U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from_______ to________
Commission File No. 2-88678-NY
DHB CAPITAL GROUP INC.
(Name of small business issuer in its charter)
New York 11-3129361
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
11 Old Westbury Road, Old Westbury, New York 11568
(Address of principal executive offices)
Issuer's telephone number: (516) 997-1155
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Number of shares outstanding of the issuer's common equity, as of March 29, 1996
(exclusive of securities convertible into common equity): 13,841,236
<PAGE>
This filing Form 10-KSB/A No. 1 amends the Annual Report on Form 10-KSB dated
March 29, 1996 of DHB Capital Group Inc. (the Company). The undersigned
Registrant hereby amends the following items, financial statements, exhibits or
other portions of such report on Form 10-KSB dated March 29, 1996 (The "Form
10-KSB"), as set forth below:
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The Company is a holding company which is principally engaged through
its wholly-owned subsidiaries in the development, manufacture and distribution
of bullet- and projectile-resistant garments, and the manufacture and
distribution of protective athletic equipment and apparel. (The Company's
acquisition of a subsidiary which manufactures orthopedic products occurred
after the end of the fiscal periods hereinafter discussed.) In August 1995, the
Company acquired certain assets, free of all liabilities (the "Point Blank
Assets") of Point Blank Body Armor, L.P., and an affiliated company
(collectively, "Old Point Blank") at an auction held pursuant to Chapter 7 of
the United States Bankruptcy Code. In late December 1994, the Company started up
its protective athletic equipment business by acquiring the trade inventory,
work in process, raw materials, trade names and trademarks (the "NDL Assets") of
N.D.L. Products, Inc., a Delaware corporation, at an auction held pursuant to
Chapter 7 of the Bankruptcy Code. In March 1996, the Company acquired Orthopedic
Products, Inc. ("OPI"), which is a manufacturer of orthopedic products and a
distributor of general medical supplies. Intelligent Data Corporation ("ID"), a
development stage company which is a 98% owned subsidiary of the Company, is
engaged in the design and production of sophisticated telecommunications
equipment for the remote execution and authentication of documents. The Company
also owns a minority interest in several other companies, some privately held
and some publicly held, in the pharmaceuticals business, health care, mining and
snowboard manufacturing. The management of the Company is engaged in the review
of potential acquisitions and in providing management assistance to the
Company's operating subsidiaries.
The Company commenced operations in November 1992 by acquiring the
outstanding common stock of PACA, a manufacturer and distributor of bullet-proof
garments and accessories. From the acquisition of PACA through December 20,
1994, i.e., the date of the start-up of NDL, PACA was the Company's only source
of revenue from operations. Thereafter, and to date, NDL and Point Blank are
also a source of revenue from operations.
The discussion that follows must be considered in light of the
significant changes in the Company's business at the end of 1994, and the
acquisition of the Point Blank Assets in August 1995, and should be read in
conjunction with the financial statements, including the notes thereto. The
Company's financial condition and results of operations in the future may also
be materially affected by the Company's acquisition of OPI in March 1996.
The Armor Group's products are sold nationally and internationally,
primarily to law enforcement agencies and military services. Sales to domestic
law enforcement agencies, including government, security and intelligence
agencies, police departments, federal and state correctional facilities, highway
patrol and Sheriffs' departments, comprise the largest portion of the Armor
<PAGE>
Group's business. Accordingly, any substantial reduction in governmental
spending or change in emphasis in defense and law enforcement programs could
have a material adverse effect on the Armor Group's business. The acquisition of
the Point Blank Assets is expected to improve the Company's overall penetration
of the market for ballistic-resistant garments, equipment and accessories.
Year Ended December 31, 1995, compared to year ended December 31, 1994.
Consolidated net sales of the Company for the year ended December 31, 1995,
increased by $5,391,721, or 59% to approximately $14,494,000. The increase was
primarily due to the inclusion of Point Blank and NDL. The start-up of NDL on
December 20, 1994, contributed less than $100,000 to sales in 1994 as compared
to $4,276,603 in 1995. The Company had consolidated net income of approximately
$244,000 for 1995, as compared to a consolidated net loss of $75,243 for 1994.
The improved results are attributable to the ability to utilize volume discounts
and eliminating duplication of expenses, as well as income derived from the sale
and appreciation of the Company's marketable securities.
Gross profit in 1995 increased to $5,405,477, an increase of 119% over
1994. The Company's gross profit ratio increased from 27% in 1994 to 37% in
1995, primarily because of the products sold by Point Blank yielded greater
margins.
The Company's selling, general and administrative expenses for 1995
increased to $5,140,399 from $2,250,550 in 1994. These expenses as a percentage
of net sales were 35% in 1995, compared to 25% in 1994. The increase was
attributable to costs associated with move of Point Blank and NDL into the
present location and other nonrecurring expenses.
Interest expense, net of interest income, for 1995 increased to
$261,829 from $78,602 for 1994, 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 gain of $675,743 and an unrealized gain
on its investments in marketable securities of $347,817 for the year ended
December 31, 1995, as compared to a net realized loss of $360,817 and an
unrealized loss of $293,854 for the year ended December 31, 1994.
Year ended December 31, 1994, compared to the year ended December 31,
1993. Consolidated net sales of the Company for the year ended December 31,
1994, increased by $1,995,000 (28%) to approximately $9,102,000. The increase
was primarily due to higher unit sales of ballistic- resistant vests and related
products by PACA. The start-up of NDL on December 20, 1994, contributed less
than $100,000 to sales in 1994. The Company had a consolidated net loss of
approximately $75,000 for 1994, as compared to consolidated net income of
$231,000 for 1993, principally because of the costs of ID's research and
development on telecommunication products.
Gross profit in 1994 increased to $2,480,756, an increase of 46% over
1993. The Company's gross profit ratio increased from 24% in 1993 to 27% in
1994, primarily because of the mix of products sold in 1993 versus 1994.
The Company's selling, general and administrative expenses for 1994
increased to $2,250,650 from $1,645,921 in 1993. These expenses as a percentage
of net sales were 25% in 1994, compared to 23% in 1993, principally because of
the acquisition of ID in April 1994. In 1994, the Company wrote off a
loan-receivable of approximately $58,000, which was made to the corporation from
which the Company acquired PACA. The loan was secured by accounts receivable,
inventory and a personal guaranty from an officer of the corporation. The
<PAGE>
corporation became insolvent and ceased doing business. After all attempts to
collect the debt out of the security, including the personal guaranty, were
unsuccessful, the loan was written off.
Interest expense, net of interest income, for 1994 increased to $65,072
from $31,533 for 1993, 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 interest rates available to the Company.
The Company had a net realized loss of $360,817 and an unrealized loss
on its investments in marketable securities of $293,854 for the year ended
December 31, 1994, as compared to a net realized gain of $196,063 and an
unrealized loss of $19,239 for the year ended December 31, 1993.
Liquidity and Capital Resources. The Company's primary capital
requirements over the next twelve months are to assist PACA, Point Blank, NDL,
OPI, ID and Media 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 OPI sells most of its products on 30-60 day
terms, and working capital is needed to finance the receivables, manufacturing
process and inventory.
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. At the present
time, the Company is obligated on a note due in September 1996 to the Chase
Manhattan Bank ("Chase") in the principal sum of $1,150,000 bearing interest at
6.255% per year, and on a note due in December 1996 to the Bank of New York
("BNY"), bearing interest at 6.43% per year. The Chase loans are secured by a
security interest in the marketable investment securities of the Company and
certain marketable investment securities of the majority shareholders. 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. In 1995, the Company realized $815,000 from the exercise of outstanding
Redeemable Warrants.
Mr. David H. Brooks, Chairman of the Board, and/or his wife, Mrs. Terry
Brooks, made term loans due in April 1997 of $1,140,000, 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 3,750,000 shares of
the Company's Common Stock after giving effect to the 50% Stock Dividend, at a
price of $1.33 per share. The warrants contain provisions for a one-time demand
registration, and piggyback registration rights. All of the aforesaid loans were
made directly to the Company, and the Company has lent the loan proceeds to NDL.
Mr. David Brooks also lent $2,000,000 to the Company to provide the major
portion of funds needed to purchase the Point Blank Assets, of which $750,000 is
currently outstanding. Mr. and Mrs. Brooks have also pledged certain of their
personal assets to secure the BNY Loan. See "Principal Shareholders" and
"Certain Transactions."
In connection with the start-up of NDL, the Company relocated
substantially all the NDL Assets to a 67,000 square foot office and warehouse
facility located at 4031 N.E. 12th Terrace, Oakland Park, Florida 33334, which
<PAGE>
is now owned by affiliates of Mr. Brooks. That facility will also be used by
Point Blank and ID. See "Properties - NDL Facility."
The Company's consolidated working capital at December 31, 1995 and
1994 were $6,526,004 and $5,202,592 respectively, and its ratio of current
assets to current liabilities was 1.85:1 and 2.55:1, respectively, on such
dates. 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 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
and restricted securities of certain public companies, which are included in
"Investments in Non-marketable Securities" on the Company's balance sheet.
Effect of Inflation and Changing Prices. The Company did not experience
increases in raw material prices during the year ended December 31, 1995 or
1994, or in the first quarter of 1996. The Company believes PACA, Point Blank
and NDL will be able to increase prices on their products to meet future price
increases in raw materials, should they occur.
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
DHB Capital Group, Inc.
We have audited the accompanying consolidated balance sheet of DHB Capital
Group, Inc. and Subsidiaries as of December 31, 1995 and the related
consolidated statements of income (loss), stockholders' equity and cash flows
for the years ended December 31, 1995 and 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidating financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DHB Capital Group, Inc. and
Subsidiaries as of December 31, 1995, and the results of its operations and
its cash flows for the years ended December 31, 1995 and 1994, in conformity
with generally accepted accounting principles.
Capraro, Centofranchi, Kramer & Co., P.C.
South Huntington, New York
March 14, 1996
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<S> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 475,108
Marketable securities 1,829,856
Accounts receivable, less allowance for doubtful
accounts of $70,000 3,819,571
Inventories 7,856,199
Prepaid expenses and other current assets 208,510
------------
Total Current Assets $ 14,189,244
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization of $325,454 1,077,066
OTHER ASSETS
Intangible assets, net 721,327
Investments in non-marketable securities 3,316,750
Deposits and other assets 160,821
------------
Total Other Assets 4,198,898
------------
TOTAL ASSETS $ 19,465,208
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Note Payable $ 2,550,000
Accounts Payable 2,847,690
Due to shareholders 1,890,000
Accrued expenses and other current liabilities 301,068
Deferred taxes payable 23,700
State income taxes payable 50,782
------------
Total Current Liabilities $ 7,663,240
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock 219
Common stock 13,841
Additional paid-in capital 12,123,470
Common stock subscription receivable (437,500)
Retained earnings 101,938
------------
Total Stockholders' Equity 11,801,968
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,465,208
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Net sales $ 14,494,094 $ 9,102,373
Cost of sales 9,088,617 6,621,617
------------ ------------
Gross Profit 5,405,477 2,480,756
Selling, general and administrative expenses 5,140,399 2,250,550
------------ ------------
Income before other income (expense) 265,078 230,206
------------ ------------
Other Income (Expense)
Interest expense, net of interest income (303,615) (65,072)
Dividend income 1,710 1,140
Payment to rescind restrictive covenant (250,000)
Write-off of uncollectible loan receivable -- (57,889)
Realized gain (loss) on marketable securities 675,743 (360,817)
Unrealized gain (loss) on marketable securities 347,481 (293,854)
------------ ------------
Total Other Income (Expenses) 471,319 (776,492)
------------ ------------
Income (loss) before minority interest
and income tax (benefit) 736,397 (546,286)
Minority interest of consolidated subsidiary -- 91,655
------------ ------------
Income (loss) before income tax (benefit) 736,397 (454,631)
Income taxes (benefit) 491,922 (379,388)
------------ ------------
Net Income (loss) $ 244,475 $ (75,243)
============ ============
Earnings (loss) per common share
Primary $ 0.02 ($ 0.01)
============ ============
Fully Diluted $ 0.02 ($ 0.01)
============ ============
Weighted average number of common share outstanding:
Primary 14,111,836 11,134,149
============ ============
Fully Diluted 14,459,836 11,236,574
============ ============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Number of Number of Additional Common Stock
Preferred Par Common Par Paid-in Subscription
shares Value shares Value Capital Receivable
------- ------ ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 104,687 $1,047 10,504,452 $10,504 $5,002,499 --
Loss for the year ended
December 31, 1994
Sale of common stock 812,500 812 2,007,668
Conversion of preferred stock into
common stock (40,625) (406) 81,250 82 324
Issuance of common stock to
acquire subsidiary 100,000 100 299,900
------- ------ ---------- ------- ----------- ----------
Balance- December 31, 1994 64,062 641 11,498,202 11,498 7,310,391 --
Net income for the year ended
December 31, 1995
Sale of common stock 1,955,000 1,955 3,863,045 (437,500)
Conversion of preferred stock into
common stock (42,187) (422) 84,374 84 338
Exercise of stock warrants 303,750 304 949,696
------- ------ ---------- ------- ----------- ----------
Balance- December 31, 1995 21,875 $219 13,841,326 $13,841 $12,123,470 ($437,500)
======= ====== ========== ======= =========== ==========
See accompanying notes to financial statements.
<PAGE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Retained
Earnings Total
-------- -----------
<S> <C> <C>
Balance, December 31, 1993 ($67,294) $4,946,756
Loss for the year ended
December 31, 199
Sale of common stock 2,008,480
Conversion of preferred stock into
common stock --
Issuance of common stock to
acquire subsidiary 300,000
-------- -----------
Balance- December 31, 1994 (142,537) 7,179,993
Net income for the year ended
December 31, 1995 244,475 244,475
Sale of common stock 3,427,500
Conversion of preferred stock into
common stock --
Exercise of stock warrants 950,000
-------- -----------
Balance- December 31, 1995 $101,938 $11,801,968
======== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 244,475 ($ 75,243)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 254,956 217,091
Minority interest in loss of consolidated subsidiary -- (91,655)
Realized (gain) loss on marketable securities (675,743) 360,817
Unrealized (gain) loss on marketable securities (347,481) 293,854
Write-off of uncollectible loan receivable -- 57,889
Deferred income taxes 440,000 (416,300)
Changes in assets and liabilities (Increase) Decrease in:
Accounts receivable (1,276,870) (346,261)
Marketable securities 1,150,655 (1,201,224)
Inventories (3,093,118) (94,863)
Prepaid expenses and other current assets 148,538 (22,102)
Deposits and other assets (76,962) (2,403)
Increase (decrease) in:
Accounts payable 2,336,854 104,322
Accrued expenses and other current liabilities 34,854 148,302
State income taxes payable 22,282 28,500
----------- -----------
Total Adjustments (1,082,035) (964,033)
----------- -----------
Net cash provided (used) by operating activities (837,560) 1,039,276)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchase of assets of subsidiary, net of cash acquired (2,000,000) (2,934,854)
Payments to acquire subsidiary -- (425,000)
Payments to acquire non-marketable securities (1,938,750) (1,378,000)
Collection of loan receivable acquired by issuance of common stock -- 150,000
Collections of loan receivable -- 9,000
Payments made for property and equipment (269,230) (142,555)
Payments for software development costs -- (10,691)
Payments of capitalized acquisition cost ( 14,277) --
----------- -----------
Net Cash provided (used) by investing activities (4,222,257) (4,732,100)
----------- -----------
(Continued)
<PAGE>
<CAPTION>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable- bank -- 1,150,000
Net proceeds from note payable- shareholder 750,000 1,140,000
Net proceeds from sale of common stock 4,377,500 2,008,480
----------- -----------
Net cash provided (used) by financing activities 5,127,500 4,298,480
----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 67,683 (1,472,896)
CASH AND CASH EQUIVALENTS - BEGINNING 407,425 1,880,321
----------- -----------
CASH AND CASH EQUIVALENTS - END $ 475,108 $ 407,425
=========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION/REPORTING ENTITIES
The consolidated financial statements of DHB Capital Group, Inc. and
Subsidiaries (the "Company") include the following entities:
DHB Capital Group, Inc.
DHB Capital Group Inc. ("DHB") was incorporated on October 22, 1992 under the
laws of the State of New York. DHB was organized to seek, acquire and finance,
as appropriate, one or more operating companies. On February 15, 1995, the
holders of the common stock approved a re-incorporation of DHB as a Delaware
corporation, through a merger with a newly formed Delaware corporation.
Protective Apparel Corporation of America
Protective Apparel Corporation of America ("PACA") was organized in 1975 and is
engaged in the development, manufacture and distribution of bullet and
projectile resistant garments, including bullet resistant vests, fragmentation
vests, bomb projectile blankets and tactical load bearing vests. In addition,
PACA distributes other ballistic protection devices including helmets and
shields. PACA is dependent upon a few suppliers for the raw materials utilized
to manufacture its products.
On November 6, 1992, PACA became a wholly-owned subsidiary of DHB, when DHB
purchased all of the issued and outstanding stock of PACA from PACA's former
parent, E.S.C. Industries, Inc, for $800,000. The transaction was accounted for
as a purchase and resulted in an excess purchase price over the fair market
value of the identifiable assets acquired and liabilities assumed of $465,278,
of which $312,086 was allocated to on-going government contracts and $153,192
was allocated to goodwill.
Intelligent Data Corp.
On April 1, 1994, the Company acquired 4,530,000 common shares (60.4% interest)
and 1,100,000 preferred shares of stock in Intelligent Data Corp. ("ID"), in
exchange for 425,000 shares of the Company's common stock. ID is engaged in the
development of sophisticated telecommunication systems. On July 1, 1994, a put
option was exercised by certain shareholders of ID resulting in an increase in
the Company's ownership to 89.58%. In December 1994, the Company converted all
of its preferred shares to common shares, increasing the Company's ownership to
98.35%. This transaction was accounted for as a purchase, and resulted in an
excess purchase price over the fair value of identifiable assets acquired and
liabilities assumed of $472,666 which was allocated to patents owned by ID.
DHB Media Group, Inc.
On April 15, 1994, DHB Media Group, Inc. ("Media"), a wholly-owned subsidiary of
the Company acquired all of the outstanding common stock of Royal Acquisition
Corp. in exchange for 100,000 shares of the Company's common stock, for a
purchase price of $300,000. Subsequent negotiations resulted in the reduction of
the acquisition cost by $36,550. Royal Acquisition Corp.'s primary assets were a
film library and a loan receivable of $150,000. The transaction was accounted
for as a purchase and resulted in the excess purchase price over the fair market
value of $113,450, of which $54,000 was allocated to the film library and
$59,450 was allocated to goodwill. Media intends to syndicate and market these
films. The loan receivable was collected in full during the year ended December
31, 1994.
<PAGE>
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").
PRINCIPLES OF CONSOLIDATION
All material intercompany transactions have been eliminated in the consolidated
financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates include
those relating to the valuation of inventories and non-marketable securities,
and collectibility of receivables.
REVENUE RECOGNITION
Revenue is recognized on product sales upon shipment to the customer.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company includes cash on
deposit, money market funds and amounts held by brokers in cash accounts to be
cash equivalents.
<PAGE>
MARKETABLE/NON-MARKETABLE SECURITIES
Effective for calendar year 1994, the Company adopted Financial Accounting
Standards Board Statement No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." In accordance with this standard, Securities which are
classified as "trading securities" are recorded in the Company's balance sheet
at fair market value, with the resulting unrealized gain or loss recognized as
income in the current period. Securities which are classified as "available for
sale" are also reported at fair market value, however, the unrealized gain or
loss on these securities is listed as a separate component of shareholder's
equity.
Non-marketable securities, such as investments in privately-held companies are
carried at historical cost, if necessary, reduced by a valuation allowance to
net realizable value.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Major expenditures for property and
those which substantially increase useful lives are capitalized. Maintenance,
repairs, and minor renewals are expensed as incurred. When assets are retired or
otherwise disposed of, their costs and related accumulated depreciation are
removed from the accounts and resulting gains or losses are included in income.
Depreciation is provided by both straight-line and accelerated methods over the
estimated useful lives of the assets.
INTANGIBLE ASSETS
Goodwill is being amortized on a straight-line basis over ten years. The amount
allocated to on-going government contracts is being amortized over the life of
the individual contracts, which are typically 1-5 years. Patents are being
amortized on a straight-line basis over 17 years. Other intangible assets are
being amortized on a straight-line basis over their estimated lives, typically
5-15 years. Accumulated amortization was $409,297 and $301,033 as of December
31, 1995 and 1994, respectively.
EARNINGS PER SHARE
The computation of earnings per common share is based on the weighted average
number of outstanding common shares outstanding during the period. Primary
earnings per share and fully diluted earnings per share amounts assume the
conversion of the Cumulative Convertible Preferred Stock, and the exercise of
the stock warrants.
INCOME TAXES
The Company files a consolidated Federal tax return, which includes all of the
subsidiaries. Accordingly, Federal income taxes are provided on the taxable
income of the consolidated group. State income taxes are provided on a separate
company basis, if and when taxable income, after utilizing available carryfoward
losses, exceeds certain levels.
<PAGE>
DEFERRED INCOME TAXES
Deferred taxes arise principally from net operating losses and capital losses
available for carryfoward against future years taxable income, and the
recognition of unrealized gains(losses) on marketable securities for financial
statement purposes, which are not taxable items for income tax purposes.
2. SUPPLEMENTAL CASH FLOW INFORMATION
1995 1994
-------- -------
Cash paid for:
Interest $261,829 $78,602
Income taxes $ 35,774 $ 7,983
Additionally, during, the year ended December 31, 1995 the Company had a
non-cash financing activity of $437,500 for a stock subscription receivable.
During the year ended December 31, 1994, the Company had non-cash investing
activities and it issued common stock to acquire all of the outstanding common
stock of Media at a value of $273,450. The Company also purchased a majority
interest in a subsidiary through the issuance of 425,000 shares of its common
stock.
3. MARKETABLE SECURITIES/NON-MARKETABLE SECURITIES
Following is a comparison of the cost and market value of marketable securities
included in current assets:
1995 1994
----------- -----------
Cost $ 1,482,375 $ 2,251,141
Unrealized gain (loss) 347,481 (293,854)
----------- -----------
Market value $ 1,829,856 $ 1,957,287
=========== ===========
The Company's portfolio value of trading securities has been pledged as
collateral for the bank loans (see Note 6). However, the bank has placed no
restrictions on the Company's ability to trade freely in their portfolio.
The Company's investments in non-marketable securities is summarized as follows:
1995 1994
---------- ----------
Darwin Molecular Corporation
(approximately 3.9% interest) $1,000,000 $1,000,000
Zydacron, Inc.
(approximately 3.1% interest) 941,750 378,000
Pinnacle Diagnostics, Inc.
(approximately 16.7% interest) 500,000 --
FED Corporation
(approximately 2.9% interest) 375,000 --
Solid Manufacturing Co. - 10% convertible debentures
(approximately 9.5% interest, if converted) 500,000 --
---------- ----------
Totals $3,316,750 $1,378,000
========== ==========
<PAGE>
All of these investments are carried at historical cost on the financial
statements of the Company, and are included under the caption "Investment in
non-marketable securities" on the balance sheet.
4. INVENTORIES
Inventories are summarized as follows:
1995
----------
Finished products $3,844,506
Work-in process 1,209,849
Raw materials and supplies 2,801,844
----------
Total $7,856,199
==========
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
Estimated useful
life-years 1995
---------------- ----------
Deposit on building 39 $ 47,500
Machinery and equipment 5-10 759,797
Furniture and fixtures 5-7 249,986
Computer equipment 3-5 41,959
Transportation equipment 3-5 41,862
Leasehold improvements 5-31.5 261,416
----------
1,402,520
Less: accumulated depreciation
and amortization 325,454
----------
Net property and equipment $1,077,066
==========
6. NOTES PAYABLE- FINANCIAL INSTITUTIONS
The Company has borrowed $2,550,000 in the form of two term loans. The first is
with the Bank of New York for $1,400,000 with interest at 6.43%, maturing in
June, 1996. The second loan is with Chase Manhattan Bank for $1,150,000 with
interest at 6.255%. This loan matures in September, 1996. These loans are
secured by substantially all of the Company's marketable securities portfolio
value, and certain personal investments of the majority shareholder. Both of
these loans require monthly payments of interest only.
7. DUE TO SHAREHOLDER
The amount due to shareholder represent notes payable which bear interest at 9%,
payable April and September, 1996.
<PAGE>
8. RELATED PARTY TRANSACTIONS
DHB:
DHB leased its office location from a relative of the former president of DHB.
Included in DHB's statement of income (loss) for the years ended December 31,
1995 and 1994 is $16,514 and $15,424 of rent paid or accrued under this lease,
respectively (see note 10). Effective January 1996, the Company vacated the
premises and purchased a building for use as the corporate headquarters.
PACA:
PACA leases its location (see note 10) from the President of PACA. Included in
the statement of income (loss) for the years ended December 31, 1995 and 1994 is
$48,000 of rent paid under this lease for each period.
ID:
ID leased its office location from a relative of the former President of DHB.
Included in DHB's statement of income (loss) for the year ended December 31,
1995 and 1994 is $5,511 and $13,175 of rent paid or accrued under this lease,
respectively (see note 10). The premises were vacated in April, 1995.
NDL and POINT BLANK:
NDL Products, Inc. and Point Blank Body Armor, Inc. lease their facilities from
a partnership indirectly owned by relatives of the majority shareholder of DHB
(note 10). Included in the statement of income (loss) for the year ended
December 31, 1995 is $300,000 of rent paid or accrued under the lease.
9. COMMITMENTS AND CONTINGENCIES
LEASES
PACA:
PACA is obligated under a lease for its manufacturing facility with a related
party (note 9). This lease expires October 31, 1997, and provides for minimum
annual rentals of $43,200, plus increases based on real estate taxes and
operating costs.
ID:
ID was obligated under a lease for its office space with a related party (note
9), which expired in April, 1995 for minimum annual rentals of $15,000, plus
increases based on real estate taxes and operating costs. The space was
relinquished in April, 1995 and there are no further obligations.
Media:
Media leases its facilities for storing its film library on a month-to-month
basis. The current rental rate is $210 per month. The company relinquished this
space in January 1996 and is storing the film library at the corporate
headquarters.
NDL Products, Inc. and Point Blank Body Armor, Inc.
NDL Products, Inc. and Point Blank Body Armor are obligated under a lease for
its facilities with a related party (note 9). The lease commenced January 1,
1995 and expires December, 1999. The lease provides for minimum annual rentals
of $300,000 for the initial year and then $480,000 the following year with
scheduled increases of 4% per year thereafter, plus real estate taxes, operating
costs and capital expenditures.
<PAGE>
The following is a schedule by year of future minimum lease obligations under
noncancellable leases as of December 31,1995
1996 $ 523,200
1997 542,400
1998 562,368
1999 583,135
-----------
Total minimum obligation $ 2,211,103
===========
Total rental expense under cancelable and noncancellable operating leases was
$440,269 and $85,989 for the years ended December 31, 1995 and 1994,
respectively.
EMPLOYMENT AGREEMENT
Concurrent with the purchase of PACA, the President of PACA was given a five
year employment agreement. This agreement calls for annual salaries ranging from
$115,000 in 1993 to $155,000 in 1997, plus certain fringe benefits. During the
year ended December 31, 1995, Two of NDL's officers were given three year
employment contracts. These agreement calls for annual base salaries of 100,000
and 96,000 plus certain fringe benefits.
OPEN LETTERS OF CREDIT
At December 31, 1995 the Company was contingently liable for open unused letters
of credit totaling $120,253.
LITIGATION
Media brought suit against an individual, corporation and others with respect to
alleged representations involving the acquisition of the film library. Media is
seeking compensatory and punitive damages. No determination of the outcome can
be made at this time, and accordingly, there is no provision for any recoverable
amount, if any included in the financial statements.
ID is also involved in a lawsuit with a former consultant to the Company
regarding his alleged misappropriation of several of the Company's confidential
computer programs, and to restrain their dissemination. Management has commenced
prosecuting its position, however, no determination of the outcome can be made
at this time.
<PAGE>
10. CAPITAL STOCK
Capital stock is as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
DHB:
- ---
Class A Preferred stock, 10% convertible, $.01 par value,
1,500,000 shares authorized (see amendment below)
Shares issued and outstanding 21,875 64,062
=========== ===========
Par Value $ 219 $ 641
=========== ===========
Common stock, $.001 par value,
25,000,000 shares authorized,
Shares issued and outstanding 13,841,326 11,498,202
=========== ===========
Par Value $ 13,841 $ 11,498
=========== ===========
</TABLE>
Amendment to Certificate of Incorporation:
In January, 1993, DHB amended its certificate of incorporation, as follows:
a) To expand and qualify the relative rights and preferences of the
previously authorized Preferred shares as follows: Class A Preferred
stock, $.40 per annum dividend, non-voting, cumulative, convertible, $.01
par value, 1,500,000 shares authorized, no shares issued and outstanding,
(redeemable in liquidation at $4 per share, or callable at $.01 per share
after November 30, 1994, convertible into 2 shares of common stock.) These
shares were called in November, 1995. As of December 31, 1995, the
outstanding preferred shares represent shares which have not yet been
surrendered for conversion.
b) To eliminate preemptive rights.
c) To provide for indemnification of officers and directors.
d) To permit the holders of a majority of the outstanding shares of voting
stock to take action by written consent.
11. PRIVATE PLACEMENTS
Common Stock:
During June, July, and August, 1995 the Company sold 1,955,000 shares of common
stock in private placements for proceeds of $3,910,000. Out of these proceeds
$45,000 of direct expenses were paid. These shares have not been registered with
the Securities and Exchange Commission.
During June, October, and November, 1994 the Company sold 387,500 shares of
common stock in private placements for proceeds of $875,000. Out of these
proceeds, direct expenses of $8,703 were paid.
<PAGE>
12. STOCK WARRANTS
During 1995, various warrants which would have expired in November, 1995 from
the Company's original private placement were exercised by certain shareholders.
These shareholders were issued 303,750 shares of the Company's common stock for
net proceeds of $950,000. All remaining warrants for the original private
placement have expired.
In December, 1994, in consideration for monies loaned to the Company, the Board
of Directors granted Mrs. Terry Brooks, a related party, stock warrants to
purchase 2,500,000 shares of common stock for $2 per share for a five year
period commencing December 19, 1994.
In June, 1993, the board of directors granted stock warrants to certain
individuals and organizations to purchase 295,000 shares of the Company's common
stock for $2 per share during the three year period commencing July 1, 1994. The
Company has reserved these shares for issuance upon the exercise of the
warrants. Certain of these individuals are also employees of the Company, and
the warrants issued to these employees are contingent based upon continued
employment until July 1, 1994. 210,000 of the warrants issued in 1993 have been
terminated by the Company.
13. STOCK DIVIDEND
Subsequent to year end, the Board of Directors declared a preferred stock
dividend of 7,944 common shares with a market value of $3.77 per share for the
years ended December 31, 1995 and 1994, which has not yet been paid. All
earnings per share data has been restated giving retroactive effect to the
intended stock dividend.
14. INCOME TAXES
Components of income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current:
Federal $ 5,400 $ 72,350
State 58,922 36,912
Benefit of net operating loss carryfoward (12,400) (72,350)
--------- ---------
Total current 51,922 36,912
--------- ---------
Deferred:
Federal 451,300 (459,100)
State 60,300 (104,900)
Less: valuation allowance (71,800) 147,700
--------- ---------
Total deferred 440,000 (416,300)
--------- ---------
Total income taxes (benefit) $ 491,922 $(379,388)
========= =========
</TABLE>
<PAGE>
The composition of the federal and state deferred taxes at December 31, 1995 was
arrived at as follows:
<TABLE>
<CAPTION>
Federal State
-------- --------
<S> <C> <C>
Net Operating Loss $ 36,000 $ --
Allowance for Doubtful Accounts 10,500 5,600
Capital Loss Carryforwards -- 70,300
Unrealized gain on Marketable Securities (52,100) (31,300)
-------- --------
Subtotal (5,600) 44,600
Less: Valuation Allowance -- 75,900
-------- --------
Net Deferred Taxes $ (5,600) $(31,300)
======== ========
</TABLE>
The Valuation Allowance changed from $147,700 at December 31, 1994 to $75,900 at
December 31, 1995, for a decrease of $71,800.
At December 31, 1995 the Company has operating losses available for carryfoward
against future years' taxable income of approximately $240,000 for tax purposes,
which would expire in 2008. The deferred tax assets for the future benefit of
the capital loss carryfoward was reduced in full by a valuation allowance of
$70,300 as the Company estimates that sufficient future taxable capital gains on
a separate company basis for state tax purposes may not be available to provide
the full realization of such an asset.
15. SUBSEQUENT EVENT
As of March 7, 1996, the entire subscription received of $437,500 has been
collected.
<PAGE>
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: August 1, 1996 DHB Capital Group Inc.
/S/ DAVID BROOKS
Chairman of the Board
Pursuant to the requirements of the Securities Exchange1934, 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 August 1, 1996
- ----------------
/S/ Mary Kreidell Treasurer August 1, 1996
- -----------------
/S/ Mel Paikoff Director August 1, 1996
- ---------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 475,108
<SECURITIES> 1,829,856
<RECEIVABLES> 3,819,571
<ALLOWANCES> 70,000
<INVENTORY> 7,856,199
<CURRENT-ASSETS> 14,189,244
<PP&E> 1,077,066
<DEPRECIATION> 325,454
<TOTAL-ASSETS> 19,465,208
<CURRENT-LIABILITIES> 7,663,240
<BONDS> 0
0
219
<COMMON> 13,841
<OTHER-SE> 11,787,908
<TOTAL-LIABILITY-AND-EQUITY> 19,465,208
<SALES> 14,494,094
<TOTAL-REVENUES> 14,494,094
<CGS> 9,088,617
<TOTAL-COSTS> 5,140,399
<OTHER-EXPENSES> 471,319
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303,615
<INCOME-PRETAX> 736,397
<INCOME-TAX> 491,922
<INCOME-CONTINUING> 491,922
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 491,922
<EPS-PRIMARY> .002
<EPS-DILUTED> .002
</TABLE>
