year common stock purchase warrants exercisable at $7.11 per share. Also during 2002 the Company issued and canceled 150,000 warrants to an employee. See "Executive Compensation-Stock Warrants" below. ITEM 6. SELECTED FINANCIAL INFORMATION The selected consolidated financial data set forth below for the years ended December 31, 2002, 2001, 2000, 1999, and 1998, were derived from the audited consolidated financial statements of the Company. The data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related Notes appearing elsewhere in this Form 10-K/A.
INCOME STATEMENT DATA (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 2002 2001 2000 1999 1998 ________ _______ _______ _______ _______ Net sales $130,347 $98,015 $70,018 $35,141 $33,073 Cost of goods sold 92,621 71,639 49,359 27,566 20,442 ________ _______ _______ _______ _______ Gross profit 37,726 26,376 20,659 7,575 12,631 Selling, general and administrative expenses 23,903 13,597 12,460 17,446 9,778 ________ _______ _______ _______ _______ Income (loss) before other income (expense) 13,823 12,779 8,199 (9,871) 2,853 Interest expense (1,645) (2,513) (2,743) (2,908) (1,096) Other income (expense) 130 42 341 (9,561) 22 ________ _______ _______ _______ _______ Income (loss) before discontinued operations 12,308 10,308 5,797 (22,340) 1,779 Discontinued operations -- -- 340 (9,714) (1,628) ________ _______ _______ _______ _______ Income (loss) before income taxes 12,308 10,308 6,137 (32,054) 151 Income tax (benefit) expense (3,672) 175 130 67 21 ________ _______ _______ _______ _______ Net income (loss) 15,980 10,133 6,007 (32,121) 130 Dividend - preferred stock (345) -- -- -- -- ________ _______ _______ _______ _______ Income available to common stockholders $ 15,635 $10,133 $ 6,007 $(32,121) $ 130 ======== ======= ======= ======== ======= 10 Earnings per share Basic $0.42 $0.32 $0.19 $(1.24) $0.005 Diluted $0.37 $0.28 $0.18 $(1.09) $0.005 BALANCE SHEET DATA (IN THOUSANDS) 2002 2001 2000 1999 1998 _________________________________ ________ _______ _______ _______ _______ Working capital $ 53,125 $20,472 $ 7,497 $ 2,047 $21,634 Total assets 65,371 40,896 28,056 23,300 41,364 Total current liabilities 7,822 16,585 16,949 5,153 4,335 Long-term liabilities 26,204 19,305 16,062 16,280 11,915 Stockholders' equity (deficit) 31,345 5,006 (4,955) (10,186) 18,172
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis of the Company's financial condition and results of operations should be read in conjunction with the financial statements, including the notes thereto, contained elsewhere in this Form 10-K. GENERAL The Company is a holding company, which currently conducts business through its wholly-owned subsidiaries organized in two divisions, the DHB Armor Group and the DHB Sports Group. The Company's products are sold both nationally and internationally. The Armor Group's sales are directed primarily to law enforcement agencies and military services. Sales to the U.S. military comprise the largest portion of the Armor Group's business, followed by sales to federal, state and local law enforcement agencies, including correctional facilities. Accordingly, any substantial increase or reduction in governmental spending or change in emphasis in defense and law enforcement programs could have a material effect on the Armor Group's business. The Sports Group manufactures and markets a variety of sports medicine, protective gear, health supports and magnetic therapy products under its own labels, private labels and house brands for major retailers. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001. Consolidated net sales for the year ended December 31, 2002 increased 33.0% to a record $130.3 million compared to net sales of $98.0 million for the year ended December 31, 2001. Due to the emphasis on homeland security and various military actions occurring throughout 2002, the Armor Group's revenue increased 33.5% to $124.8 million compared to $93.5 million for 2001. The Sports Group's revenues increased by 22.1% to $5.5 million in 2002 versus $4.5 million for 2001. Gross profit margin for the year ended December 31, 2002 was 28.9% compared to 26.9% in 2001, primarily as a result of the increase in revenues as well as volume purchase discounts which the Company was able to utilize during 2002. Selling, general and administrative expenses as a percentage of sales increased to 18.3% of 2002 revenues as compared to 13.9% of revenues in 2001. The selling, general and administrative expenses increased from $13.6 million in 2001 to $23.9 million in 2002, primarily as a result of increased legal fees in the successful defense of a patent infringement case and legal and professional fees associated with the union organizing campaign targeting DHB's subsidiary, 11 including the associated security, public relations and legal fees arising out of the defense of the organizing effort. Also included in selling, general and administrative expenses for 2002 were a $646,000 non-cash compensation charge and $255,000 straight-line rent described above. Primarily as a result of the increased selling, general and administrative expenses, operating margin decreased from 13.0% in 2001 to 10.6% in 2002. Interest expense for the year ended December 31, 2002 was $1.6 million, down nearly $900,000 from the $2.5 million of interest expense for the year ended December 31, 2001. This decrease is the result of lower interest rates under the Company's credit facility combined with the repayment of $5.5 million of shareholder indebtedness and the conversion of $3 million of shareholder indebtedness into preferred stock. Although the total amount owed under the credit facility increased, the overall cost of capital decreased during 2002. The Company has net operating loss (NOL) carryforwards of approximately $7.4 million available to offset income in future years. The benefit to the Company is the cash tax payments such NOL carryforwards can offset. Because the Company has had three solid years of growth and is projecting profitability in 2003, it is more likely than not that the Company can utilize this benefit prior to its expiration in 2019. Therefore, in 2002, the Company has recognized a deferred income tax benefit of approximately $3.7 million related to temporary differences that will result in deductible amounts in future years and the net operating loss carryforwards. The deferred tax asset is broken down into the current portion of $3.3 million and the long-term portion of $1.4 million for temporary timing differences in book to tax income. The income tax expense for 2001 was nominal and was offset by the NOL, so that only state and franchise taxes were expensed. Net income was approximately $16.0 million for 2002, which was reduced by the $345,000 preferred stock dividend paid to bring the income available to common stockholders to $15.6 million or $0.37 cents per fully diluted share compared to income of $10.1 million for the year ended December 31, 2001 or $0.28 per fully diluted share. The fully diluted shares outstanding for the years ended December 31, 2002 and 2001 were 42,304,254 and 36,775,910, respectively. YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000. Consolidated net sales for the year ended December 31, 2001 were $98.0 million, a 40.0% increase over the 2000 annual net sales of $70.0 million. This increase is primarily attributable to increased purchases by the Military and domestic law enforcement customers. The gross margin decreased from 29.5% to 26.9%, primarily as a result of the plant shutdown and relocation of the PACA facility during the first quarter of 2001. However, operating margins expanded to 13.0% of revenues or $12.8 million for the year ended December 31, 2001 as compared to 11.7% of revenues or $8.2 million for the year ended December 31, 2000. This increase is attributable to the manufacturing operating efficiencies resulting from higher sales volumes, volume purchasing discounts from our vendors, and tighter control of expenses. The Company's selling, general and administrative expenses for the year ended December 31, 2001 as a percentage of revenues decreased to 13.9% as compared to 17.8% in 2000. 12 Interest expense for the year 2001 decreased by approximately $230,000 to $2.5 million as a result of lower interest rates under the Company's credit facility with LaSalle Business Credit. Other income declined by $250,000, as the 2000 figure included gain on the sale of the previous corporate headquarters. As a result of the foregoing, the Company achieved net income of $10.1 million for the year 2001 as compared to $6.0 million for the year 2000, a 68.7% increase. Earnings per share for the year ended December 31, 2001 were $0.28 per share with 36,775,910 fully diluted shares versus $0.18 per share on 34,086,963 fully diluted shares for 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements over the next twelve months are to assist its subsidiaries in financing their working capital requirements. Its operating subsidiaries sell the majority of their products on 60 to 90-day terms. Working capital is needed to finance the receivables, manufacturing process and inventory. Working capital at December 31, 2002 was approximately $53.1 million as compared to working capital of approximately $20.5 at December 31, 2001. This increase in working capital reflects primarily an $11.9 million increase in accounts receivable, an $8.8 million increase in inventory and a $7.9 million decrease in accounts payable. These changes caused the Company to use approximately $15.5 million in its cash flow from operations. On September 24, 2001, the Company entered into a Loan and Security Agreement (the "Credit Agreement"), as amended on June 28, 2002 and February 25, 2003, which expires on September 24, 2004. Pursuant to the Credit Agreement, the Company may borrow up to the lesser of (i) $35 million during the period commencing on February 18, 2003 and ending on August 31, 2003, $30 million during the period commencing on September 1, 2003 and ending on November 30, 2003, and $25 million at all times on and after December 1, 2003, or (ii) 85% of eligible accounts receivable plus the lesser of $14 million or certain percentages of eligible inventory, as defined. Interest is either at the prime rate or LIBOR plus 2.50%. A portion of these funds was used to partially refinance higher interest debt. The remaining funds have been and will be used to meet increased demands for capital generated during a period of rapid growth, which has accelerated in response our growing markets. The Company's capital expenditures in 2002 decreased to $367,000, as compared to approximately $554,000 during 2001. The Company anticipates increasing its capital expenditures in 2003 to help further the growth of the Company. This increase should not have a material impact on the financial statements. The Company believes that its existing credit line, together with funds generated from operations, will be adequate to sustain its operations through 2003. 13 CASH CONTRACTUAL OBLIGATIONS The following table presents the Company's estimated cash requirements for contractual obligations outstanding as of December 31, 2002: Payments Due by Period ($ in thousands) ______________________ Less than 1-3 4-5 After Contractual Obligations 1 year years years 5 years Total _______________________ ______ _______ ______ _______ _______ Long-Term Debt $ -- $25,854 $ -- $ -- $25,854 Employment Contracts 625 1,400 -- -- 2,025 Operating Leases 1,295 2,741 2,456 3,035 9,527 Total Contractual Cash Obligations $1,920 $29,995 $2,456 $3,035 $37,406 14 CRITICAL ACCOUNTING POLICIES The Company's management believes that its critical accounting polices include: REVENUE RECOGNITION - DHB recognizes revenue when it is realized or realizable and has been earned. Product revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title and all risks of ownership have been transferred, written contract and sales terms are complete, customer acceptance has occurred and payment is reasonably assured. Returns are minimal and do not materially affect the consolidated financial statements. ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent assets and liabilities in the financial statements and accompanying notes. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include the carrying value of long-lived assets and allowances for receivables and inventories. Actual results could differ from these estimates. INCOME TAXES - DHB uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. OTHER INVESTMENT - DHB has a cost-based investment in a non-publicly traded company. A decline in the value of this cost-based investment below cost that is deemed other than temporary is charged to earnings, resulting in a new cost basis for the investment. NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This standard addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. DHB is required to implement SFAS No. 143 on January 1, 2003. DHB does not expect this standard to have a material impact on its consolidated financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This standard nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to exit an Activity (including Certain Costs Incurred in a Restructuring)." This standard requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than the date of an entity's commitment to an exit plan. DHB is required to implement SFAS No. 146 on January 1, 2003. 15 DHB does not expect this standard to have a material impact on its consolidated financial position or results of operations. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others," which expands previously issued accounting guidance and disclosure requirements for certain guarantees. The interpretation requires an entity to recognize an initial liability for the fair value of an obligation assumed by issuing a guarantee. The provision for initial recognition and measurement of the liability will be applied on a prospective basis to guarantees issued or modified after December 31, 2002. DHB does not expect this interpretation to have a material impact on its consolidated financial position or results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure- an amendment of FASB Statement No. 123," which provides optional transition guidance for those companies electing to voluntarily adopt the accounting provisions of SFAS No. 123. In addition, SFAS No. 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company does not plan to change its method of accounting for stock-based employee compensation. The Company will make the required interim disclosures effective with the quarter ending March 31, 2003. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," which requires all variable interest entities ("VIEs") to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interest in the VIE. In addition, the interpretation expands disclosure requirements for both variable interest entities that are consolidated as well as VIEs from which the entity is the holder of a significant amount of the beneficial interests, but not the majority. The disclosure requirements of this interpretation are effective for all financial statements issued after January 31, 2003. The consolidation requirements of this interpretation are effective for all periods beginning after June 15, 2003. DHB does not expect this interpretation to have a material impact on its consolidated financial position or results of operations. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual 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, including, but not limited to: general business and economic conditions, the maintenance of the Company's military supply contacts, the level of governmental expenditures on law enforcement equipment, continued supplies of materials from critical vendors, and the continued availability of insurance for the Company's products. 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. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS The Company does not issue or invest in financial instruments or their derivatives for trading or speculative purposes. The Company's market risk is limited to fluctuations in interest rates as it pertains to its borrowings under its $35 million credit facility. The Company can borrow at either the prime rate of interest or LIBOR plus 2.50%. Any increase in these reference rates could adversely affect the Company's interest expense. 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 material foreign currency exchange rate risk. 16 ITEM 8. FOURTH SECOND THIRD FINANCIAL QUARTER QUARTER QUARTER STATEMENTS AND SUPPLEMENTAL DATA SEE INDEX TO CONSOLIDATED FINANCIAL STATEMENTS APPEARING IN THE CONSOLIDATED FINANCIAL STATEMENTS ANNEXED HERETO.
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA First Second Third Fourth FISCAL 2002 Quarter Quarter Quarter Quarter _______ _______ _______ _______ Net sales $33,639 $34,014 $30,146 $32,548 Cost of goods sold 24,184 23,977 21,005 23,455 _______ _______ _______ _______ Gross profit 9,455 10,037 9,141 9,093 Selling, general and admin expense 4,229 5,098 7,282 7,294 _______ _______ _______ _______ Operating income 5,226 4,939 1,859 1,799 Other income (expense), net (441) (452) (503) (119) _______ _______ _______ _______ Income before income taxes 4,785 4,487 1,356 1,680 Income taxes 27 61 81 (3,841) _______ _______ _______ _______ Net income 4,758 4,426 1,275 5,521 Dividend - preferred stock -- -- -- (345) _______ _______ _______ _______ Income available to common stockholders $4,758 $4,426 $1,275 $5,176 ======= ======= ======= ======= Earnings per share Basic $0.14 $0.12 $0.03 $0.13 ======= ======= ======= ======= Diluted $0.11 $0.11 $0.03 $0.12 ======= ======= ======= ======= Weighted average shares outstanding Basic shares 31,486,391 36,789,796 40,413,746 40,413,746 ========== ========== ========== ========== Diluted shares 41,722,903 41,024,916 43,827,580 42,641,615 ========== ========== ========== ========== First Second Third Fourth FISCAL 2001 Quarter Quarter Quarter Quarter _______ _______ _______ _______ Net sales $20,175 $23,514 $24,009 $30,317 Cost of good sold 15,223 17,309 17,280 21,827 _______ _______ _______ _______ Gross profit 4,952 6,205 6,729 8,490 Selling, general and admin expense 3,304 3,090 3,282 3,921 _______ _______ _______ _______ Operating income 1,648 3,115 3,447 4,569 Other income (expense) (619) (678) (627) (547) _______ _______ _______ _______ Income before income taxes 1,029 2,437 2,820 4,022 Income taxes 6 134 27 8 _______ _______ _______ _______ Net income $ 1,023 $ 2,303 $ 2,793 $ 4,014 ======= ======= ======= ======= Earnings per share Basic $0.03 $0.07 $0.09 $0.13 ======= ======= ======= ======= Diluted $0.03 $0.07 $0.08 $0.11 ======= ======= ======= ======= Weighted average shares outstanding Basic shares 31,230,898 31,316,940 31,411,180 31,168,088 ========== ========== ========== ========== Diluted shares 36,760,623 35,923,088 35,666,896 36,567,864 ========== ========== ========== ========== 17 First Second Third Fourth FISCAL 2000 Quarter Quarter Quarter Quarter _______ _______ _______ _______ Net sales $13,576 $16,128 $18,591 $21,723 Cost of sales 9,594 11,516 13,034 15,215 _______ _______ _______ _______ Gross profit 3,982 4,612 5,557 6,508 Selling, general and admin expenses 2,887 2,815 3,062 3,696 _______ _______ _______ _______ Operating income 1,095 1,797 2,495 2,812 Other income (expense) (785) (763) (391) (463) _______ _______ _______ _______ Income before discontinued operations 310 1,034 2,104 2,349 Discontinued operations 340 -- -- -- _______ _______ _______ _______ Income before income taxes 650 1,034 2,104 2,349 Income taxes 28 23 93 (14) _______ _______ _______ _______ Net income $622 $1,011 $2,011 $ 2,363 ==== ====== ====== ======= Earnings per share Basic $0.02 $0.03 $0.07 $0.07 ===== ===== ===== ===== Diluted $0.02 $0.03 $0.07 $0.07 ===== ===== ===== ===== Weighted average shares outstanding Basic shares 32,332,181 32,343,941 32,237,463 31,964,196 ========== ========== ========== ========== Diluted shares 32,332,181 32,343,941 32,751,423 34,969,533 ========== ========== ========== ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: NONE PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The Directors serve for a term of one year following their election at the Annual Meeting of Stockholders, and until their successors have been elected and qualified. The officers serve at the discretion of the Board of Directors. Set forth below is certain information regarding the Company's current Directors and executive officers: DAVID H. BROOKS, age 48, has served as the Chairman or Co-Chairman of the Company since its inception in 1992. Mr. Brooks has served as the Chief Executive Officer of the Company since July 2000, having previously served in that capacity prior to September 1998. Mr. Brooks also serves as Chairman of the Board, President and a Director of Brooks Industries of L.I., Inc., a privately held venture capital firm. JEROME KRANTZ, age 47, has been a Director of the Company since July 2000. He has over 20 years' experience in the insurance and financial industry. Mr. Krantz is a chartered life underwriter and a chartered financial consultant. In addition, he is a registered investment advisor. He presently serves as the Chairman of the Company's audit and compensation committees. 18 DAWN M. SCHLEGEL, age 33, is the Chief Financial Officer of the Company. She has also served as Treasurer and Secretary of the Company since September 1999, and was elected a Director as of July 2000. She has functioned in various positions within the Company's operations and finances since 1996. Prior to joining the Company, Mrs. Schlegel worked for Israeloff, Trattner & Co. CPA's P.C., a certified public accounting firm, for more than five years. GARY NADLEMAN, age 50, has been a Director of the Company since July 2001. He has over 20 years' experience in the apparel industry. Mr. Nadleman is a private investor and the President of Synari, Inc., a manufacturer of women's sportswear and other apparel. Mr. Nadelman is a member of the audit and compensation committees. CARY CHASIN, age 55, has been a Director of the Company since October 2002. Mr. Chasin is presently an advertising executive. He has over 30 years' experience in owning and operating apparel retail, manufacturing and importing businesses. Mr. Chasin is a member of the audit and compensation committees. BARRY BERKMAN, age 62, has been a Director of the Company since February 2003. Mr. Berkman is a partner with Berkman Bottger & Rodd, a New York law firm, and is a member of the American Bar Association. SANDRA L. HATFIELD, age 49, has been Chief Operating Officer of the Company since December 2000. From October 1996 until December 2000, she served as President of Point Blank. For more than five years before that, she was the Vice President of Production at PACA. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE. The following table sets forth certain summary information regarding the compensation of the executive officers whose total salary and bonus for any of the years ended December 31, 2002, 2001 or 2000 exceeded $100,000: NAME AND PRINCIPAL POSITION YEAR ANNUAL SALARY(1) _________________________________________________________________ David H. Brooks 2002 $643,750 Chairman and CEO 2001 525,000 2000 413,542 Sandra L. Hatfield 2002 $163,068 Chief Operating Officer 2001 163,497 2000 152,098 _________________________________________________________________ Dawn M. Schlegel 2002 $140,625 Chief Financial Officer 2001 103,718 2000 100,000 _________________________________________________________________ (1) Although certain officers receive certain benefits, such as auto allowances and expense allowances, the value of such perquisites did not in any year exceed the lesser of $50,000 or 10% of the respective officer's salary and bonus. 19 EMPLOYMENT AGREEMENTS. In July 2000, Mr. Brooks and the Company entered into a five-year employment agreement. Pursuant to the agreement, Mr. Brooks received an annual salary of $500,000 through July 2001, with annual increases of $50,000 thereafter. On the effective date of the agreement, Mr. Brooks received 3,750,000 warrants exercisable at $1.00 per share and vesting 20% immediately and in 20% annual increments thereafter. These warrants expire in July 2010. STOCK WARRANTS. During 2002, each of the five then-current board members were awarded 25,000 warrants exercisable at $7.11 per share for five years for serving as board members. Mrs. Hatfield was awarded 25,000 warrants exercisable at $7.11 per share for being Chief Operating Officer. The Company also issued 275,000 warrants to an independent consulting firm to handle the Company's investor relations; these warrants expire on June 4, 2006 and have an exercise price of $4.95 per share. The value of these warrants of approximately $646,000 is included in selling, general and administrative expenses for the year ended December 31, 2002. This non-cash payment increased the Company's additional paid-in capital. During 2002, 150,000 warrants were issued and cancelled. During the year ended December 31, 2002, no additional stock options, warrants or similar securities, rights or interests were granted to any of the executive officers of the Company listed in the Summary Compensation Table above. Mr. Brooks and Mrs. Brooks exercised warrants during 2002 for 5,593,751 shares. Morton Cohen (a former Director) exercised warrants during 2002 for 121,415 shares. No other options, warrants or similar securities, rights or interests were exercised by any Directors or any such executive officers in 2002. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of Common Stock and other equity securities of the Company. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required during the year ended December 31, 2002, all Section 16(a) filing requirements applicable to its officers, directors and greater-than-10% beneficial owners were complied with. The following table summarizes option/warrant grants (excluding director grants) and the named officers' stock option activity during 2002.
Number of Potential Gain at assumed Securities % of Total Annual Rates of Stock underlying Options/SARs Price Appreciation for options / granted to Exercise or Option Term (1): SAR's(2) employees in Base Price Expiration _________________________ Name Granted Fiscal Year ($/Share) Date 5% 10% __________________ __________ ____________ ___________ __________ ___ ___ David H. Brooks 25,000 4% $7.11 4/09/07 $00 $00 Sandra L. Hatfield 25,000 4% $7.11 4/09/07 $00 $00 Dawn M. Schlegel 25,000 4% $7.11 4/09/07 $00 $00 1. These amounts assume hypothetical appreciation rates of 5% and 10% over the term of the option, as required by the SEC, and are not intended to forecast the appreciation of the stock price. No gain to the named officers will occur unless the price of DHB's common shares exceeds the options' exercise price. 2. The Company has no SAR's.
20 AGGREGATED WARRANT/OPTION VALUES The following table sets forth information regarding the number and value of unexercised warrants/options held at December 31, 2002 by the executive officers listed in the Summary Compensation Table above. This table does not include warrants provided to Mr. Brooks in capacities other than as a director or officer of the Company.
Number of Securities Underlying Unexercised Value of Unexercised In-the Money Options / SAR at FY-End Options / SAR at FY-End _____________________________ _________________________________ Name Exercisable Unexercisable Exercisable Unexercisable __________________ ___________ _____________ ___________ _____________ David H. Brooks 2,325,000 1,500,000 $1,300,500 $990,000 Sandra L. Hatfield 225,000 200,000 -0- -0- Dawn M. Schlegel 155,000 -0- -0- -0-
COMPENSATION COMMITTEE REPORT The compensation of the Company's executive officers is generally determined by either the Board of Directors or the Compensation Committee of the Board of Directors, subject to approval by the Board of Directors, and subject to applicable employment agreements. See "Executive Compensation." Each member of the Compensation Committee is a director who is not an employee of the Company or any of its affiliates. GENERAL POLICIES The Company's compensation programs are intended to enable the Company to attract, motivate, reward and retain the management talent required to achieve its corporate objectives, and thereby increase shareholder value. It is the Company's policy to provide incentives to its senior management to achieve both short-term and long-term objectives and to reward exceptional performance and contributions to the development of the Company's businesses. To attain these objectives, the Company's executive compensation program includes a competitive base salary and stock-based compensation. Stock warrants are granted to employees, including the Company's executive officers, by the Board or the Compensation Committee. The Compensation Committee believes that stock warrants provide an incentive that focuses the executive's attention on managing the Company from the perspective of an owner with an equity stake in the business. Incentive stock warrants are awarded with an exercise price equal to the market value of Common Stock on the date of grant, and all such warrants have a maximum term of ten years and generally become exercisable not less than six months from the date of grant. Among the Company's executive officers, the number of shares subject to warrants granted to each individual generally depends upon the level of that officer's responsibility. Previous grants of stock warrants are reviewed but are not considered the most important factor in determining the size of any executive's stock option award in a particular year. 21 RELATIONSHIP OF COMPENSATION TO PERFORMANCE The Compensation Committee annually establishes, subject to the approval of the Board of Directors and any applicable employment agreements, the salaries that will be paid to the Company's executive officers during the coming year. In setting salaries, the Compensation Committee takes into account several factors, including competitive compensation data, the extent to which an individual may participate in the stock plans maintained by the Company, and qualitative factors bearing on an individual's experience, responsibilities, management and leadership abilities, and job performance. COMPENSATION OF CHIEF EXECUTIVE OFFICER For fiscal 2002, pursuant to the terms of his employment agreement with the Company, David H. Brooks received a base salary of $575,000. See "Executive Compensation - Employment Agreements." In light of this employment agreement, the Compensation Committee was not required to make any decision regarding the cash compensation of Mr. Brooks. Mr. Brooks also received warrants to purchase 25,000 shares of common stock at $7.11 per share (as did each of the other then-current Directors of the Company). COMPENSATION COMMITTEE Jerome Krantz, Chairman Gary Nadelman Cary Chasin ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of the Company's common stock as of March 1, 2003, for (i) each person known by the Company to beneficially own more than five percent of the shares of outstanding Common Stock, (ii) each of the executive officers listed in the Summary Compensation Table in "Executive Compensation", and (iii) all of the Company's executive officers and directors as a group. Except as otherwise indicated, all shares are beneficially owned, and the persons named as the owners hold investment and voting power. 22 Number of Shares Percent Owned(1) Name Beneficially Owned(2) * - Less than one (1%) __________________ _____________________ ______________________ David H. Brooks(3) 20,469,351(3) 47% Jerome Krantz 145,350(4) * Sandra L. Hatfield 225,000(5) * Dawn M. Schlegel 205,500(6) * Gary Nadelman 219,000(7) * Cary Chasin 112,000(8) * Barry Berkman 132,200 * All officers and 21,508,401(9) 50%(9) Directors as a group (7 people) (1) Based upon 40,413,746 shares outstanding as of March 1, 2003. In calculating the percentage owned by any individual officer or director, the number of currently exercisable warrants and options held by such individual have been included in the calculation of the percentage owned. (2) Includes currently exercisable options or warrants, which are those exercisable within 60 days after the date of this Form 10-K/A. (3) Consists of 10,037,059 common shares owned, 500,000 shares issuable upon conversion of Series A, 12% Convertible Preferred Stock owned by Mr. Brooks, 3,057,292 shares owned by his wife, 4,500,000 shares owned by his wife as custodian for his minor children, and 2,375,000 shares acquirable under currently exercisable warrants as described below. Mr. Brooks may acquire 2,375,000 shares under currently exercisable warrants at prices between $1.00 and $7.11 per share, 50,000 of the warrants were issued in 2003. As the only person with more than 5% ownership of the Company, Mr. Brooks' address is 555 Westbury Avenue, Carle Place, New York 11514. (4) Includes 100,000 shares, which may be acquired upon exercise of a currently exercisable warrants at prices between $1.41 and $7.11 per share, 50,000 of the warrants were issued in 2003. (5) Includes 225,000 shares, which may be acquired under currently exercisable warrants at prices between $2.00 and $7.11 per share. (6) Includes 205,000 shares, which may be acquired under currently exercisable warrants at prices between $1.41 and $7.11 per share, 50,000 of the warrants were issued in 2003. (7) Includes 100,000 shares, which may be acquired upon exercise of currently exercisable warrants at prices between $1.41 and $7.11 per share, 50,000 of the warrants were issued in 2003. (8) Includes 50,000 shares, which may be acquired under currently exercisable warrants at a price of $1.41 per share issued in 2003. (9) Includes 3,055,000 shares purchasable pursuant to currently exercisable warrants held by directors and officers. 23 As of December 31, 2002, the Company maintained a single equity compensation plan (its 1995 Stock Option Plan), which had previously been approved by the Company's security holders, and under which the Company is authorized to issue options for up to 3,500,000 shares of common stock. As of December 31, 2002 and the date of this Form 10-K, there were no options outstanding under such plan, and 3,500,000 common stock options remain available for issuance under the plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has funded certain of its acquisitions and operations through the use of term loans from Mr. David H. Brooks, Chairman of the Board of the Company, and Mrs. Terry Brooks, his wife. On January 14, 2002, David H. Brooks, the principal stockholder of the Company, exchanged $3 million of the approximately $10 million of indebtedness due him for 500,000 Shares of the newly authorized Series A, 12% Convertible Preferred Stock (the "Preferred Stock"). The Preferred Stock has a dividend rate of $0.72 per share per annum, an amount equal to the interest that would have been payable 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 of each year. During 2002, the Company repaid $5.5 million of principal indebtedness owed to Mr. Brooks, bringing the total indebtedness owed by the Company to Mr. Brooks as of December 31, 2002 to $1.5 million. These shareholder loans mature in November 2004 and bear interest at 12% per annum. Point Blank leases a 67,000 square foot office and manufacturing facility (the "Oakland Park Facility") located at 4031 N.E. 12th Terrace, Oakland Park, Florida 33334, from V.A.E. Enterprise LLC ("V.A.E."), a Limited Liability Corporation controlled by Terry Brooks, wife of Mr. David H. Brooks, and beneficially owned by Mr. and Mrs. Brooks' minor children. Total base rental under this lease was $643,000 in 2002, and the lease expires on December 31, 2010. Management performed a comparison of market rates at the time the lease was entered into, and believes that the terms of the lease were at the current market price that would then have been obtained from an unrelated party. The Company has been purchasing certain products, which are components of ballistic resistant apparel manufactured and sold by the Company from Tactical Armor Products, Inc. ("TAP"), a company owned by Terry Brooks, the wife of Mr. David H. Brooks. The total of such purchases during the years ended December 31, 2002, 2001, and 2000 were approximately $7,975,000, $2,760,000 and $477,000 respectively. The unit prices charged by TAP have been less than the prices charged to the Company by its previous outside suppliers, and TAP's products are available on demand. To facilitate the delivery and integration of these components, beginning in May 2001, the Company permitted TAP to manufacture these components in a portion of the Company's manufacturing facility in Jacksboro, Tennessee, for which TAP paid to the Company occupancy charges of approximately $39,600 and $26,400 for the years ended December 31, 2002 and 2001, respectively. (The rent paid by TAP is an estimated allocable portion of the Company's total rent for the entire facility.) Terry Brooks also owned another company, US Manufacturing Corporation, that received revenues of $43,355 from the Company in 2002 for stitching work but has since been merged into TAP. TAP is an approved subcontractor under the applicable contracts between the Company and the United States federal government. ITEM 14. CONTROLS AND PROCEDURES Within the 90 days prior to the date of the filing of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rules 13a-14 and 15d-14 of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, subject to the inherent limitations described below, the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic Securities and Exchange Commission filings. No significant changes were made in the Company's internal controls or in other factors that could significantly affect these internal controls subsequent to the completion of the evaluation. Disclosure controls and procedures are those controls and other procedures that are designed with the objective of ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within 24 the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The Company's management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company's disclosure controls will prevent all errors and uncover all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system necessarily reflects the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion or two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8K A. (1) FINANCIAL STATEMENTS (2) FINANCIAL STATEMENT SCHEDULES (3) EXHIBITS. THE EXHIBITS FILED HEREWITH ARE SET FORTH ON THE INDEX TO EXHIBITS FILED AS PART OF THIS REPORT. B. FORM 8-K: NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED DECEMBER 31, 2002. 25 DHB INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONTENTS PAGE Report of Independent Certified Public Accountants: Grant Thornton LLP F-2 Report of Independent Certified Public Accountants: Paritz & Company P.A. F-3 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statement of Stockholders' Equity (Deficit) and Comprehensive Income F-6 Consolidated Statements of Cash Flows F-7 Notes to the Consolidated Financial Statements F-8 - F- 24 Schedule II - Valuation and Qualifying Accounts F-25 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders of DHB Industries, Inc. We have audited the accompanying consolidated balance sheet of DHB Industries, Inc. and Subsidiaries (the "Company") as of December 31, 2002 and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive income, and cash flows for the year then ended. These 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 auditing standards generally accepted in the United States of America. Those standards require that we 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 consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of DHB Industries, Inc. and Subsidiaries as of December 31, 2002 and the consolidated results of its operations and consolidated cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. We have also audited the financial statement schedule listed in the Index at Item 15(a)(2) for the year ended December 31, 2002. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. On February 14, 2003 (except for Note 6, as to which the date is February 25, 2003 and Note 13, as to which the date is March 17, 2003), we originally reported on the consolidated financial statements referred to above. This report was issued prior to the discovery of the matters set forth in Note 10 and Note 13-Leases, to the consolidated financial statements, wherein revisions of disclosures in connection with certain other related party transactions existing as of December 31, 2002, and for the year then ended are described. /s/GRANT THORNTON LLP Melville, New York February 14, 2003 (except for Note 6, as to which the date is February 25, 2003, Note 13, as to which the date is March 17, 2003, and Note 10 and 13-Leases, as to which the date is July 18, 2003) F-2 INDEPENDENT AUDITORS' REPORT The Board of Directors of DHB Industries, Inc. We have audited the accompanying consolidated balance sheet of DHB Industries, Inc. and Subsidiaries as of December 31, 2001 and the related consolidated statements of operations, stockholders' equity (deficit) and other comprehensive income and cash flows for each of the two years in the period ended December 31, 2001. Our audits also included the financial statement schedule. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of DHB Industries, Inc. and Subsidiaries as of December 31, 2001 and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. On March 5, 2002 we originally reported on the consolidated financial statements referred to above. This report was issued prior to the discovery of the matters set forth in Note 10 and Note 13-Leases, to the consolidated financial statements, wherein revisions of disclosures in connection with certain other related party transactions existing as of December 31, 2002, and for the year then ended are described. Paritz and Company P.A. Hackensack, New Jersey March 5, 2002 (except for Note 10, and Note 13-Leases, as to when the date is July 18, 2003) F-3
DHB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) DECEMBER 31, ___________________ 2002 2001 _______ _______ ASSETS Current assets Cash and cash equivalents $ 393 $ 145 Accounts receivable, less allowance for doubtful accounts of $1,070 and $792, respectively 22,904 11,253 Inventories 33,360 24,582 Deferred income tax assets 3,319 -- Prepaid expenses and other current assets 971 1,077 _______ _______ Total current assets 60,947 37,057 _______ _______ Property and equipment, net 1,620 2,017 _______ _______ Other assets Other investment 942 942 Deferred income tax assets 1,402 259 Deposits and other assets 460 621 _______ _______ Total other assets 2,804 1,822 _______ _______ Total assets $65,371 $40,896 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 5,368 $13,298 Accrued expenses and other current liabilities 2,454 2,515 Current maturities of long term debt -- 772 _______ _______ Total current liabilities 7,822 16,585 _______ _______ LONG TERM LIABILITIES Notes payable-bank 24,354 8,442 Long term debt, net of current maturities -- 863 Note payable - stockholder 1,500 10,000 Other liabilities 350 -- _______ _______ Total liabilities 34,026 35,890 _______ _______ COMMITMENTS AND CONTINGENCIES Stockholders' equity Convertible preferred stock, $0.001 par value, 5,000,000 shares authorized, 500,000 shares of Series A, 12% convertible preferred stock issued and outstanding 1 -- Common stock, $0.001 par value, 100,000,000 shares authorized, 40,413,746 and 31,481,914 shares issued and outstanding, respectively 40 31 Additional paid in capital 34,792 24,109 Other comprehensive income (loss) (41) (52) Accumulated deficit (3,447) (19,082) _______ _______ Total stockholders' equity 31,345 5,006 _______ _______ Total liabilities and stockholders' equity $65,371 $40,896 ======= ======= The accompanying notes are an integral part of these consolidated financial statements.
F-4
DHB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, (In thousands, except share and per share data) 2002 2001 2000 ________ _______ _______ Net sales $130,347 $98,015 $70,018 Cost of goods sold 92,621 71,639 49,359 ________ _______ _______ Gross profit 37,726 26,376 20,659 Selling, general and administrative expenses 23,903 13,597 12,460 ________ _______ _______ Income before other income (expense) 13,823 12,779 8,199 ________ _______ _______ Other income (expense) Interest expense (1,645) (2,513) (2,743) Realized loss on marketable securities -- (71) (26) Other income 130 113 367 ________ _______ _______ Total other expense (1,515) (2,471) (2,402) ________ _______ _______ Income from continuing operations before income taxes 12,308 10,308 5,797 Income taxes (benefit) Current taxes 77 175 130 Deferred tax benefit (3,749) -- -- ________ _______ _______ Total tax (benefit) expense (3,672) 175 130 ________ _______ _______ Income from continuing operations 15,980 10,133 5,667 Discontinued operations Loss from discontinued operations -- -- (517) Gain on disposal of discontinued operations -- -- 857 ________ _______ _______ Total discontinued operations -- -- 340 ________ _______ _______ Net income 15,980 10,133 6,007 Dividend - preferred stock (345) -- -- ________ _______ _______ Income available to common stockholders $15,635 $10,133 $6,007 ======= ======= ====== Basic earnings per common share Continuing operations $0.42 $0.32 $ 0.18 Discontinued operations 0.00 0.00 0.01 ________ _______ _______ Net earnings per common share $0.42 $0.32 $0.19 ======== ======= ======= Diluted earnings per common share Continuing operations $0.37 $0.28 $ 0.17 Discontinued operations 0.00 0.00 0.01 ________ _______ _______ Net earnings per common share $0.37 $0.28 $0.18 ======== ======= ======= The accompanying notes are an integral part of these consolidated financial statements.
F-5
DHB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (In thousands, except share and per share data) Accumulated Series A Additional Common Stock Other Retained Preferred Par Par Paid-in Subscription Comprehensive Earnings Shares Value Common Value Capital Receivable Income (Deficit) Total _________ _____ ______ _____ __________ ____________ _____________ _________ ________ Balance January 1, 2000 32,332,181 $32 $25,692 $(700) $ 13 $(35,222) $(10,185) Net income 6,007 6,007 Effect of foreign currency translation (36) (36) Effect of valuation allowance on marketable securities (283) (283) ________ Total comprehensive income 5,688 Sale of common stock (9) 700 691 Stock issued for services 22,607 36 36 Stock issued in settlement of a lawsuit 16,727 23 23 Purchase of treasury stock - - (697,538) -- (1,207) - - - (1,207) ________ ___ __________ ___ _______ _____ _____ ________ ________ Balance December 31, 2000 -- $-- 31,673,977 $32 $24,535 $ -- $(306) $(29,215) (4,954) Net income 10,133 10,133 Effect of foreign currency translation (29) (29) Effect of valuation allowance marketable securities 283 283 ________ Total comprehensive income 10,387 Sale of common stock 225,000 506 506 Stock issued for services 111,000 355 355 Exercise of stock warrants 150,000 450 450 Purchase of treasury stock - - (678,063) (1) (1,737) - - - (1,738) ________ ___ __________ ___ _______ _____ _____ ________ ________ Balance December 31, 2001 -- -- 31,481,914 $31 $24,109 $ -- $ (52) $(19,082) $5,006 Net income 15,635 15,635 Effect of foreign currency translation 11 11 ________ Total comprehensive income 15,646 Issuance of Series A Preferred Stock 500,000 1 2,999 3,000 Issuance of stock warrants to outside consultant 646 646 Exercise of stock warrants (net of taxes) - - 8,931,832 9 7,038 - - - 7,047 ________ ___ __________ ___ _______ _____ _____ ________ ________ Balance December 31, 2002 500,000 $1 40,413,746 $40 $34,792 $ -- $( 41) $(3,447) $ 31,345 ======== === ========== === ======= ===== ===== ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
F-6
DHB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (In thousands, except share and per share data) 2002 2001 2000 _______ ________ ______ CASH FLOWS FROM OPERATING ACTIVITIES Income available to common stockholders $15,635 $ 10,133 $6,007 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 463 478 324 Amortization of deferred financing costs 125 30 -- Provision for doubtful accounts 278 283 (283) Stock issued for services -- 355 36 Issuance of stock warrants to outside consultant 646 Stock issued in settlement of a lawsuit -- -- 23 Unrealized gain on transfers from other investments -- -- 58 Other liabilities 350 Deferred income tax assets (4,462) 170 15 Changes in operating assets and liabilities Accounts receivable (11,929) (3,131) (2,913) Marketable securities -- 369 (369) Inventories (8,778) (10,285) (5,251) Prepaid expenses and other current assets 106 (310) (495) Deposits and other assets 67 327 41 Accounts payable (7,930) 2,040 1,762 Accrued expenses and other current liabilities (61) (3,033) 2,991 _______ ________ ______ Net cash (used in) provided by operating activities (15,490) (2,574) 1,946 _______ ________ ______ CASH FLOWS FROM INVESTING ACTIVITIES Sale of assets of subsidiary, net of cash acquired -- -- 3,934 Proceeds from sale of property and equipment 302 -- 422 Purchases of property and equipment (367) (554) (429) _______ ________ ______ Net cash (used in) provided by investing activities (65) (554) 3,927 _______ ________ ______ CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds (repayments) of notes payable- bank 15,912 8,442 (5,000) Payments of note payable- stockholder (5,500) (6,046) -- Proceeds from the issuance of long term debt -- 1,800 -- Issuance costs of long-term debt (32) (355) -- Principal payments on long-term debt (863) (324) (227) Proceeds from the issuance of common stock 6,275 450 -- Purchase of treasury stock -- (1,738) (1,207) Net proceeds from sale of common stock -- 506 691 _______ ________ ______ Net cash provided by (used in) financing activities 15,792 2,735 (5,743) _______ ________ ______ Effect of foreign currency translation 11 (29) (36) _______ ________ ______ Net increase (decrease) in cash and cash equivalents 248 (422) 94 Cash and cash equivalents at beginning of year 145 567 473 _______ ________ ______ Cash and cash equivalents at end of year $393 $145 $567 ======= ======== ====== The accompanying notes are an integral part of these consolidated financial statements.
F-7 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 1 BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of DHB Industries, Inc. and its subsidiaries ("DHB" or the "Company"), all of which are wholly owned. DHB has two major divisions, DHB Armor Group and DHB Sports Group. All intercompany balances and transaction have been eliminated in consolidation. Business description DHB Armor Group develops, manufactures, and distributes bullet and projectile resistant garments, bullet resistant and fragmentation vests, bomb projectile blankets, aircraft armor, bullet resistant plates and shields and related ballistic accessories for United States armed forces, federal agencies and state and local law enforcement communities. DHB Sports Group produces and markets a comprehensive line of athletic supports and braces which are merchandised through national superstore chains. DHB maintains manufacturing facilities in Deerfield Beach, FL, Oakland Park, FL, and Jacksboro, TN. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, 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 DHB recognizes revenue when it is realized or realizable and has been earned. Product revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title and all risks of ownership have been transferred, written contract and sales terms are complete, customer acceptance has occurred and payment is reasonably assured. Returns are minimal and do not materially affect the consolidated financial statements. Inventories Inventories are stated at the lower of cost (determined on the first-in, first-out basis) or market. Property and equipment Property and equipment are recorded at cost less accumulated depreciation. Major additions, improvements, and renewals, which substantially increase the useful lives of assets, are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. Depreciation is calculated primarily on the straight-line basis over the estimated lives of the assets. Leasehold improvements are amortized over the shorter of the estimated life or the lease term of the related asset. F-8 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 1 BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Cash and cash equivalents All short-term, highly liquid investments with original maturities of ninety days or less are considered cash equivalents. Marketable Securities Investments in marketable securities were accounted for in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". DHB classified all its marketable securities as held for investment and, accordingly, unrealized gains and losses were reflected as a component of other comprehensive income (loss) in the statement of stockholders' equity (deficit) and comprehensive income. During the year ended December 31, 2001, the Company liquidated its investments in marketable securities. Other investment DHB has a cost-based investment in a non-publicly traded company. The investment is included in "Other investment" in the accompanying balance sheet and is carried at cost. A decline in the value of this cost-based investment below cost that is deemed other than temporary is charged to earnings, resulting in a new cost basis for the investment. Fair values of financial instruments The Company's financial instruments include cash, accounts receivable, accounts payable and long-term debt. The carrying values of cash, accounts receivable, accounts payable and long-term debt approximate their fair values. Income taxes DHB and its domestic subsidiaries file a consolidated Federal income tax return and separate state income tax returns. DHB uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Research and development expenses Research and development expenses are included in selling, general and administrative expenses as incurred and for the years ended December 31, 2002, 2001 and 2000 was $4,221, $2,327 and $1,317, respectively. F-9 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 1 BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued Advertising expenses The cost of advertising is expensed as incurred. The Company incurred approximately $950, $742 and $728 of advertising costs during the years ended December 31, 2002, 2001 and 2000, respectively. Earnings per share Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding compounding the effects of all potentially dilutive common stock equivalents, principally warrants, using the treasury stock method except in cases where the effect would be anti-dilutive. Comprehensive income and foreign currency translation Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes foreign currency translation adjustments, which are a component of accumulated other comprehensive income (loss) in stockholders' equity. Stock based compensation The Company accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations ("APB No. 25") and has adopted the disclosure provisions of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123" (SFAS No. 148'). Under APB No. 25, when the exercise price of the Company's employee stock warrants equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Accordingly, no compensation expense has been recognized in the consolidated financial statement in connection with employee stock warrant grants. Impairment of long-lived assets DHB reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on DHB's ability to recover the carrying value of the asset or asset group from the expected pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. Reclassification Certain prior year balances have been reclassified to conform with current year presentation. F-10 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 1 BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued New Accounting Standards In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This standard addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. DHB is required to implement SFAS No. 143 on January 1, 2003. DHB does not expect this standard to have a material impact on its consolidated financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This standard nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to exit an Activity (including Certain Costs Incurred in a Restructuring)." This standard requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than the date of an entity's commitment to an exit plan. DHB is required to implement SFAS No. 146 on January 1, 2003. DHB does not expect this standard to have a material impact on its consolidated financial position or results of operations. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others," which expands previously issued accounting guidance and disclosure requirements for certain guarantees. The interpretation requires an entity to recognize an initial liability for the fair value of an obligation assumed by issuing a guarantee. The provision for initial recognition and measurement of the liability will be applied on a prospective basis to guarantees issued or modified after December 31, 2002. DHB does not expect this interpretation to have a material impact on its consolidated financial position or results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure- an amendment of FASB Statement No. 123," which provides optional transition guidance for those companies electing to voluntarily adopt the accounting provisions of SFAS No. 123. In addition, SFAS No. 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company does not plan to change its method of accounting for stock-based employee compensation. The Company will make the required interim disclosures effective with the quarter ending March 31, 2003. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," which requires all variable interest entities ("VIEs") to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interest in the VIE. In addition, the interpretation expands disclosure requirements for both variable interest entities that are consolidated as well as VIEs from which the entity is the holder of a significant amount of the beneficial interests, but not the majority. The disclosure requirements of this interpretation are effective for all financial statements issued after January 31, 2003. The consolidation requirements of this interpretation are effective for all periods beginning after June 15, 2003. DHB does not expect this interpretation to have a material impact on its consolidated financial position or results of operations. F-11 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 2 SUPPLEMENTAL CASH FLOW INFORMATION Year Ended December 31, _____________________________________ Cash paid for: 2002 2001 2000 _____ ______ ____ Interest 1,618 $2,364 $125 Taxes 73 13 29 For the year ended December 31, 2002, approximately $646 is included in selling, general and administrative expenses for a non-cash payment, which represents the value of the warrants issued to an independent consulting firm to handle the Company's investor relations (See Note 8). The Company also recorded a $350 non-cash charge during the year ended December 31, 2002 related to straight-lining rent (See Note 15). In addition, on January 14, 2002, the Company reduced its note payable- shareholder by $3,000 through the issuance of preferred stock. (See Note 5 and Note 8.) Note 3 INVENTORIES The components of inventory as of December 31, 2002 and 2001 are as follows: 2002 2001 _______ _______ Raw materials and supplies $14,833 $12,624 Work in process 9,116 6,917 Finished goods 9,411 5,041 _______ _______ $33,360 $24,582 ======= ======= Note 4 PROPERTY AND EQUIPMENT Property and equipment as of December 31, 2002 and 2001 are summarized as follows: Estimated 2002 2001 useful life ______ ______ ___________ Machinery and equipment $1,937 $1,991 5-30 years Furniture, fixtures and computer 1,146 1,074 5-7 years equipment Transportation equipment 374 601 3-5 years Leasehold improvements 720 716 5-40 years ______ ______ 4,177 4,382 Less accumulated depreciation and (2,557) (2,365) ______ ______ amortization $1,620 $2,017 ====== ====== Depreciation and amortization expense for the years ended December 31, 2002, 2001 and 2000 was approximately $463, $478 and $324, respectively. F-12 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 5 NOTE PAYABLE - STOCKHOLDER This note is payable to the majority stockholder of DHB and bears interest at 12% per annum and is payable, as extended, in November 2004. The balance at December 31, 2001 was $10,000. On January 14, 2002, the noteholder exchanged $3,000 of this indebtedness due him for 500,000 shares of the Company's Series A, 12% Convertible Preferred Stock. During the year ended December 31, 2002 cash repayments of $5,500 were also made, bringing the balance at December 31, 2002 to $1,500. This note is subordinate to the Loan and Security Agreement (See Note 6) however, the Credit Agreement allows for annual repayments of this note payable based upon an excess cash flow calculation, as defined. Note 6 NOTE PAYABLE - BANK December 31, _______________________ 2002 2001 _______ ______ Credit agreement $24,354 $8,442 ======= ====== On September 24, 2001, the Company entered into a Loan and Security Agreement (the "Credit Agreement"), as amended on June 28, 2002 and February 25, 2003, which expires on September 24, 2004. Pursuant to the Credit Agreement, the Company may borrow up to the lesser of (i) $35,000 during the period commencing on February 18, 2003 and ending on August 31, 2003, $30,000 during the period commencing on September 1, 2003 and ending on November 30, 2003, and $25,000 at all times on and after December 1, 2003, or (ii) 85% of eligible accounts receivable plus the lesser of $14,000 or certain percentages of eligible inventory, as defined. Borrowings under the Credit Agreement bear interest, at the Company's option, at the bank's prime rate or LIBOR plus 2 1/2% per annum (3.928% at December 31, 2002). The borrowings under the Credit Agreement are collateralized by a first security interest in substantially all of the assets of the Company. In addition, the Credit Agreement includes both negative and affirmative covenants customary for a credit facility of this nature. The Credit Agreement, among other things, requires the Company to maintain a minimum (i) tangible net worth, as defined, (ii) fixed charge coverage ratio, and (iii) earnings before interest, taxes, depreciation and amortization. The Credit Agreement further limits the amount of capital expenditures that the Company may incur in any fiscal year. Deferred financing costs associated with the Credit Agreement were capitalized and are being amortized over the term of the Credit Agreement. Amortization expense was $125 and $30 during the years ended December 31, 2002 and 2001, respectively. F-13 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 7 LONG-TERM DEBT December 31, ____________________ 2002 2001 ____ ______ Term loan, interest rate at the bank's prime $-- $1,613 rate plus1/2% or LIBOR plus 3%, payable in 24 monthly installments of approximately $63 plus interest and 11 installments of approximately $8 plus interest. Pursuant to the June 28, 2002 amendment of the Credit Agreement, this term loan was required to be paid in full. Other -- 22 ___ ______ -- 1,635 Less current portion -- 772 ___ ______ Total long term debt $ 0 $ 863 === ===== Note 8 STOCKHOLDERS' EQUITY Convertible Preferred Stock DHB is authorized to issue 5,000,000 shares of Preferred Stock ("Preferred Stock"). On January 14, 2002, the majority stockholder of the Company exchanged $3,000 of the approximately $10,000 of indebtedness due him for 500,000 shares of Series A, 12% Convertible Preferred Stock. The Series A, 12% Convertible Preferred Stock has a dividend rate of $0.72 per share per annum, an amount equal to the interest that would have been payable on the exchanged indebtedness. Shares of the Series A, 12% Convertible Preferred Stock are convertible, on a one-to-one basis, at the option of the holder, into shares of common stock. The shares of Series A, 12% Convertible Preferred Stock are redeemable at the option of the Company on December 15 of each year. Common Stock DHB has 100,000,000 shares authorized of its $0.001 par value common stock. Treasury Stock On December 1, 2000, the Company's Board of Directors announced the directive for the Company to purchase up to 2,000,000 shares of its common stock in the open market, from time to time, at its discretion. As of December 31, 2002, the Company still has authorization to purchase 1,264,395 shares of its common stock. The Credit Agreement, as described in Note 6, limits the dollar amount available to purchase treasury shares based upon an excess cash flow calculation, as defined. All treasury shares repurchased by the Company are immediately retired. F-14 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 8 STOCKHOLDERS' EQUITY - Continued Earnings per common share Earnings per common share calculations are based on the weighted average number of common shares outstanding during each period: 37,275,920, 31,455,406, and 32,219,376 shares for the years ended December 31, 2002, 2001, and 2000, respectively. Calculations for diluted earnings per share are based on the weighted average number of outstanding common shares and common share equivalents during the periods: 42,304,254, 36,775,910, and 34,086,963 shares for the years ended December 31, 2002, 2001, and 2000, respectively. Income Shares Per Share (numerator) (denominator) Amount ___________ _____________ _________ Basic EPS Income available for common stockholders-2002 $15,635 37,275,920 $ 0.42 _______ __________ ______ Diluted EPS $15,635 42,304,254 $ 0.37 ======= ========== ====== Basic EPS Income from continuing $10,133 31,455,406 $ 0.32 operations-2001 _______ __________ ______ Diluted EPS $10,133 36,775,910 $ 0.28 ======= ========== ====== Basic EPS Income from continuing $ 5,667 32,219,376 $ 0.18 operations-2000 Income from discontinued 340 32,219,376 $ 0.01 operations-2000 _______ __________ ______ $6,007 32,219,376 $ 0.19 ======= ========== ====== Diluted EPS Income from continuing $ 5,667 34,086,963 $ 0.17 operations-2000 Income from discontinued 340 34,086,963 $ 0.01 operations-2000 _______ __________ ______ $6,007 34,086,963 $ 0.18 ======= ========== ====== Stock option plan The Company adopted a 1995 Stock Option Plan ("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. There are no outstanding options issued under the plan. Stock warrants During the year ended December 31, 2002, the five members of the Board of Directors were each awarded 25,000 warrants exercisable at $7.11 per share for five years. The chairman of the audit committee and the chairman of the compensation committee were each awarded 25,000 warrants exercisable at $7.11 per share for five years. Also during the year ended December 31, 2002, the Board of Directors awarded key employees 25,000 warrants exercisable at $7.11 per share, which expire in April 2007. The Company also issued and canceled 150,000 warrants to an employee. F-15 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 8 STOCKHOLDERS' EQUITY - Continued On June 4, 2002, the Company issued 275,000 warrants to its investor relations firm with an exercise price of $4.95 per share. This warrant expires June 4, 2006. The fair value of this warrant was determined to be approximately $646,000 which is included in selling, general and administrative expenses for the year ended December 31, 2002. The Black-Scholes warrant pricing model used for this warrant had the following assumptions: Risk-free interest rate of 4.67%, expected volatility of common stock of 59.83% and a 4 year option term. During the year ended December 31, 2002 the CEO/Chairman and his wife exercised warrants totaling 5,593,751 shares. During 2001, the four members of the Board of Directors were each awarded 25,000 warrants exercisable at $2.00 per share for five years. Also during 2001, the Board of Directors awarded key employees 400,000 warrants exercisable at $2.00 per share, which expire in January 2006. A summary of the status of the Company's stock warrants is presented in the table below:
For the Year Ended December 31, _____________________________________________________________________ 2002 2001 2000 _____________________________________________________________________ Weighted Weighted Weighted Average Average Average exercise exercise exercise Shares price Shares price Shares price __________ ________ __________ ________ __________ ________ Warrants outstanding - beginning of year 13,620,689 $1.72 13,007,666 $1.74 8,761,666 $2.07 Granted 625,000 $5.15 763,023 $2.13 4,246,000 $1.11 Exercised (8,931,832) $0.58 (150,000) $3.00 Canceled (150,000) $2.92 -- -- __________ ________ __________ ________ __________ ________ Warrants outstanding - end of year 5,163,857 $1.64 13,620,689 $1.72 13,007,666 $1.74
The per share weighted average fair value of stock warrants granted during the year ended December 31, 2002 was $5.1625. The fair value of these warrants was determined at the date of grant using the Black-Scholes warrant pricing model with the following assumptions: The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock warrants have characteristics significantly different from those of traded warrants and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock warrants. F-16 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 8 STOCKHOLDERS' EQUITY - Continued The weighted-average warrant fair values and assumptions used to estimate these values are as follows: Grants Issued During 2002 2001 ____ ____ Risk-free interest rate 4.67% 4.92% Expected volatility of common stock 94.5467% 100.67% Dividend yield 0.00% 0.00% Expected option term 5 years 5.14 years The following table illustrates the effect on net income and earnings per share had the Company applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" to stock-based employee compensation. Year Ended December 31, _______________________ 2002 2001 _______ _______ Income available to common stockholders As reported $15,635 $10,133 Deduct: total stock-based employee compensation Expense determined under fair value based method for all awards, net of related tax effect 1,829 2,225 _______ _______ Pro forma 13,806 7,908 Basic earnings per common share As reported $0.42 $0.32 Pro forma $0.37 $0.25 Diluted earnings per common share As reported $0.37 $0.28 Pro forma $0.33 $0.21 Pro forma compensation expense may not be indicative of pro forma expense in future years. For purposes of estimating the fair value of each warrant on the date of grant, the Company utilized the Black-Scholes option pricing model. The following table summarizes information regarding stock warrants outstanding at December 31, 2002:
Weighted Average Weighted Number of Remaining Average Number of Weighted Exercise Price Warrants Contractual Exercise Shares Average Range Outstanding Life Price Exercisable Exercise Price ______________ ___________ ___________ ________ ___________ ______________ 0 to $1.00 3,750,000 7.51 $1.00 2,250,000 $1.00 $1.01 to $1.50 133,000 0.49 $1.46 133,000 $1.46 $1.51 to $2.00 663,000 3.72 $2.00 453,000 $2.00 $2.01 to $2.50 45,000 3.04 $2.50 30,000 $2.50 $2.51 to $3.00 12,857 0.96 $2.88 12,857 $2.88 $3.01 and above 560,000 3.30 $5.48 560,000 $5.48
F-17 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 9 DISCONTINUED OPERATIONS In October 1999, the Company announced its strategic decision to discontinue the operations of its Lanxide Armor Products ("LAP") and the Electronics Group (LEC and DHB KK). LAP operations where shut down in October 1999 and the Electronics Group was sold on March 10, 2000 for a sales price of $4,234, less the outstanding long-term debt. The results of the closure of LAP and the Electronics Group have been reported separately as discontinued operations. The condensed statements of operations relating to the discontinued operations for the year ended December 31, 2000 are presented below: Net sales $401 Cost and expenses (918) ____ Loss before income taxes (517) Gain on disposal 857 ____ Net income $340 ==== Note 10 RELATED PARTY TRANSACTIONS A summary of related party transactions for the years ended December 31, 2002, 2001 and 2000 is as follows: 2002 2001 2000 ____ ____ ____ Interest, dividends, rental, professional and other expenses paid or accrued to DHB's majority stockholder $2,116 $2,962 $3,529 The Company leases an office and manufacturing facility from a limited liability corporation indirectly owned by the majority stockholder of DHB pursuant to a lease expiring December 31, 2010 with annual rental approximately $643 and $607 during the years ended December 31, 2002 and 2001, respectively, with 6% annual increases thereafter. The Company, recorded $350 non-cash charge during the year ended December 31, 2002 related to straight-lining rent. The Company has been purchasing certain products, which are components of ballistic resistant apparel manufactured and sold by the Company from a corporation owned by the wife of DHB's majority stockholder. The total of such purchases during the years ended December 31, 2002, 2001, and 2000 were approximately $7,975, $2,760 and $477, respectively. The Company also sells certain components to this entity, which are used in manufacturing the products that the Company purchases from this entity. In addition, this entity sub-leases a portion of the Tennessee facility, for which the Company received approximately $40 and $26 during the years ended December 31, 2002 and 2001, respectively. The Company was owed $580 by this entity at December 31, 2002, which is included in accounts receivable in the accompanying consolidated balance sheets. The Company owed $1,665 and $208 to this entity at December 31, 2002 and 2001, respectively, for purchases made, which is included in accounts payable in the accompanying consolidated balance sheets. DHB's majority stockholder's wife also owned another company that received revenues of $43 from the Company during the year ended December 31, 2002 for stitching work but has since been merged into the other entity. The Company has indebtedness to the principal shareholder as described in Note 5. Note 11 CONCENTRATION OF CREDIT RISK 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. Approximately 76%, 75% and 64% for the years ended December 31, 2002, 2001 and 2000, respectively, of DHB's sales were made to the United States Government or its agencies. F-18 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 11 CONCENTRATION OF CREDIT RISK - Continued A substantial portion 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 or manufacturing companies. 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 tests would need 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 12 SEGMENT INFORMATION As described in Note 1, the Company operates in two principal segments: ballistic-resistant equipment and protective athletic/sports products. The Company disposed of the Electronics Group in March 2000, and closed its hard armor company, LAP, in October 1999. These two divestitures were accounted for as discontinued operations. Financial information on the Company's business segments was as follows: 2002 2001 2000 ________ _______ _______ Net Sales Ballistic-resistant equipment $124,860 $93,506 $64,721 Electronic components/LAP -- -- 401 Protective athletic & sports products 5,492 4,520 5,297 ________ _______ _______ 130,352 98,026 70,419 Less inter-segment sales (5) (11) -- Less discontinued operations (3) -- -- (401) ________ _______ _______ Consolidated net sales $130,347 $98,015 $70,018 ======== ======= ======= Income from Operations Ballistic-resistant equipment $17,534 $15,029 $10,591 Electronic components -- -- (517) Protective athletic & sports products 563 94 (166) Corporate and other (1) (4,274) (2,344) (2,226) ________ _______ _______ Sub-total 13,823 12,779 7,682 Income from discontinued operations(3) -- -- 517 ________ _______ _______ Consolidated operating income $13,823 $12,779 $8,199 ======== ======= ====== Depreciation Expense Ballistic-resistant equipment $ 289 $ 223 $ 147 Protective athletic & sports products 86 157 108 _______ _______ ______ 375 380 255 Corporate and other 88 98 69 _______ _______ ______ Consolidated depreciation expense $ 463 $ 478 $ 324 ======= ======= ====== Interest Expense Ballistic-resistant equipment $ 935 $ 463 $ 33 Protective athletic & sports products -- 77 40 _______ _______ ______ 935 540 73 Corporate and other 710 1,973 2,670 _______ _______ ______ Consolidated interest expense $ 1,645 $ 2,513 $2,743 ======= ======= ====== Income Taxes (Benefit) Ballistic-resistant equipment $ 22 $ 143 $ 1 Protective athletic & sports products 2 -- 2 _______ _______ ______ 24 143 3 Corporate and other (3,696) 32 127 _______ _______ ______ Consolidated tax (benefit) expense $(3,672) $ 175 $ 130 ======= ======= ====== Identifiable Assets Ballistic-resistant equipment $56,471 $36,426 $22,383 Protective athletic & sports products 2,907 2,768 3,517 ________ _______ _______ 59,378 39,194 25,900 Corporate and other (2) 5,993 1,702 2,156 ________ _______ _______ Consolidated assets $65,371 $40,896 $28,056 ======== ======= ======= F-19 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 12 SEGMENT INFORMATION- Continued Foreign sales accounted for 2%, 2% and 2% of the total revenues for the years ended December 31, 2002, 2001 and 2000, respectively. Foreign identifiable assets accounted for 1%, 1% and 1% of the total assets at December 31, 2002, 2001 and 2000, respectively. (1) Corporate and other includes corporate general and administrative expenses. (2) Corporate assets are principally deferred income tax assets, other investment and property and equipment. (3) Discontinued operations included the Electronics Group sold on March 10, 2000, as well as the loss from the shutdown of the LAP plant in 1999. Note 13 COMMITMENTS AND CONTINGENCIES Leases The Company has non-cancelable operating leases, which expire through 2010. These leases generally require the Company to pay certain costs, such as real estate taxes. As further described in Note 10, the Company leases an office and manufacturing facility from a limited liability corporation indirectly owned by a related party. In addition, the Company subleases a portion of one of its facilities to an entity owned by a related party as described in Note 10. Pursuant to such sublease, which expires on December 31, 2003, the Company will receive sublease income of approximately $40 for the year ending December 31, 2003. In January 2003, the Company entered into a lease for an additional facility for the purpose of expanding its operations. This lease expires on April 30, 2008. Future minimum lease commitments (excluding renewal options) under non-cancelable leases are approximately: For the Years Ending December 31, _____________________________________ 2003 $1,295 2004 1,452 2005 1,289 2006 1,219 2007 1,237 Thereafter 3,035 ______ $9,527 Rent and real estate tax expense on operating leases for the years ended December 31, 2002, 2001 and 2000 aggregated approximately $1,785, $1,106 and $1,417, respectively. Employment agreements The Company is party to an employment agreement dated July 1, 2000 with its majority stockholder, which expires in July 2005 and provides for an initial base salary of $500 per annum. The base rate is increased $50 each year on the anniversary. In addition, on the effective date of the employment agreement, the employee received 3,750,000 warrants, exercisable at $1.00 per share and vesting 20% immediately and in 20% annual increments thereafter. The warrants expire in July 2010. F-20 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 13 COMMITMENTS AND CONTINGENCIES - continued Litigation The Company has filed a lawsuit against its insurance carrier and an insurance agent for negligence and breach of fiduciary duties as a result of the damages incurred during Hurricane Irene in October 1999. On March 17, 2003 the Company entered into a settlement agreement with its insurance agent for a $1,000 payment to the Company. The lawsuit against the insurance carrier has been scheduled for trial in the fall of 2003. In June 2001, the Company was served with a lawsuit regarding patent infringement. In September 2002, the parties filed a joint resolution and settlement ending this patent infringement case. This settlement will not have a material adverse effect on the Company's business, results of operations or financial condition. In October 2002, the Company was served with a derivative shareholder suit against the Company's officers and directors as well as the Company itself. This case was dismissed with prejudice on March 13, 2003, without liability to the Company or its officers or directors. The Company is seeking dismissal of another identical suit brought on behalf of a second shareholder, on the same grounds that required dismissal in the other suit. On or about October 30, 2002, the Company filed a lawsuit against certain union leaders in the United States District Court for the Southern District of Florida, claiming defamation, conspiracy to defame and tortuous interference with contractual and ongoing business relationships. The Company is vigorously pursuing this action. 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 14 INCOME TAXES Components of income taxes are as follows: 2002 2001 2000 _______ ____ ____ Federal Current $ 0 $ 0 $ 0 Deferred (3,175) 0 0 _______ ____ - Total federal $(3,175) $ 0 $ 0 ======= ==== ==== State Current 77 175 130 Deferred (574) 0 0 _______ ____ ____ Total state $ (497) $175 $130 ======= ===== ==== F-21 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 14 INCOME TAXES - continued A reconciliation of the statutory federal income tax rates to the Company's effective tax rate for the years ended December 31 is as follows:
2002 2001 2000 ______ ______ ______ Statutory U.S. income tax rate 34.00% 34.00% 34.00% Utilization of federal net operating loss carryforwards (34.00) (34.00) (34.00) Utilization of state net operating loss carryforwards (5.00) Reduction of valuation allowance (23.39) Other .08 State and local income taxes (benefit), net of federal benefits (1.52) 1.60 2.10 ______ ______ ______ Effective tax rate (29.83)% 1.60% 2.10% ====== ====== =====
The significant components of deferred tax assets and liabilities as of December 31, were as follows: 2002 2001 ______ ______ Net operating loss carryforwards $2,843 $5,440 AMT credit 21 Accounts receivable reserve 417 270 Deferred rent 137 Inventory 455 Deferred compensation 252 Capital loss carryover 641 95 Write down of non-marketable securities 448 Write down of investment in Point Blank Int'l 596 520 ______ ______ 5,362 6,773 Less valuation allowance 641 6,514 ______ ______ Net deferred income tax assets $4,721 $ 259 ====== ====== Tax benefits of $713 relating to the exercise of stock warrants is reflected in the statement of stockholders equity. As of December 31, 2002, the Company has available a federal net operating loss carryforward of approximately $7,375 and state net operating loss carryfowards of approximately $6,722. The net operating losses expire in varying amounts during the calendar years 2019 through 2022. Further, the Company had established a valuation allowance with respect to the deferred tax assets, which was reduced during 2002. During the year ended December 31, 2002, the Company reduced approximately $5,873 of valuation allowance placed on the U.S. portion of the Company's deferred tax assets. This reduction was based on updated expectations about future years' taxable income to reflect continuing improvements in operating results influenced by the Company's continued revenue growth, and other indications that certain concerns that had previously limited management's expectations about future taxable income no longer were applicable. F-22 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 15 SIGNIFICANT FOURTH QUARTER ADJUSTMENTS In the fourth quarter of 2002, the Company recorded a $646 expense for the issuance of stock warrants to an outside consultant. (See Note 8). In addition, the Company also reversed approximately $5,873 of valuation allowance placed on the U.S. portion of the Company's deferred tax assets (See Note 14). Furthermore, the Company recorded an additional accrual of $350 related to straight-lining rent in accordance with SFAS No. 13, "Accounting for Leases". Note 16 QUARTERLY RESULTS (UNAUDITED) The following table presents summarized quarterly results of operations for the Company for the years ended December 31, 2002 and 2001. The Company believes all necessary adjustments have been included in the amounts stated below to present fairly the following selected information when read in conjunction with the consolidated financial statements and notes thereto included elsewhere herein. Future quarterly operating results may fluctuate depending on a number of factors. Results of operations for any particular quarter are not necessarily indicative of results of operations for a full year or any other quarter.
First Quarter Second Quarter Third Quarter Fourth Quarter Year ended December 31, 2002 Net sales $33,639 $34,014 $30,146 $32,548 Gross profit 9,455 10,037 9,141 9,093 Income available to common stockholders 4,758 4,426 1,275 5,176 Basic earnings per share $0.14 $0.12 $0.03 $0.13 Diluted earnings per share $0.11 $0.11 $0.03 $0.12 Year ended December 31, 2001 Net sales $20,175 $23,514 $24,010 $30,316 Gross profit 4,952 6,205 6,729 8,490 Net income 1,023 2,303 2,793 4,014 Basic earnings per share $0.03 $0.07 $0.09 $0.13 Diluted earnings per share $0.03 $0.07 $0.08 $0.11
F-23 DHB INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II TO THE FINANCIAL STATEMENTS VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 2002, 2001 AND 2000 (In thousands) Allowances deducted from related balance sheet accounts: Investment in Net Write Down of Accounts Non-marketable investment in Receivable securities subsidiaries __________ ______________ _________________ Balance at January 1, 2000 $ 757 $ 1,317 $1,530 Additions charged to 36 -- -- costs and expenses Deductions/writeoffs (140) (1,317) (1,530) ______ _______ ______ Balance at December 31, 2000 $ 653 -- -- Additions charged to 290 -- -- costs and expenses Deductions/writeoffs (151) -- -- ______ _______ ______ Balance at December 31, 2001 $ 792 -- -- Additions charged to 379 -- -- costs and expenses Deductions/writeoffs (101) -- -- ______ _______ ______ Balance at December 31, 2002 $1,070 $ -- $ -- ====== ======= ====== F-24 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 18th day of July 2003. DHB Industries, Inc. /s/ DAVID H. BROOKS _______________________ David H. Brooks 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 and on the dates indicated. Signature Capacity Date _________ ________ ____ /s/ DAVID H. BROOKS Chairman of the Board, July 18, 2003 ____________________ and Director David H. Brooks /s/ DAWN M. SCHLEGEL Treasurer July 18, 2003 ____________________ Principal Financial Officer Dawn M. Schlegel Principal Accounting Officer /s/ JEROME KRANTZ Director July 18, 2003 ____________________ Jerome Krantz
Exhibit Description _______ ___________ 3.1 Certificate of Incorporation of DHB Capital Group Inc., a Delaware corporation. 1 3.2 Certificate of Amendment to Certificate of Incorporation filed December 31, 1996 2 3.3 Certificate of Amendment to Certificate of Incorporation filed July 24, 2001 6 3.4 Certificate of Designations & Preference, an amendment to the Certificate of Incorporation filed 6 on December 26, 2001 3.5 By-Laws 1 4.2 Stock Subscription Agreement between the Registrant and David Brooks, dated December 14, 2001 6 4.3 Form of Warrant Agreement with respect to all Outstanding Warrant together 3 10.1 Employment Agreement dated July 1, 2000 between DHB and David Brooks 3 10.2 Promissory Note between the Company and David Brooks dated November 6, 2000 3 10.3 1995 Stock Option Plan 4 10.6 Sale agreement dated March 10, 2000 between DHB and DMC2 Electronic Components 5 10.7 Lease agreement dated January 1, 2001 between Point Blank Body Armor and VAE Enterprises. 3 10.8 Lease agreement dated April 15, 2001 between DHB Capital Group and A&B Holdings, Inc. 3 10.9 Loan and Security Agreement dated September 24, 2001 with LaSalle Business Credit Inc. 7 10.10 First Amendment and Waiver to Loan and Security Agreement, dated June 28, 2002 8 10.11 Second Amendment to Loan and Security Agreement, dated February 25, 2003 9 21 List of Subsidiaries 99.1 Certification of Chief Executive Officer 99.2 Certification of Chief Financial Officer Notes to Exhibit Table: 1 Incorporated by reference to the Company's Definitive Proxy Material filed with the Commission in connection with the Special Meeting in Lieu of Annual Meeting of Shareholders of the Company held on February 15, 1995. 2 Incorporated by reference to Post-Effective Amendment No. #2 to the Company's Registration Statement on Form SB-2, File #33-59764, filed on Jan 31, 1997. 3 Incorporated by reference to the Company's Form 10-K for the year ended December 31, 2000, filed March 30, 2001. 4 Incorporated by reference to the Company's Registration Statement on Form S-8 filed on or about November 6, 1995. 5 Incorporated by reference to the Company's Current Report on Form 8-K filed March 23, 2000. 6 Incorporated by reference to the Company's Current Report on Form 8-K filed January 28, 2002. 7 Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2001, filed November 14, 2001. 8 Incorporated by reference to the Company's Current Report on Form 8-K filed July 12, 2002. 9 Incorporated by reference to the Company's Current Report on Form 8-K filed February 25, 2003.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, David H. Brooks, Chairman and Chief Executive Officer of the Company, certify that: 1. I have reviewed this annual report on Form 10-K/A of DHB Industries, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effective- ness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 18, 2003 /s/ DAVID H. BROOKS ____________________________________ David H. Brooks Chairman and Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Dawn M. Schlegel, Chief Financial Officer of the Company, certify that: 1. I have reviewed this annual report on Form 10-K/A of DHB Industries, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effective- ness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 18, 2003 /s/ DAWN M. SCHLEGEL _______________________ Dawn M. Schlegel Chief Financial Officer EX-99 3 exhibit99-1.txt EXHIBIT 99.1 - CERTIFICATION - CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of DHB Industries, Inc. (the "Company") on Form 10-K/A for the year ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David H. Brooks, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: July 18, 2003 By: /s/ DAVID H. BROOKS ____________________________________ David H. Brooks Chairman and Chief Executive Officer This certification accompanies this Report on Form 10-K/A pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-99 4 exhibit99-2.txt EXHIBIT 99.2 - CERTIFICATION - CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of DHB Industries, Inc. (the "Company") on Form 10-K/A for the year ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dawn Schlegel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: July 18, 2003 By: /s/ DAWN M. SCHLEGEL ________________________ Dawn M. Schlegel Chief Financial Officer This certification accompanies this Report on Form 10-K/A pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----