U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
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
of incorporation) Identification No.)
11 Old Westbury Road, Old Westbury, New York 11568
(Address of principal executive offices)
Registrant's telephone number: (516) 997-1155
Not applicable
Former name, former address and former fiscal year, if changed since last report
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 November 12, 1997, there were 25,643,931 shares of Common
Stock, $.001 par value outstanding.
<PAGE>
TABLE OF CONTENTS
PART I : FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996
Unaudited Consolidated Statements of Operations and Retained Earnings
For The Three Months Ended September 30, 1997 and 1996
Unaudited Consolidated Statements of Operations and Retained Earnings
For The Nine Months Ended September 30, 1997 and 1996
Unaudited Consolidated Statements of Cash Flows For The Nine Months
Ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
PART II : OTHER INFORMATION
Item 1. Legal Proceedings
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .......................... $ 384,397 $ 1,249,655
Marketable securities .............................. 3,079,614 1,342,027
Accounts receivable, less allowance for doubtful
accounts of $303,320 ............................. 6,398,937 3,499,535
Inventories ........................................ 9,689,359 7,290,205
Prepaid expenses and other current assets .......... 734,690 255,218
----------- -----------
Total Current Assets ........................ $20,286,997 $13,636,640
----------- -----------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $786,217 and $522,907, respectively 2,276,620 1,834,777
----------- -----------
OTHER ASSETS
Intangible assets, net ............................ 618,664 214,213
Investments in non-marketable securities .......... 1,316,750 2,316,750
Deferred tax assets ............................... 770,300 819,300
Deposits and other assets ......................... 435,430 338,739
----------- -----------
Total Other Assets .......................... 3,141,144 3,689,002
----------- -----------
TOTAL ASSETS .......................................... $25,704,761 $19,160,419
=========== ===========
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
UNAUDITED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Note payable ..................................... $ 1,900,000 $ 1,400,000
Current maturities of long term debt ............. 64,720 61,664
Accounts payable ................................. 4,194,974 3,019,804
Accrued expenses and other current liabilities ... 426,968 243,763
State income taxes payable ....................... 103,522 11,011
------------ ------------
Total Current Liabilities ................... $ 6,690,184 $ 4,736,242
------------ ------------
LONG TERM LIABILITIES
Long-term debt, net of current maturities ......... 106,156 144,091
Due to shareholder ................................ 1,300,000 1,300,000
------------ ------------
Total Long Term Debt ....................... 1,406,156 1,444,091
------------ ------------
Total Liabilities ..................... 8,096,340 6,180,333
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value; 100,000,000
shares authorized, 25,559,931 issued and
outstanding ................................... 25,560 23,146
Additional paid-in capital ......................... 21,970,011 17,956,030
Common stock subscription receivable ............... (670,000) (227,500)
Accumulated deficit ................................ (3,721,263) (4,771,590)
Foreign currency translation adjustment ............ 4,113 --
------------ ------------
Total Stockholders' Equity ....... 17,608,421 12,980,086
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $ 25,704,761 $ 19,160,419
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
Net sales ............................................. $ 9,004,476 $ 6,226,028
Cost of sales ......................................... 6,320,158 3,908,427
------------ ------------
Gross profit .................................... 2,684,318 2,317,601
Selling, general and administrative expenses ......... 2,444,343 1,911,889
------------ ------------
Income before other income (expense) ............ 239,975 405,712
------------ ------------
Other Income (Expense)
Interest expense ................................ (94,110) (85,930)
Interest income ................................. 719 541
Dividend income ................................. 100 8,199
Foreign currency translation .................... 4,259 --
Realized loss on marketable securities .......... (28,124) (94,799)
Unrealized gain on marketable securities ........ 113,693 343,039
------------ ------------
Total Other Income (Expense) ........... (3,463) 171,050
------------ ------------
Income before income tax expense ...................... 236,512 576,762
Income tax expense .................................... 10,739 176,890
------------ ------------
Net Income ............................................ $ 225,773 $ 399,872
Retained Earnings(Deficit) - Beginning ................ (3,947,036) 1,210,316
Stock Dividend Paid ................................... -- (7,627)
------------ ------------
Retained Earnings(Deficit) - Ending ................... ($ 3,721,263) $ 1,602,561
============ ============
Earnings per common share:
Primary ......................................... $ 0.01 $ 0.02
============ ============
Fully Diluted ................................... $ 0.01 $ 0.02
============ ============
Weighted average number of common share outstanding:
Primary ......................................... 29,021,184 22,216,440
============ ============
Fully Diluted ................................... 29,021,184 22,738,440
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
Net sales ............................................ $ 24,549,991 $ 19,875,112
Cost of sales ........................................ 16,993,707 13,448,751
------------ ------------
Gross profit ................................... 7,556,284 6,426,361
Selling, general and administrative expenses ........ 6,826,504 5,674,660
------------ ------------
Income before other income (expense) ........... 729,780 751,701
------------ ------------
Other Income (Expense)
Interest expense ............................... (262,633) (249,794)
Interest income ................................ 19,408 1,804
Dividend income ................................ 17,717 24,329
Other income ................................... 21,134 --
Foreign currency translation ................... 3,629 --
Realized loss on marketable securities ......... (60,506) (383)
Unrealized gain on marketable securities ....... 720,929 1,469,702
------------ ------------
Total Other Income (Expense) .......... 459,678 1,245,658
------------ ------------
Income before income tax expense .................... 1,189,458 1,997,359
Income tax expense ................................... 139,131 489,109
------------ ------------
Net Income ........................................... $ 1,050,327 $ 1,508,250
Retained Earnings(Deficit) - Beginning ............... (4,771,590) 101,938
Stock Dividend Paid .................................. -- (7,627)
------------ ------------
Retained Earnings(Deficit) - Ending .................. ($ 3,721,263) $ 1,602,561
============ ============
Earnings per common share:
Primary ........................................ $ 0.04 $ 0.07
============ ============
Fully Diluted .................................. $ 0.04 $ 0.07
============ ============
Weighted average number of common share outstanding:
Primary ........................................ 27,023,433 22,216,440
============ ============
Fully Diluted .................................. 27,609,756 22,738,440
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................... $ 1,050,327 $ 1,508,250
----------- -----------
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization ........................ 305,313 193,084
Stock return in settlement of lawsuit ................ (21,131)
Stock issued to purchase lease ....................... 210,000 --
Stock issued for services ............................ 67,500 --
Stock issued in settlement of a lawsuit ............. 150,000 --
Unrealized gain on the transfer of securities from
non-marketable securities to marketable securities (598,900) --
Changes in assets and liabilities
(Increase) Decrease in:
Accounts receivable ................................... (2,777,321) (1,690,626)
Marketable securities ................................. (138,687) (1,447,390)
Inventories ........................................... (2,164,571) (322,687)
Prepaid expenses and other current assets ............. (479,472) (631,336)
Deferred Taxes ........................................ 49,000 (12,600)
Deposits and other assets ............................. (96,691) (270,717)
Increase (decrease) in:
Accounts payable ...................................... 1,135,179 (713,767)
Accrued expenses and other current liabilities ........ 180,163 (190,473)
State income taxes payable ............................ 66,938 435,224
----------- -----------
Total Adjustments ........................................ (4,112,680) (4,651,288)
----------- -----------
Net cash used by operating activities .... (3,062,353) (3,143,038)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash ......................... 134,356
Payments made for property and equipment ..................... (610,173) (761,024)
----------- -----------
Net cash used by investing activities .... (475,817) (761,024)
----------- -----------
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(continued)
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt .................. (51,231) (22,808)
Repayment of shareholder loan, net .................... -- (590,000)
Issuance of long term debt ............................ -- 243,573
Foreign currency exchange ............................. 4,113 --
Net proceeds (repayments) of line of credit ........... 500,000 (1,150,000)
Purchase of treasury stock ............................ (1,028,300) --
Net proceeds from issuance of common stock ............ 3,248,330 5,146,503
----------- -----------
Net cash provided by financing activities 2,672,912 3,627,268
----------- -----------
NET (DECREASE) IN CASH AND EQUIVALENTS ................... (865,258) (276,794)
CASH AND CASH EQUIVALENTS - BEGINNING .................... 1,249,655 475,108
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING ....................... $ 384,397 $ 98,314
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest ......................................... $ 211,414 $ 285,238
Income taxes ..................................... $ 17,739 $ 33,301
Non-cash investing and financing activities
Issuance of 180,000 common shares to acquire OPI . -- $ 570,000
Return of 38,625 common shares in settlement of
OPI lawsuit ................................. $ (73,635) --
Issuance of 144,000 common shares for lease of
warehouse facility ........................... $ 210,000 --
Issuance of 666,000 common shares to acquire
Zublindage, SA ............................... $ 1,000,000 --
Issuance of 75,000 common shares in settlement
of a lawsuit ................................. $ 150,000 --
Issuance of 13,500 common shares for services .... $ 67,500 --
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1. Consolidated Financial Statements
The consolidated balance sheet at the end of the preceding year has been
derived from the audited consolidated balance sheet contained in the
Company's Form 10-KSB and is presented for comparative purposes. All other
financial statements are unaudited. All unaudited amounts are subject to
year-end adjustments and audit, but the Company believes all adjustments,
consisting only of normal and recurring adjustments, necessary to present
fairly the financial condition, results of operations and changes in cash
flows for all interim periods have been made. The results of operations for
interim periods are not necessarily indicative of the operating results for
the full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with published rules and regulations of the Securities and
Exchange Commission. These consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Form 10-KSB for the most recent fiscal
year.
2. Repurchase of Common Stock
During the quarter ended September 30, 1997, and pursuant to a resolution of
the Board of Directors, the Company purchased 296,152 shares of common stock
in the open market for $1,028,300. These shares were recorded as treasury
stock when purchased and were subsequently cancelled and returned to treasury
as authorized but unissued shares of the Company's common stock.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Three Months Ended September 30, 1997 Compared to the Three Months Ended
September 30, 1996.
The Company continued its aggressive marketing campaign targeted at new and
existing customers as well as launching new product lines. These marketing
efforts resulted in increased sales for the three months ended September 30,
1997 of approximately $2,778,000, or 45%, as compared to the three months ended
September 30, 1996. Advertising, marketing and promotional expenses for the
three months ended September 30, 1997 increased approximately $250,000 over the
three months ended September 30, 1996. These costs are the result of
management's continued focus on capturing increased market share by expanding
the Company's customer base nationwide and internationally. While management
believes these expenses are necessary for future sales growth, they resulted in
a current decrease in operating income of approximately $166,000 for the three
months ended September 30, 1997 over the three months ended September 30, 1996.
<PAGE>
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended September
30, 1996.
Consolidated net sales for the nine months ended September 30, 1997 increased by
approximately 24% to $24,550,000 as compared to net sales for the nine months
ended September 30, 1996 of $19,875,000. Advertising, marketing and promotional
costs for the nine months ended September 30, 1997 increased by approximately
$699,000 over the same period last year. This is the direct result of the
Company's continued campaign to increase sales by launching new product line
technologies as well as to increase recognition for existing brands and product
lines. As such, operating income decreased slightly by $22,000 to $730,000 for
the nine months ended September 30, 1997 as compared to $752,000 for the nine
months ended September 30, 1996. Although these expenditures impact operating
income in the short term, management believes they are necessary for continued
sales growth in the fourth quarter and into 1998.
Liquidity and Capital Resources
The Company's primary goal over the fourth quarter and into 1998 will be to
manage and finance the working capital needs of its operating subsidiaries and
to make possible acquisitions of additional operating companies. Specifically,
management is currently evaluating the working capital and production facility
requirements for Point Blank in light of the U.S. Military Modular Body Armor
System contract awarded in July 1997. Now that development and testing for this
contract is substantially complete, the Company anticipates production will
commence in the fourth quarter. As such, Point Blank is expanding its production
capabilities within its existing facility and has implemented the necessary
additional internal controls and cash management policies given the magnitude of
this contract. Management believes that existing facilities will not be
sufficient to accommodate the anticipated growth that will result from the
Military contract when it's in full production combined with the continued
growth in existing operations as experienced during the first nine months of
1997.
Cash, cash equivalents and marketable securities totalled approximately
$3,464,000 at September 30, 1997 and $2,592,000 at December 31, 1996. The
$872,000 increase in cash, cash equivalents and marketable securities results
primarily from the issuance of common stock. Working capital at September 30,
1997 was approximately $13,597,000, an increase of $4,696,000 from December 31,
1996. This increase results primarily from increases in both accounts receivable
and inventory from December 31, 1996 to September 30, 1997 where the total of
such amounts were $10,789,000 and $16,089,000, respectively. The Company's
current ratio was 3.03:1 at September 30, 1997 compared to 2.88:1 at December
31, 1996. Total stockholders' equity at September 30, 1997 was $17,608,000
compared to $12,980,000 at December 31, 1996.
The Company, since its inception, has obtained some of its working capital from
bank credit lines which have been secured, in part, by the controlling
shareholder's pledging of personal assets. In the past, the Company has been
able to roll over such obligations into new notes at prevailing interest rates.
In June 1997, the Company increased its current bank borrowing from $1,400,000
to $1,900,000 which is due in May 1998. There is no assurance that the Company
will be able to roll over such loans in the future as they become due. The
Company expects to renew its current borrowing facility, at prevailing interest
rates, when it matures.
The Company's principal commitments at September 30, 1997 consisted
substantially of obligations under certain operating leases for its
manufacturing and warehouse facilities.
<PAGE>
The Company's capital expenditures for the nine months ended September 30, 1997
were approximately $610,000. They resulted primarily from the expansion of the
manufacturing facility in Florida. The Company's capital expenditures for the
year ended December 31, 1996 were $1,123,739.
The Company has investments 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 nine
months ended September 30, 1997 and 1996. 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
Item 1. Legal Proceedings.
The Company is party to various litigation matters and claims which are normal
in the course of its operations, and while the results of these ligations and
claims cannot be predicted with certainty, management believes, based on advice
of counsel, the final outcome of such matters will not have a materially adverse
effect on the Company's consolidated financial condition or the results of
operations.
<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: November 12, 1997 DHB CAPITAL GROUP, INC.
/S/ David H. Brooks
-------------------
David H. Brooks
Chairman of the Board &
Chief E xecutive Officer
Pursuant to the requirements of the Securities Exchange Act 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 H. Brooks Chairman of the Board & November 12, 1997
- ------------------- Chief Executive Officer
David H. Brooks
/S/ Mary Kreidell Chief Financial Officer November 12, 1997
- -----------------
Mary Kreidell
/S/ Gary Nadelman Director November 12, 1997
- ------------------
Gary Nadelman
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 384,397
<SECURITIES> 3,079,614
<RECEIVABLES> 6,398,937
<ALLOWANCES> 303,320
<INVENTORY> 9,698,937
<CURRENT-ASSETS> 20,286,997
<PP&E> 2,276,620
<DEPRECIATION> 786,217
<TOTAL-ASSETS> 25,704,761
<CURRENT-LIABILITIES> 6,690,184
<BONDS> 0
0
0
<COMMON> 25,560
<OTHER-SE> 17,582,861
<TOTAL-LIABILITY-AND-EQUITY> 25,704,761
<SALES> 24,549,991
<TOTAL-REVENUES> 24,549,991
<CGS> 16,993,707
<TOTAL-COSTS> 6,826,504
<OTHER-EXPENSES> (459,678)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262,633
<INCOME-PRETAX> 1,189,458
<INCOME-TAX> 139,131
<INCOME-CONTINUING> 1,050,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,050,327
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
