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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED
MARCH 31, 1996 Commission File No. 0-22429
DHB CAPITAL GROUP INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-3129361
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
11 Old Westbury Road, Old Westbury, New York 11568
(Address of principal executive offices)
Registrant's telephone number: (516) 997-1155
Former name, former address and former fiscal year,
if changed since last report: Not applicable
Indicate by check whether the registrant (1) filed all reports required to be
filed by section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
As of May 15, 1996, there were 14,456,330 shares of Common Stock, $.001 par
value outstanding.
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<PAGE>
CONTENTS
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated balance Sheet as of March 31, 1996 and December 31, 1995 2
Consolidated Statements of Income (Loss) and Retained Earnings (Deficit)
for the three months ended March 31, 1996 and 1995 3
Consolidated Statements of Cash Flows for the months ended
March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Results of Operations
Operations and Financial Condition 8-10
PART II Other Information 10
Signatures 11
<PAGE>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED DECEMBER
MARCH 31, 1996 31, 1995
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ASSETS
Current Assets
Cash and cash equivalents $ 734,462 $ 475,108
Marketable securities 2,254,260 1,829,856
Accounts receivable, less allowance for
doubtful accounts of $80,695 & $70,000 4,576,830 3,819,571
Inventories 6,960,293 7,856,199
Prepaid expenses and other current assets 220,156 208,510
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Total Current Assets $14,746,001 $14,189,244
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Property, and Equipment, at cost, less accumulated
depreciation of $374,929 and $325,454 1,562,002 1,077,066
Other Assets
Intangible assets, net 855,856 812,006
Investment in non-marketable securities 3,316,750 3,316,750
Deposits and other assets 230,144 160,821
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Total Other Assets 4,402,750 4,289,577
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Total Assets $20,710,753 $19,555,887
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LIABILITIES AND EQUITY
Current Liabilities
Note payable $ 2,550,000 $ 2,550,000
Current Maturities 43,715
Accounts payable 2,076,181 2,847,690
Accrued expenses and other liabilities 307,965 301,067
Deferred taxes payable 24,300 36,900
Income taxes payable 158,825 62,972
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Total Current Liabilities 5,160,986 5,798,629
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Long Term Debt
Long Term Debt 199,858
Due to shareholder 1,890,000 1,890,000
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Total Long Term Debt 2,089,858 1,890,000
Total Liabilities 7,250,844 7,688,629
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Stockholders' Equity
Preferred stock 219 219
Common stock 14,021 13,841
Additional paid-in capital 12,702,289 12,123,470
Common stock subscription receivable (437,500)
Retained earnings 743,380 167,228
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Total Stockholders' Equity 13,459,909 11,867,258
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Total Liabilities and Shareholders' Equity $20,710,753 $19,555,887
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See Accompanying notes to financial statements
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DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31,
UNAUDITED UNAUDITED
1996 1995
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Net Sales $7,044,626 $2,652,090
Cost of sales 5,094,536 1,517,235
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Gross Profit 1,950,090 1,134,855
Selling, general and administrative expenses 1,711,539 992,157
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Income before other income (expense) 238,551 142,698
Other Income (Expense)
Interest expense, net of interest (68,532) (21,569)
Dividend income 1,890 2,850
Realized gain (loss) on marketable securities (13,985) 16,853
Unrealized gain (loss) on marketable securities 548,443 (98,560)
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Total Other Income (Expense) 467,816 (100,426)
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Income (loss) before income taxes 706,367 42,272
Income taxes 130,218 12,500
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Net Income (loss) 576,149 29,772
Retained Earnings (Deficit) - Beginning 167,230 (142,537)
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Retained Earnings (Deficit) - End 743,379 (112,765)
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Earnings (loss) per common share:
Primary $0.041 $0.015
Fully Diluted $0.040 $0.015
Weighted average number of common shares outstanding:
Primary 14,123,704
Fully Diluted 14,471,704
See accompanying notes to financial statements.
F-3
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DHB CAPITAL GROUP INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 576,152 $ 29,772
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 67,280 29,188
Deferred income taxes -- 8,000
Changes in assets and liabilities (Increase) Decrease in:
Accounts receivable (329,971) 282,530
Marketable securities (424,404) 286,460
Inventories 1,404,527 (664,699)
Prepaid expenses and other current assets (4,338) 120,368
Other assets (63,093) (50,215)
Increase (Decrease) in:
Accounts payable (1,002,972) 192,798
Accrued expenses and other current liabilities (4,369) 20,468
State income taxes payable 89,041 (24,000)
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Net cash provided (used) by operating activities 307,853 230,670
CASH FLOWS FROM INVESTING ACTIVITIES
Cash payments for the purchase of property (448,774) (77,427)
Payments to acquire non-marketable securitie -- (575,000)
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Net cash provided (used) by investing activities (448,774) (652,427)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock 437,500 100,000
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Net cash provided (used) by financing activities 437,500 100,000
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 296,579 (321,757)
CASH AND CASH EQUIVALENTS - BEGINNING 475,108 407,425
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CASH AND CASH EQUIVALENTS - END $ 771,687 $ 85,668
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</TABLE>
Supplemental Cash Flow Information
Cash paid for interest and taxes
Interest 34,496 28,923
Taxes 33,301 31,101
Noncash transaction: The Company had a noncash transaction in March 1996
when the Company issue 180,000 in lieu of a cash payment to acquire OPI for a
cash value of $579,000.
See Accompanying notes to financial statements.
F-4
<PAGE>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION/REPORTING ENTITIES
The consolidated financial statements of DHB Capital Group, Inc. and
Subsidiaries (the "Company") are unaudited and reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim period. The
consolidated Company includes the following entities:
DHB Capital Group, Inc.
DHB Capital Group Inc. ("DHB") was incorporated on October 22, 1992 under the
laws of the State of New York. DHB was organized to seek, acquire and finance,
as appropriate, one or more operating companies. On February 15, 1995, the
holders of the common stock approved a re-incorporation of DHB as a Delaware
corporation, through a merger with a newly formed Delaware corporation.
Protective Apparel Corporation of America
Protective Apparel Corporation of America ("PACA") was organized in 1975 and is
engaged in the development, manufacture and distribution of bullet and
projectile resistant garments, including bullet resistant vests, fragmentation
vests, bomb projectile blankets and tactical load bearing vests. In addition,
PACA distributes other ballistic protection devices including helmets and
shields. PACA is dependent upon a few suppliers for the raw materials utilized
to manufacture its products.
On November 6, 1992, PACA became a wholly-owned subsidiary of DHB, when DHB
purchased all of the issued and outstanding stock of PACA from PACA's former
parent, E.S.C. Industries, Inc, for $800,000. The transaction was accounted for
as a purchase and resulted in an excess purchase price over the fair market
value of the identifiable assets acquired and liabilities assumed of $465,278,
of which $312,086 was allocated to on-going government contracts and $153,192
was allocated to goodwill.
Intelligent Data Corp.
On April 1, 1994, the Company acquired 4,530,000 common shares (60.4% interest)
and 1,100,000 preferred shares of stock in Intelligent Data Corp. ("ID"), in
exchange for 425,000 shares of the Company's common stock. ID is engaged in the
development of sophisticated telecommunication systems. On July 1, 1994, a put
option was exercised by certain shareholders of ID resulting in an increase in
the Company's ownership to 89.58%. In December 1994, the Company converted all
of its preferred shares to common shares, increasing the Company's ownership to
98.35%. This transaction was accounted for as a purchase, and resulted in an
excess purchase price over the fair value of identifiable assets acquired and
liabilities assumed of $472,666 which was allocated to patents owned by ID.
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<PAGE>
DHB Media Group, Inc.
On April 15, 1994, DHB Media Group, Inc. ("Media"), a wholly-owned subsidiary of
the Company acquired all of the outstanding common stock of Royal Acquisition
Corp. in exchange for 100,000 shares of the Company's common stock, for a
purchase price of $300,000. Subsequent negotiations resulted in the reduction of
the acquisition cost by $36,550. Royal Acquisition Corp.'s primary assets were a
film library and a loan receivable of $150,000. The transaction was accounted
for as a purchase and resulted in the excess purchase price over the fair market
value of $113,450, of which $54,000 was allocated to the film library and
$59,450 was allocated to goodwill. Media intends to syndicate and market these
films. The loan receivable was collected in full during the year ended December
31, 1994.
NDL Products, Inc.
On December 20, 1994, the Company through a newly organized, wholly-owned
subsidiary, DHB Acquisition, Inc., ("Acquisition") purchased certain assets from
a debtor-in-possession, N.D.L. Products, Inc. for $3,080,000. Acquisition did
not assume any continuing obligations of the debtor-in-possession, nor did the
management of the debtor-in-possession continue. On February 21, 1995,
Acquisition changed its corporate name to NDL Products, Inc. NDL manufactures
and distributes specialized protective athletic apparel and equipment.
DHB Armor Group, Inc.
On August 8, 1995, the Company started a new Delaware Corporation which is a
wholly-owned subsidiary of the Company. The subsidiary, DHB Armor Group, Inc.,
("Armor"), now wholly owns PACA and Point Blank Body Armor, Inc., ("Point
Blank").
Point Blank Body Armor, Inc.
In August 1995, the Company, through a wholly-owned subsidiary known as USA
Fitness & Protection Corp, a Delaware Corporation, acquired from a trustee in
bankruptcy certain assets of Point Blank Body Armor, L.P. and an affiliated
company ("Old Point Blank"), for a cash payment of $2,000,000, free of all
liabilities. Prior to the filing of the petition in bankruptcy, Old Point Blank
had been a leading U.S. manufacturer of bullet-resistant garments and related
accessories. After acquiring the Old Point Blank, USA Fitness & Protection
Corp., amended its articles of incorporation to change their name to Point Blank
Body Armor, Inc. ("Point Blank").
Orthopedic Products, Inc.
On March 22 and March 26, 1996, the Company exchanged a total of 180,000 shares
of its registered common stock to acquire 100% of the common stock of OPI, a
Florida Corporation engaged in the manufacturing and distribution of orthopedic
products to the medical industry. This transaction was accounted for as a
purchase, and resulted in an excess purchase price over the fair value of
identifiable assets acquired and liabilities assumed which was allocated
to goodwill. Fifty thousand of these shares are restricted as follows: 25,000
shares cannot be sold until March 22, 1997 and 25,000 shares cannot be sold
until March 22, 1998.
PRINCIPLES OF CONSOLIDATION
All material intercompany transactions have been eliminated in the consolidated
financial statements.
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MARKETABLE/NON-MARKETABLE SECURITIES
Effective for calendar year 1994, the Company adopted Financial Accounting
Standards Board Statement No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." In accordance with this standard, Securities which are
classified as "trading securities" are recorded in the Company's balance sheet
at fair market value, with the resulting unrealized gain or loss recognized as
income in the current period. Securities which are classified as "available for
sale" are also reported at fair market value, however, the unrealized gain or
loss on these securities is listed as a separate component of shareholder's
equity.
Non-marketable securities, such as investments in privately-held companies are
carried at historical cost, if necessary, reduced by a valuation allowance to
net realizable value.
The Company actively seeks to acquire and finance, as appropriate, additional
operating companies or interest therein.
EARNINGS PER SHARE
The computation of earnings per common share is based on the weighted average
number of outstanding common shares outstanding during the period. Primary
earnings per share and fully diluted earnings per share amounts assume the
conversion of the Cumulative Convertible Preferred Stock, and the exercise of
the stock warrants.
2. SUBSEQUENT EVENTS
Private Placement-Common Stock
During April and May, 1996 the Company sold 435,000 shares of common stock in
private placements for proceeds of $1,522,500. These shares have not been
registered with the Securities and Exchange Commission.
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<PAGE>
Item 2. 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 report.
Results of Operations
Three Months ended March 31, 1996, compared to the three months ended March 31,
1995.
Consolidated net sales of the Company for the three months ended March 31, 1996,
increased from $2,652,000 to approximately $7,045,000. The increase was
primarily due to the inclusion of Point Blank and NDL. The acquisition of OPI on
March 22, 1996 contributed less than $100,000 to sales in 1996. The Company had
a consolidated net income for 1996 and 1995 of approximately $576,000 and
$30,000, respectively, principally because of the appreciation of marketable
securities and increased sales volume.
Gross profit in 1996 increased to 72% over 1995 to $1,950,091. The Company's
gross profit ratio decreased from 43% in 1995 to 27% in 1996 due to the
diversity of the product mix, certain products are being sold at lower margins.
The Company's selling, general, and administrative expenses for 1996 increased
to $1,711,540 from $992,157 in 1995. However, as a percentage of net sales,
expenses decreased to 24% of net sales in 1996, compared to 37% in 1995. This
decrease principally resulted from the efficiencies of operating NDL and Point
Blank at the same location.
Interest expense, net of interest income, for the three months ended 1996
increased to $68,532 from $21,569 for 1995, principally due to a decline in
interest income because of the use of the Company's funds in its operating
business, and increases in the borrowings of the Company.
The Company had a net realized loss of $13,985 and an unrealized gain on its
investments in marketable securities of $548,443 for the three months ended
March 31, 1996, as compared to a net realized gain of $16,853 and an unrealized
loss of $98,560 for the three months ended March 31, 1995.
Liquidity and Capital Resources
The Company's primary requirements over the next twelve months are to assist
PACA, Point Blank, NDL, ID, Media, and OPI in financing their working capital
requirements, and to make possible acquisitions. PACA, Point Blank, NDL, and OPI
sell most of their products on 60-90 day terms, and working capital is needed to
finance the receivables and inventory.
-8-
<PAGE>
The Company's principal sources of cash to date have been proceeds from
private offerings of the Company's securities, and, as more fully set forth
below, term bank loans of up to a year's duration, guaranteed by Mr. David H.
Brooks, Chairman of the Board, and certain affiliated persons. A term note to
Chase came due on December 4, 1995, and was paid with proceeds of a new loan
(the "BNY Loan") from the Bank of New York ("BNY"), bearing interest at 6.43%.
The Chase Loan is secured by a security interest in the marketable investment
securities of the Company and certain marketable investment securities of the
majority shareholder. The Company expects to renew these loans, at prevailing
interest rates, when they become due. Of the proceeds drawn down to date,
$1,400,000 were used by the Company to refinance PACA's obligations to another
financial institution, and $1,150,000 were used to purchase the NDL Assets and
provide NDL with working capital. The Chase note for $1,150,000 bears interest
at 6.255% per year.
Mr. David H. Brooks, Chairman of the Board, and/or his wife, Mrs. Terry Brooks,
made term loans due in April, 1997 of $1,890,000, bearing interest at 9% per
year, and entered into a collateral agreement [third party] (the "Collateral
Agreement") with Chase to pledge certain marketable securities owned by Mr.
Brooks and Mrs. Brooks to partially secure the term loans and other obligations
of the Company to Chase. In exchange for this, the Company granted to Mrs. Terry
Brooks, on December 20, 1994, 5-year warrants to purchase 2,500,000 shares of
the Company's Common Stock, at a price of $2.00 per share. The warrants contain
provisions for a one-time demand registration, and piggy-back registration
rights. All of the aforesaid loans were made directly to the Company, and the
Company has loaned the proceeds to NDL. Mr. David Brooks also loaned $2,000,000
to the Company to provide the funds needed to purchase the Point Blank Assets.
$1,250,000 have been repaid thus far. Mr. and Mrs. Brooks have also pledged
certain of their personal assets to secure the BNY Loan.
The Company relocated substantially all the NDL and Point Blank Assets to a
67,000 square foot office and warehouse facility located at 4031 N.E. 12th
Terrace, Oakland Park, Florida 33334, which is now owned by affiliates of Mr.
Brooks.
The Company's consolidated working capital at December 31, 1996 and 1995 were
$9,266,015 and $4,844,610, respectively. The Company believes that it has
sufficient resources to meet its working capital requirements for the next
twelve months.
ID's working capital requirements are to finance the manufacturing and marketing
costs associated with its initial product, and research and development costs
associated with product enhancements and new products. ID's principal sources of
working capital will be generated from borrowings. Media's working capital
requirements will be determined as different avenues for the exploitation of its
film library are researched and developed. The film library is not expected to
bring in significant revenues to the Company. The Company believes that it has
sufficient funds to meet Media's anticipated needs for the next twelve months.
The Company invested approximately $3,316,750 (as of March 31, 1996, on a
historical cost basis) in the securities of certain privately held companies,
which are included in "Investments in Non- marketable Securities" on the Company
balance sheet.
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<PAGE>
Effect of Inflation and Changing Prices.
The Company did not experience increases in raw material prices during the three
month period ended March 31, 1996 an 1995. The Company believes it will be able
to increase prices on their products to meet future price increases in raw
materials, should they occur.
PART II. OTHER INFORMATION
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed by the
undersigned, thereunto duly authorized.
Dated: May 15, 1996 DHB CAPITAL GROUP INC.
/s/ David Brooks
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David Brooks, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Acto of 1934, this
report has been signed on behalf of the Registrant and in capacities and at the
dates indicated:
Signature Capacity Date
- --------- -------- ----
/s/ David Brooks Chairman of the Board May 15, 1996
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David Brooks
/s/ Mary Kreidell Chief Financial Officer May 15, 1996
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Mary Kreidell
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