================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
Form 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 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 May 13, 1997, there were 24,042,583 shares of Common Stock, $.001 par
value outstanding.
<PAGE>
CONTENTS
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 1997 and December 31, 1996
Unaudited Consolidated Statements of Operations and Retained Earnings
For The Three Months Ended March 31, 1997 and 1996
Unaudited Consolidated Statements of Cash Flows For The Three Months
Ended March 31, 1997 and 1996
Unaudited Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations
Operations and Financial Condition
PART II Other Information
Signatures
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ......................... $ 340,970 $ 1,249,655
Marketable securities ............................. 2,655,740 1,342,027
Accounts receivable, less allowance for doubtful
accounts of $303,320 ........................ 4,914,543 3,499,535
Inventories ....................................... 8,154,263 7,290,205
Prepaid expenses and other current assets ......... 861,427 255,218
------------ ------------
Total Current Assets ............... $ 16,926,943 $ 13,636,640
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $592,849 and $522,907
respectively................................. 1,926,244 1,834,777
OTHER ASSETS
Intangible assets, net .......................... 871,718 214,213
Investments in non-marketable securities ........ 2,316,750 2,316,750
Deferred tax assets ............................. 819,300 819,300
Deposits and other assets ....................... 360,820 338,739
------------ ------------
Total Other Assets ................. 4,368,588 3,689,002
------------ ------------
TOTAL ASSETS ....................... $ 23,221,775 $ 19,160,419
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable .................................... $ 1,400,000 $ 1,400,000
Current maturities of long term debt ............ 63,895 61,664
Accounts payable ................................ 4,920,161 3,019,804
Accrued expenses and other current liabilities .. 217,255 243,763
State income taxes payable ...................... 36,934 11,011
------------ ------------
Total Current Liabilities .......... $ 6,638,245 $ 4,736,242
LONG TERM LIABILITIES
Long term debt, net of current maturities ........ 144,302 144,091
Due to shareholders .............................. 1,300,000 1,300,000
------------ ------------
Total Long Term Debt ............... 1,444,302 1,444,091
------------ ------------
Total Liabilities .................. 8,082,547 6,180,333
<PAGE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock ...................................... 24,043 23,146
Additional paid-in capital ........................ 19,742,887 17,956,030
Common stock subscription receivable .............. (227,500) (227,500)
Retained earnings (Deficit) ....................... (4,407,540) (4,771,590)
Foreign currency translation adjustment ........... 7,338 --
------------ ------------
Total Stockholders' Equity 15,139,228 12,980,086
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 23,221,775 $ 19,160,419
============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
Net sales ................................................ $ 7,144,676 $ 7,044,626
Cost of sales ............................................ 4,762,894 5,094,536
------------ ------------
Gross Profit ....................................... 2,381,782 1,950,090
Selling, general and administrative expenses ............ 1,925,056 1,707,026
------------ ------------
Income(Loss) before other income (expense) ......... 456,726 243,064
------------ ------------
Other Income (Expense)
Interest expense ................................... (63,830) (68,886)
Interest Income .................................... 13,459 354
Dividend income .................................... 12,617 1,890
Other income ....................................... 21,131 --
Foreign currency translation ....................... (4,544) --
Realized gain (loss) on marketable securities ...... 229,941 (13,985)
Unrealized gain (loss) on marketable securities .... (288,450) 548,443
------------ ------------
Total Other Income (Expenses) ............. (79,676) 467,816
------------ ------------
Income (loss) before income tax expense .................. 377,050 710,880
Income taxes expense ..................................... 13,000 130,218
------------ ------------
Net Income ............................................... $ 364,050 $ 580,661
Retained Earnings (Deficit) - Beginning ............ (4,771,590) 101,939
------------ ------------
Retained Earnings (Deficit) - End .................. ($ 4,407,540) $ 682,600
============ ============
Earnings (loss) per common share
Primary ................................... $ 0.015 $ 0.027
============ ============
Fully Diluted ............................. $ 0.015 $ 0.027
============ ============
Weighted average number of common share outstanding:
Primary ................................... 25,078,097 21,185,556
============ ============
Fully Diluted ............................. 25,078,097 21,707,556
============ ============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
1997 1996
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income.................................................. $364,050 $580,661
---------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 88,027 62,771
Stock return in settlement of lawsuit ............ (21,131) --
Stock issued to purchase lease ................... 279,388 --
Stock issued in settlement of a lawsuit ...... 150,000 --
Changes in assets and liabilities (Increase) Decrease in:
Accounts receivable ............................... (1,292,927) (329,971)
Marketable securities ............................. (1,313,713) (424,404)
Inventories ....................................... (489,475) 1,404,527
Prepaid expenses and other current assets ......... (606,209) (4,338)
Deposits and other assets ......................... (22,081) (63,093)
Increase (decrease) in:
Accounts payable .................................. 1,860,367 (1,002,972)
Accrued expenses and other current liabilities .... (29,550) (4,369)
State income taxes payable ........................ 349 89,041
----------- -----------
Total Adjustments ....................................... (1,396,955) (272,808)
----------- -----------
Net cash used by operating activities ...................... (1,032,905) (307,853)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments made for property and equipment ................ (118,458) (485,999)
Payments of capitalized acquisition cost ................ -- --
----------- -----------
Net Cash used by investing activities ...................... (118,458) (485,999)
----------- -----------
<PAGE>
<CAPTION>
DHB CAPITAL GROUP INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(continued)
1997 1996
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt .................... (13,910) --
Foreign currency exchange ............................... 7,338 --
Net proceeds from sale of common stock .................. 100,000 437,500
----------- -----------
Net cash provided by financing activities .................. 93,428 437,500
----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ............ (1,057,935) 259,354
CASH AND CASH EQUIVALENTS - BEGINNING ...................... 1,398,905 475,108
----------- -----------
CASH AND CASH EQUIVALENTS - END ............................ $ 340,970 $ 734,462
=========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
DHB CAPITAL GROUP INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
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.
DHB Armor Group, Inc.
On August 8, 1995, the Company formed a new Delaware Corporation which is a
wholly-owned subsidiary of the Company. The subsidiary, DHB Armor Group, Inc.,
("Armor"), now wholly owns PACA, Point Blank Body Armor, Inc., ("Point Blank"),
and Zunblindage S.A.
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.
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"). 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").
Zunblindage S.A.
On February 28, 1997, the Company, through DHB Armor Group, acquired all of
the outstanding stock of Zunblindage S.A. a privately held Belgian
corporation in exchange for a total of 666,000 shares of the Company's
registered common stock. Zunblindage is engaged in the manufacture and
distribution and marketing in the European theater and the Middle East
regions.
<PAGE>
DHB CAPITAL GROUP INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
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. On February 21, 1995, Acquisition
changed its corporate name to NDL Products, Inc. NDL manufactures and
distributes specialized protective athletic apparel and equipment.
Orthopedic Products, Inc.
On March 22 and March 26, 1996, the Company acquired OPI, a Florida Corporation
engaged in the manufacturing and distribution of orthopedic products to the
medical industry.
Intelligent Data Corp.
On April 1, 1994, the Company acquired Intelligent Data Corp. ("ID"). ID was
engaged in the development of sophisticated telecommunication systems. At the
end of 1996, the Company wrote down the net assets of this subsidiary.
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. Royal Acquisition Corp.'s primary assets were a film library. At the end
of 1996 the Company wrote down the net assets of this subsidiary.
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.
MARKETABLE/NON-MARKETABLE SECURITIES
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.
<PAGE>
DHB CAPITAL GROUP INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
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
domestic subsidiaries. Accordingly, Federal income taxes are provided on the
consolidated group's taxable income if and when the consolidated group has
taxable income after utilizing available carryforward losses. State income taxes
are provided on a separate company basis.
2. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash paid for:
Interest ............................ $59,525 $34,496
Income taxes ........................ $12,007 $33,301
</TABLE>
During the year three months ended March 31, 1997 and 1996, the Company had
non-cash investing activities when it issued common stock to acquire all of the
outstanding common stock of Zunblindage in February 1997 and OPI March 1996.
3.OTHER INCOME
The Company initiated a lawsuit against the former shareholders of OPI alleging
misrepresentation and injunctive relief seeking to enforce a covenant not to
compete. This case was settled in mediation in favor of the Company. It resulted
in the return of 38,625 shares of the Company's common stock which was
subsequently retired. Approximately 8,500 shares or $17,000 related to the
breech of the covenant not to compete and is recorded as other income in the
financial statements for the three months ended March 31, 1997. The balance
resulted in the reduction of the acquisition cost of OPI.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations
Three Months Ended March 31, 1997, Compared to the Three Months Ended March 31,
1996.
Consolidated net sales for the three months ended March 31, 1997 increased by
approximately $100,000 to $7,144,676 compared to the three months ended March
31, 1996. This increase was primarily due to the inclusion of Zunblindage S.A.
in 1997. The Company's gross profit percentage increased to 33% for the three
months ended March 31, 1997 as compared to 28% for the three months ended March
31, 1996. This increase was the result of the improved production controls on
material usage and pricing which were instituted at the end of 1996. Operating
income increased from $243,064 for the three months ended March 31, 1996 to
$456,726 for the three months ended March 31, 1997 as a result of the higher
profit margins. Net income for the three months ended March 31, 1997 was
$364,050 as compared to $580,661 for the three months ended March 31, 1996. This
decrease was primarily due to a lower total gain on marketable securities at
March 31, 997 as compared to March 31, 1996.
The Company received "other income" of approximately $21,000 as a result of a
settlement of a lawsuit the Company initiated against the former shareholders of
OPI. $17,000 of this income was the result of the former shareholders breach of
their covenant not to compete with the Company within a certain area. The
balance related to breach of their employment contracts and misrepresentation of
the net worth.
Liquidity and Capital Resources
The Company's primary capital requirements over the next twelve months are to
assist PACA, Point Blank, NDL, OPI, and Zunblindage's in financing their working
capital requirements, and to make possible acquisitions. PACA, Point Blank, NDL,
and Zunblindage sell most of their products on 60-90 day terms, and OPI sells
most of its products on 30-60 day terms. Working capital is needed to fiance the
receivables, manufacturing process and inventory. Working Capital at March 31,
1997 was $10,288,698 as compared to $9,610,405 at March 31, 1996.
Cash, cash equivalents, and marketable securities totaled $340,970 at March 31,
1997 compared to $734,462 at March 31, 1996 and $1,249,655 at December 31, 1996.
The decrease in cash, cash equivalents and marketable securities was primarily
used to fund operations. The Company throughout its existence, obtained funds
for acquisitions and operations from term bank loans for periods of up to a
year, which ave been secured, in part, by the controlling shareholders's
hypothecation of marketable securities. In the past, the Company has always been
able to roll over such loans with new loans at prevailing interest relates. At
the present time, it has a loan of $1,400,000 from the Bank of New York coming
due in May 1997, bearing interest at 6.4375% per year. There is no assurance
that the Company will be able to roll over such loans as they become due. The
Company expects to renew this loan, at prevailing interest rates, when it
becomes due.
The Company's principal commitments at March 31, 1997 consisted of obligations
under their operating leases for its facilities.
<PAGE>
The Company's capital expenditures for the quarter ended March 31, 1997 was
$118,458 compared to capital expenditures of $485,999 for the quarter ended
March 31, 1996. The Company's capital expenditures for the year ended December
31, 1996 was $1,123,739 as compared to $4,222,257 for the year ended December
31, 1995. The company purchased OPI in March 1996 and Zunblindage in February
1997 by issuing stock in lieu of a cash payment.
The Company invested approximately $3,316,750 as of March 31, 1997 at historical
cost. 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. As of December 31,
1996, the Company has recorded a valuation allowance of $1,000,000 against two
specific investments to bring the net realizable value to $2,316,750 at December
31, 1996 and March 31, 1997.
The Company's current ratio is 2.5% at March 31, 1997 and was 2.87% at March 31,
1996. The Company's quick ratio was 1.19% at March 31, 1997 as compared to 1.47%
at March 31, 1996. Total Stockholders' Equity at March 31, 1997 was $15,139,228
as compared to $13,399,129 at March 31, 1996. The Company believes it has
sufficient resources to meet its working capital requirements for the next
twelve months.
Effect of Inflation and Changing Prices.
The Company did not experience increases in raw material prices during the three
months ended March 31, 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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In August 1996, the Company commenced a lawsuit against the former shareholders
of OPI for breach of their employment contract, misrepresentation and injunctive
relief seeking to enforce a covenant not to compete. On April 23, 1997, this
lawsuit was settled in mediation and resulted in the former shareholders
returning 38,625 shares of the Company's common stock which was subsequently
retired.
In June 1996, the Company commenced a lawsuit against the former president of
NDL, Barry Finn, for breach of his employment agreement. On December 13, 1996,
Mr. Finn filed a counterclaim asserting breach of contract. The legal counsel
handling the case for the company have advised that it is too early to reliably
predict the outcome of the case.
The Company is party to other litigation matters and claims which are normal in
the course of its operations, and while the results of the ligation 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 consolidated financial position.
<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: May 13, 1997 DHB CAPITAL GROUP INC.
--------------------------
Chairman of the Board, Chief
Executive Officer, and Director
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
- ------------------
David H. Brooks Chairman of the Board May 14, 1997
/s/Mary Kreidell
- ----------------
Mary Kreidell Chief Financial Officer May 14, 1997
/s/Gary Nadelman
- ----------------
Gary Nadelman Director May 14, 1997
/s/Robert Trevisani
- -------------------
Robert Trevisani Director May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 340,970
<SECURITIES> 2,655,740
<RECEIVABLES> 4,914,543
<ALLOWANCES> 303,695
<INVENTORY> 8,154,263
<CURRENT-ASSETS> 16,926,943
<PP&E> 1,926,244
<DEPRECIATION> 592,849
<TOTAL-ASSETS> 23,221,775
<CURRENT-LIABILITIES> 6,638,245
<BONDS> 0
0
0
<COMMON> 24,043
<OTHER-SE> 15,115,185
<TOTAL-LIABILITY-AND-EQUITY> 23,221,775
<SALES> 7,144,676
<TOTAL-REVENUES> 7,144,676
<CGS> 4,762,894
<TOTAL-COSTS> 1,925,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,830
<INCOME-PRETAX> 377,050
<INCOME-TAX> 13,000
<INCOME-CONTINUING> 364,050
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 364,050
<EPS-PRIMARY> .015
<EPS-DILUTED> .015
</TABLE>
