U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[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, 1997
[ ] 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. 0-22429
DHB CAPITAL GROUP INC.
(Name of small business issuer 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)
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B and no disclosure will be contained, to the best of the
registrant's knowledge, in the definitive proxy or information statements
incorporated by Reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ]
Issuer's revenues for the most recent fiscal year: $33,271,607
Aggregate market value of the voting stock held by non-affiliates computed by
reference to the price at which the stock sold, or the average bid and asked
price of such stock, as of March 20, 1998: $26,067,436.
Number of shares outstanding of the issuer's common equity, as of March 20, 1998
(exclusive of securities convertible into common equity) : 24,837,229
<PAGE>
Item 1. BUSINESS
History
DHB Capital Group, Inc. and Subsidiaries, (the "Company") was
originally incorporated as a New York corporation on October 22, 1992, by Mr.
David H. Brooks, the Company's Chairman and CEO. Effective April 17, 1995 (the
"Reincorporation Date"), pursuant to the authorization of the security holders
of the Company, the Company was reincorporated (the "Reincorporation") in
Delaware. Under the terms of the Reincorporation, the Delaware corporation is
the successor in interest to all the rights, interests, assets and liabilities
of the New York corporation. Holders of certificates which, prior to the
Reincorporation Date, evidenced securities of the New York corporation,
automatically become holders of a like number of securities of the Delaware
corporation.
DHB Capital Group Inc. is a holding company which has two major
divisions, DHB Armor Group and DHB Sports Group. DHB Armor Group consists of
Protective Apparel Corporation of America ("PACA"), Point Blank Body Armor Inc.
and Zunblindage S.A. DHB Sports Group consists of NDL Products Inc. ("NDL") and
Orthopedic Products Inc. ("OPI") DHB Armor Group develops, manufactures, and
distributes bullet and projectile resistant garments, bullet resistant and
fragmentation vests, bomb projectile blankets, and related ballistic
accessories. DHB Sports Group manufactures and distributes protective athletic
apparel and equipment, such as elbow, breast, hip, groin, knee, shin and ankle
supports, and wrist, elbow, groin and knee braces as well as orthopedic
products. OPI is engaged in the manufacture and sale of medical and orthopedic
products at directly to the medical industry, including hospitals, sports
medicine centers and medical practices.
DHB Armor Group
The Company entered the body-armor business by acquiring PACA at the
end of 1992. In August 1995, the Company, through a wholly-owned subsidiary, now
known as Point Blank Body Armor, Inc., a Delaware corporation ("Point Blank"),
acquired from a trustee in bankruptcy certain assets (the "Point Blank Assets")
of Point Blank Body Armor, L.P., and an affiliated company (collectively, "Old
Point Blank"), for a cash payment of $2,000,000, which was provided by a loan
from Mr. Brooks. Old Point Blank had been a leading U.S. manufacturer of
bullet-resistant garments and related accessories. On February 28, 1997, the
Company exchanged a total of 666,000 shares of its registered common stock to
acquire 100% of the common stock of Zunblindage S.A. a privately held Belgian
corporation. Zunblindage is engaged in the manufacture and distribution of
bullet resistant equipment, apparel and related products and specializes in
marketing, distribution,and sales of such products in Europe and the Middle
East.
DHB Sports Group
On December 20, 1994, the Company, through a newly organized,
wholly-owned subsidiary, DHB Acquisition, Inc., a Florida corporation, purchased
(the "Transaction") the assets (the "NDL Assets"), free of all liabilities, of
N.D.L. Products, Inc., a Delaware corporation and also purchased the assets of
its wholly-owned subsidiaries (collectively, the "Seller"), for a cash payment
of $3,080,000, net of cash acquired, at an auction held pursuant to Chapter 7 of
the Bankruptcy
<PAGE>
Code. Prior to the Transaction, the Seller was a debtor-in-possession under
Chapter 11 of the United States Bankruptcy Code. The transaction was consummated
pursuant to an order of the United States Bankruptcy Court, Southern District of
Florida, dated December 20, 1994. The Company changed the name of DHB
Acquisition, Inc., to "NDL Products, Inc."
The Company expanded into the orthopedic products business by acquiring the
outstanding capital stock of Orthopedic Products Inc., ("OPI"), a Florida
corporation. The Company issued 270,000 shares of its registered Common Stock in
March 1996, in two transactions, in exchange for all the outstanding capital
stock of OPI. DHB initiated a lawsuit against the former shareholders of OPI,
and as a result of that lawsuit being settled by mediation, 38,625 shares were
returned in 1997. An additional 6,625 shares will be returned in 1998.
Recent Developments
Exclusive license and trademark agreement with Magnesystems. On January
16, 1998, The Company signed an exclusive (except for certain rights, in the
field for horses) licensing agreement to make, use and sell magnetic products
covered by certain US and Canadian patents, along with the technical know how
related to the magnetic products in the possession of Magnesystems.
Lanxide Armor Products Inc.("LAP") and Lanxide Electronic Components
Inc. ("LEC") On February 9, 1998, the Company purchased the common stock of two
privately held Delaware corporations for $4.8 million which was funded by
additional loans from Mr. Brooks. LAP is an inovative company having unique
technological capabilities in the development, design, testing and manufacture
of armor research and development for the U.S. Department of Defense, and more
than seven years of experience in the design, manufacture, testing and sale of
products for specific armor systems and components. LAP's composite hard armor
systems are based on patented and highly proprietary ceramic/metal composite
systems.
LEC designs, manufactures and sells unique and heavily patented thermal
management, packaging and structural components for the electronics industry.
LEC's current products are primarily based on silicon carbide/aluminum
composites which provide a unique combination of desirable properties including
high thermal conductivity, low co-efficient of thermal expansion, light weight
and high stiffness. These properties are ideally suited to provide a number of
products including, but not limited to, power module and amplifier heat sinks
and baseplates, microprocessor package lids, heat spreaders, printed wiring
board cores, carriers, package bases and fluid cooled heat sinks. LEC has over
seven years of experience in the design, manufacture and sale of products in the
hi-tech electronics industry.
Buyback of Common Stock. On February 4, 1998 the board of Directors of
the Company announced its authorization for the Company to purchase up to one
million additional shares of its common stock on the open market, from time to
time, at its discretion. The Board of Directors had previously authorized the
repurchase of one million shares of its common stock in October 1996. To date
the Company has repurchased and retired 1,188,454 shares.
Equity Investments.
The Company also actively seeks to acquire and finance, as appropriate,
additional operating companies or interests therein. Since January 1, 1994, the
Company has acquired minority interests in the common stock or securities
convertible into common stock, of the following companies:
<PAGE>
Zydacron, Inc., ("Zydacron"), which designs and manufactures video
teleconferencing codecs that are fully compliant with ITU H.320
standards. Zydacron codecs provide full-featured multimedia
capabilities that integrate into micro-computers which utilize the
Windows operating system software. Zydacron's family of codec products
offers a low-cost full-function "codec engine" that meets existing
video teleconferencing environments. In May 1997, Zydacron signed an
agreement with a leading European telecommunications Company, which
plans on utilizing Zydacron's OnWan single board videoconferencing
systems under its own label. The agreement covers multiple hardware
options and could result in more than $20 million in sales to Zydacron
over a three to four year period. The Company owns 4.6% of the equity
of this company.
Pinnacle Diagnostics, Inc., ("Pinnacle") a privately held Delaware
corporation, which is engaged in the marketing a variety of medical
diagnostic products. The Company owns 16.7% of the equity of Pinnacle.
On December 31, 1996, the Company recorded a valuation allowance for
the total value of Pinnacle as a result of their insolvency. In 1997,
the Company was informed that the microbiological testing technology
owned by Pinnacle was purchased by MicroSure Inc. As a result of this
transaction, the Company now owns a percentage of MicroSure and
therefore, the Company reduced its valuation allowance and restated its
investment at the net realizable value of $372,000.
FED Corporation, ("FED") a development-stage company, intends to
manufacture liquid crystal display devices using proprietary field
emission display technologies, which can be used in small notebook
computers and other similar devices. FED is involved with the emissive
display development activities for both miniature display and direct
view display product lines. FED's staff has now created the highest
resolution Organic Light Emitting Diode Display based video display
ever produced in the USA to date (February 19, 1998). The Company owns
2.9% of the equity of FED.
Darwin Molecular Corporation ("DMC"), was formerly a privately held
company which hopes to use DNA sequencing to create novel drugs for the
treatment of cancer, AIDS and auto-immune disease. The Company
previously owned 3.9% of DMC. On December 18, 1996 Chiroscience Group
plc, a publicly traded company located in England, acquired DMC. The
Company received approximately 394,000 shares of Chiroscience in
exchange for its DMC shares. These shares were restricted until June
1997, at which time the shares became marketable securities.
The Company intends to continue to evaluate and consider the
acquisition of additional businesses, which may or may not be related to its
current businesses. The Company has no specific plans, arrangements,
understandings or commitments with respect to any such acquisition at the
present time, and it is uncertain as to when or if any acquisition will be made.
The Company is not currently involved in any substantive negotiations for
purchasing any business or group of assets.
BUSINESS
DHB Armor Group ("the Armor Group")
Products. The Armor Group manufactures two basic types of body armor:
concealable armor, which is designed to be worn beneath the user's clothing, and
tactical armor, which is worn externally and is designed to protect against more
serious ballistic threats. Both types of armor are manufactured using multiple
layers of KevlarTM and/or a combination of KevlarTM, Gold FlexTM,
SpectrashieldTM and SpectraFibreTM ballistic fabric, then covered and fully
enclosed in an outer carrier. Although some products of Point Blank and PACA are
competitive with each other, brand recognition, brand loyalty and distribution
channels are expected to minimize the extent to which products of the two
companies may impact each other's sales. PACA specializes in concealable and
correctional vests. Point Blank specializes in tactical vests and patented
concealable GenesisTM series vests.
<PAGE>
Concealable vests are contoured to closely fit the user's body shape.
The Armor Group sells a line of vests designed specifically for the body shapes
of women users. Male vests are manufactured in standard sizes and may also be
custom-made. Vests are fastened using Velcro-elastic strapping. Concealable
vests may be supplemented for additional protection and supplied with a shock
plate, SpectrashieldTM trauma plates or a new series of plates known as the
DiamondliteTM series of plates. These plates are becoming more integral with the
supply of concealable armor. One plate in the DiamondliteTM series of plates is
the DiamondliteTM thin plate which is a light insert designed to enhance
protection of vital areas. Vests may be supplemented with an additional armor
plate made of either metal or certain composite materials to withstand greater
threat levels than the vest is otherwise designed to protect against. The
DiamondliteTM thin plate is an ultra lightweight plate, manufactured using
proprietary patented processes which when combined with Level II ballistics,
achieves a significant leap in ballistic protection from multiple hits from
steel penetrator bullets, AK-47, 7.62 x 39mm and similar threats. The
DiamondliteTM thin plate is manufactured from a high performance composite
material and is only .032 of an inch thick and still weighs in at under three
pounds. The industry has not been able to replicate a performing protective
plate at twice the weight, thereby establishing the DiamondliteTM thin plate as
an entirely new standard by which all other armor will be compared.
During 1997, Point Blank Body Armor introduced more than a dozen new
NIJ Certified vests. Among the more notable are the TriadTM and the Lady TriadTM
correctional concealable vests which offer triple threat protection against
stabbings, slashings and handguns, the three vital threats most commonly faced
by Correctional Officers. The TriadTM vest series also incorporates a K-9
TriadTM vest designed specifically for Police and Correctional K-9 Units. The
LibertyTM line of vests is a series of extremely lightweight ultra flexible
concealable vests which offer maximum freedom of movement for Law Enforcement
Officers. The GoldLiteTM series of vests is a series of ultra-light concealable
vests designed for use with the DiamondliteTM concealable plates. Used together,
this combination protects Law Enforcement Officers from AK47 7.62 x 39mm Steel
Penetrator Bullets and other lesser threats.
PACA's wholesale prices for its concealable vests range from
approximately $150 to approximately $375. Point Blank's wholesale prices for its
concealable vests range from approximately $215 to $540, and Zunblindage prices
range from $300 to $500. The Armor Group expects to continue these price levels.
Tactical vests are designed to give all-around protection and more
coverage around the neck, shoulders and kidneys than concealable vests. These
vests contain pockets to incorporate small panels constructed from, for example,
hard composite materials and high-alumina ceramic tiles, all of which provide
additional protection against hi power rifle fire. Tactical vests come in a
variety of styles, including tactical assault vests, high-coverage armor, and
flak jackets, each of which is manufactured to protect against varying degrees
of ballistic threats. The DiamondliteTM series of plates also includes a
tactical plate made from novel composite materials. Specifically, Diamondlite
(TM) tactical plates are made from DIMOX-HTTM composite armor, a high
performance ceramic matrix composite manufactured by the Armor Group's Lanxide
Armor Products subsidiary. The DiamondliteTM Tactical Plate is only 1/2" thick
and weighs under six pounds, far less than the commonly used alternatiave plates
which weigh 8-10 pounds. According to NIJ body armor Standards, the tactical
plate is certified as Level IV when used in conjunction with a Level IIIA vest.
PACA's wholesale prices of these products range from approximately $370 to
approximately $1200. Point Blank's wholesale prices for its tactical garments
ranged from approximately $500 to $1350, and Zunblindage prices range from
$700-$1,400. The Armor Group expects to continue these price levels.
<PAGE>
The Armor Group's other body-armor products include a tactical police
jacket, military field jacket, executive vests, NATO-style vests, fragmentation
vests and attack vests. Bomb and fragmentation vests and pants are designed to
specifications in U.S. government contracts to offer protection against
materials and velocities associated with the fragmentation of explosive devices
such as grenades and artillery shells. PACA was awarded a prestigious contract
from the U.S. Army Soldier Systems Command for the design and development of a
technologically advanced Countermine suit. In general, concealable vests sold to
law enforcement agencies and distributors are designed to resist bullets from
handguns. Bomb gear utilizes a variety of designs and materials and patterns
slightly different from bullet-resistant vests. The Armor Group also
manufactures a variety of accessories for use with its body armor products.
Potential Product Liability. The products manufactured or distributed
by the Armor Group, e.g., bullet-resistant vests, are used in situations which
could result in serious personal injuries or death, as a potential result of the
failure such products, or otherwise. The Armor Group maintains product liability
insurance for both PACA and Point Blank in the amount of $20,000,000 each per
occurrence, and $22,000,000 in the aggregate less a deductible of $5,000 for
each company. Zunblindage maintains product liability insurance in the amount of
$2,000,000 each occurrence. There is no assurance that these amounts would be
sufficient to cover the payment of any potential claim. In addition, there is no
assurance that this or any other insurance coverage will continue to be
available or, if available, that PACA, Point Blank and Zunblindage would be able
to obtain it at a reasonable cost. Any substantial uninsured loss would have to
be paid out of the Armor Group's assets, as applicable, and may have a material
adverse effect on the Company's financial condition and results of operations on
a consolidated basis. In addition, the inability to obtain product liability
coverage would prohibit PACA, Point Blank or Zunblindage as applicable, from
bidding for orders from certain governmental customers, because many
governmental agencies require such coverage, and any such inability to bid would
have a material adverse effect on the Company's financial condition and results
of operations on a consolidated basis.
Raw Materials and Manufacturing. The Armor Group manufactures
substantially all of their respective bullet-, bomb- and projectile-resistant
garments and other ballistic-protection devices. The primary raw material used
by the Armor Group in 55% of its manufacturing of ballistic-resistant garments
is Kevlar(TM), a patented product of E.I. Du Pont de Nemours & Co.
Spectrashield(TM), GoldFlexTM, and SpectraFibre(TM), which are patented products
of Allied Signal are used in approximately 45% of all vests. GoldFlexTM
represents the latest in ballistic technology from Allied Signal. Utilizing
Allied Signal's patented, non-woven Shield technology, GoldFlexTM is softer and
thinner than traditional ballistic materials while offering the maximum in
multi-hit and angled shot protective capabilities. The Armor Group purchases
cloth woven from these materials from three independent weaving companies. The
woven fabric is placed on tables, layered over patterns for a particular
component of a garment (for example, the front or back of a vest), cut using
computerized cutting machines and electric knives, and then they are stitched
together. The Armor Group utilizes several hundred patterns based upon size,
shape and style (depending upon whether the garment is a bullet-, bomb- or
fragmentation-resistant garment). KevlarTM, GoldFlexTM SpectrashieldTM,
SpectraFibreTM and Twaron differ in their pliability, strength and cost, such
that the materials are combined to suit a particular application. In the opinion
of management, the Armor Group enjoys a good relationship with its suppliers of
KevlarTM, SpectrashieldTM and SpectraFibreTM.
<PAGE>
If, however, Du Pont or its European licensee were to cease, for any reason, to
manufacture and distribute the bullet-resistant fabrics, the Armor Group would
be required to utilize other fabrics, and the specifications of some of the
Armor Group's products would have to be modified. Until the Armor Group selected
an alternative fabric and appropriate ballistic tests were performed, its
operations would be severely curtailed and the Armor Group's financial condition
and results of operations would be adversely affected.
The Armor Group purchases other raw materials used in the manufacture
of their products from a variety of sources and believes additional sources of
supply for these materials are readily available.
Customers. The Armor Group's products are sold to United States law
enforcement agencies and the military and internationally to governments and
distributors. Sales to domestic law enforcement agencies, security and
intelligence agencies, police departments, federal and state correctional
facilities, highway patrols and sheriffs' departments accounted for 42% and 44%,
respectively, of the Armor Group's revenues in each of the years ended December
31, 1997 and 1996. One customer, the New York City Police Department, accounted
for approximately 5% and 4% of PACA's sales for the years ended December 31,
1997 and 1996, respectively. Besides domestic customers, Point Blank also has
international customers which accounted for 17% and 20% of Point Blank's sales
for the years ended December 31, 1997 and 1996 respectively. One major
international customer, Egypt, accounted for 12% of Point Blank's sales for the
year ended December 31, 1996. The loss of any one customer would not be expected
to have a significant impact on the Armor Group's continuing financial results,
due to the Armor Group's constant submission of bids for new contracts. Sales to
the United States armed forces directly or as a subcontractor accounted for 8%
and 5% of revenues for the years ended December 31, 1997 and 1996, respectively.
Substantially all sales by the Armor Group to the armed services and
other federal agencies are made pursuant to standard purchasing contracts
between PACA or Point Blank and the General Services Administration of the
Federal Government, commonly referred to as a "GSA Contract". The Armor Group
also responds to invitations by military branches and government agencies to bid
for particular orders. GSA contracts accounted for approximately 28% of the
Armor Group's sales for the year ended December 31, 1997 and 1996 .
PACA and Point Blank, as GSA Contract vendors, are obligated to make
all sales pursuant to such contract at its lowest unit price. PACA's current GSA
Contract expires July 31, 2001, while Point Blank's GSA Contract is from July
31, 1997 through July 31, 2001.
During the years ended December 31, 1997 and 1996, commercial sales
(i.e., sales to non-governmental entities) accounted for 50% and 49%,
respectively, of Armor Group's revenues.
Marketing and Distribution. The Armor Group employs 10 customer support
representatives, 3 regional sales managers and 40 independent sales
representatives who are paid solely on a commission basis. These personnel are
responsible for marketing the Armor Group's products to law enforcement agencies
in the United States. These individuals often call upon personnel within these
agencies who are responsible for making purchasing decisions in order to provide
information concerning the Armor Group's products. Sales are made primarily
through independent local distributors. However, in areas in which there are no
suitable distributors, the Armor Group will fill orders directly.
<PAGE>
Substantially all of the Armor Group's advertising is directed toward
law enforcement agencies in the form of catalogs, trade magazines and trade
shows. The Armor Group advertises its products primarily in law enforcement
trade magazines and at trade shows. During the years ended December 31, 1997 and
1996, advertising expenditures were $697,000 and $363,000, respectively.
Government and Industry Regulations and Standards. Bullet- and
bomb-resistant garments and accessories manufactured and sold by the Armor Group
are not currently the subject of government regulations. However, law
enforcement agencies and the military publish invitations for bidding which
specify certain standards of performance the bidders' products must meet. The
National Institute of Justice, under the auspices of the United States
Department of Justice, has issued a revised voluntary ballistic standard
(NIJ0101.03) for bullet-resistant vests of several categories. The Armor Group
regularly submits its vests to independent laboratories for ballistic testing
under this voluntary ballistic standard and all of its products have, at the
time of manufacture, met or exceeded such standards in their respective
categories.
In addition, bullet-resistant garments and hard-armor inserts are
regularly submitted by the Armor Group for rating by independent laboratories in
accordance with a test commonly referred to as V50. This test involves exposing
the tested item to blasts of fragments of increasing velocity until 50% of the
fragments penetrate the materials. The tested item is then given a velocity
rating which may be used by prospective purchasers in assessing the suitability
of the Armor Group's products for a particular application. In addition, PACA ,
Point Blank and Zunblindage perform similar tests internally.
Competition. The ballistic-resistant garment business is highly
competitive and the number of United States manufacturers is estimated to be
less than 20. Management is not aware of published reports concerning the
market, and most companies are privately held. Nevertheless, the Armor Group
believes, based upon its experience in the industry that the largest
manufacturer was Old Point Blank prior to its filing for Liquidation under
Chapter 7 of the United States Bankruptcy Code. The Armor Group is the largest
manufacturer of ballistic-resistant garments in the United States. In the
future, the Company may face other and unknown competitors, some of whom may
have substantially greater financial, marketing and other resources than the
Company.
The Armor Group believes that the principal elements of competition in
the sale of ballistic-resistant garments are its innovative design, price and
quality. In dealings with law enforcement agencies and the military, PACA, Point
Blank, and Zunblindage bid for orders in response to invitations for bidding
which set forth specifications for product performance. The Armor Group believes
its products are competitive as to both price and quality with the products of
its competitors having similar ballistic capabilities.The Armor Group has the
ability to remain competitive in pricing is due to its relatively lower labor
and production costs. In addition, the Company believes that the Armor Group
enjoys a favorable reputation in the industry with over 20 years of supplying
federal, state and municipal governments and agencies. These factors, combined
with the financial resources made available to the Armor Group by the Company,
which are expected to continue will reduce interest expenses, improve production
efficiencies and capacity, control purchasing costs and permit the Armor Group
to, viably compete.
<PAGE>
The Armor Group's Backlog. As of December 31, 1997, the Armor Group had
a backlog of approximately $4,500,000, as compared to $2,400,000 as of December
31, 1996. Backlog at any one date is not a reliable indicator of future sales or
sales trends.
In addition to the backlog, which represents orders believed to be
firm, from time to time the Armor Group receives contract awards for municipal
orders which may be placed over an extended period of time. The actual dollar
amount of products to be delivered pursuant to this and similar contracts cannot
be accurately predicted and is generally excluded from reported backlog.
Employees. As of December 31, 1997, there were two officers of the
Armor Group, 15 persons employed in supervisory capacities, 249 employed for
manufacturing, shipping and warehousing, and 24 are office personnel. All of
Armor Group's employees are employed full time. In the opinion of management,
the Armor Group enjoys good relationships with its employees.
NDL PRODUCTS, INC.
On December 20, 1994, the Company, through a wholly-owned subsidiary,
acquired the NDL Assets for a cash payment of $3,080,000, and renamed the
acquiring subsidiary "NDL Products, Inc." NDL is engaged in business as a
manufacturer and distributor of specialized protective athletic equipment and
apparel.
NDL's protective sports apparel and fitness products and related items
are sold under the brand names NDL(TM), Grid(TM), Bioflex by NDL(TM), Dr. Bone
Savers(TM), Hitman(TM) and Flex Aid(TM). NDL has hired new executives for sales
and marketing, production, and new product research and development. NDL has
moved its corporate, manufacturing and warehouse operations into a single
building in Oakland Park, Florida. See "Properties - NDL/Point Blank/OPI
Facility."
NDL's Marketing and Distribution. NDL employs 5 sales executives who
are responsible for sales throughout the United States, Western Europe, Asia,
the Middle East and Latin America, and who supervise 30 independent sales
representatives who are paid solely on a commission basis. These representatives
solicit customers, who are generally major retailers and distributors. NDL also
sells to local distributors and has a telemarketing staff of 5. NDL added a
marketing director who is currently evaluating and developing marketing and
sales strategies.
NDL's Potential Products Liability. Some of the products manufactured
or distributed by NDL are used in situations where serious personal injuries
could occur, whether on account of the failure of NDL's products or otherwise.
NDL maintains product liability insurance in the amount of $20,000,000 per
occurrence and $22,000,000 in the aggregate, including legal fees, subject to a
$5,000 deductible. There can be no assurance that these amounts would be
sufficient to cover payment of potential claims, and there can be no assurance
that this or any other insurance coverage would continue to be available, or if
available, that NDL would be able to obtain it at reasonable cost. Any
substantial uninsured loss would have to be paid out of NDL's assets and could
have a material adverse effect on the Company's financial condition and results
of operations.
Backlog. As of December 31, 1997, NDL's backlog was approximately
$550,000. Backlog at any one date is not a reliable indicator of future sales or
sales trends.
<PAGE>
Employees. As of December 31, 1997, there was one officer of NDL
Products, Inc., 6 persons employed in supervisory capacities, 47 employed for
manufacturing, shipping and warehousing, and 12 are office personnel. All of
NDL's employees are employed full time. In the opinion of management, NDL enjoys
good relationships with its employees.
ORTHOPEDIC PRODUCTS, INC.
In March 1996, the Company exchanged a total of 270,000 shares of its
common stock with a value of approximately $579,000 to acquire 100% of the
common stock of Orthopedic Products, Inc, a Florida corporation. This
transaction was accounted for as a purchase method of accounting. In August
1996, the Company commenced a lawsuit against the former shareholders of OPI and
as a result 38,625 shares of the Company's common stock were returned and
retired. An additional 6,625 shares will be returned in 1998. OPI is engaged in
the manufacture and sale of orthopedic products, and the distribution and sale
of general medical supplies to orthopedists, orthopedic clinics, hospitals,
sports medicine centers and orthopedic medical practices.
OPI's Marketing and Distribution. OPI employs 2 sales executives who
supervise 3 telemarketers. OPI's products are sold directly to the medical
industry, including hospitals, sports medicine centers and medical practices.
OPI's has begun to broaden their sales to a national level over the next year.
OPI's Potential Products Liability. Some of the products manufactured
or distributed by OPI are used in situations where serious person injuries could
occur, whether on account of the failure of OPI's products or otherwise OPI
maintains product liability insurance in the amount of $20,000,000 per
occurrence, and $22,000,000 in the aggregate, including legal fees, subject to a
$5,000 deductible.
There can be no assurance that these amounts would be sufficient to
cover payment of potential claims and there can be no assurance that this or any
other insurance coverage would continue to be available, or if available, that
OPI would be able to obtain it at a reasonable cost. Any substantial uninsured
loss would have to be paid out of OPI's assets and could have a material adverse
effect on the Company's financial condition and results of operations.
Backlog. As of December 31, 1997, OPI had a backlog of approximately
$250,000. Backlog at any one date is not a reliable indicator of future sales or
sales trends.
Employees. As of December 31, 1997, OPI had four people employed in
supervisory capacities, 28 employed for manufacturing, shipping and warehousing,
and 3 office personnel. All of OPI's employees are employed full time. In the
opinion of management, OPI enjoys good relationships with its employees.
<PAGE>
Segment Information: As described in detail above, the Company operates
in two principal segments: Ballistic-resistant equipment and Protective
athletic/medical equipment. The Company designs, manufacturers and markets
products in both segments as described above. Financial information on the
Company's business segments was as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net Sales:
Ballistic-resistant equipment ............................ $ 26,805,471 $ 18,358,614
Protective athletic & medical equipment .................. 7,094,808 5,909,238
------------ ------------
33,900,279 24,267,852
Less inter-segment sales .............................. (628,672) (889,154)
------------ ------------
Consolidated Net Sales .......................... 33,271,607 23,378,698
============ ============
Income from Operations
Ballistic-resistant equipment ............................ $ 2,626,563 $ (728,388)
Protective athletic & medical equipment .................. 415,231 (2,449,120)
------------ ------------
3,041,794 (3,177,508)
Corporate and Other (1) .................................. (1,104,396) (1,140,497)
------------ ------------
Consolidated Operating Income ................... $ 1,937,398 $ (4,318,005)
============ ============
Identifiable Assets (2)
Ballistic-resistant equipment ............................ $ 17,572,698 $ 10,648,863
Protective athletic & medical equipment .................. 6,322,150 4,204,341
------------ ------------
23,894,484 14,853,204
Corporate and Other ...................................... 3,779,781 3,549,941
------------ ------------
Consolidated Net Assets ......................... $ 27,674,629 $ 18,403,145
============ ============
</TABLE>
(1) Corporate and Other includes corporate general and
administrative expenses, net interest expense, other
non-operating income and expense, and income taxes.
(2) Corporate assets are principally cash, marketable securities,
deferred charges and assets held for disposition.
Item 2. PROPERTIES
Corporate Headquarters. On January 17, 1996, the Company purchased a
one-story building on a two-acre lot at 11 Old Westbury Road, Old Westbury, New
York, and relocated its corporate headquarters to that site on or about January
19, 1996.
<PAGE>
PACA. PACA leases 23,400 square feet of office, manufacturing and
warehouse space at 148 Cedar Place, Norris, Tennessee from Leonard Rosen,
President of PACA, at a present annual rental of $43,200, plus real estate taxes
of approximately $4,800 annually. The space is occupied pursuant to a five-year
lease which expired October 31, 1997, with an option to acquire the property for
$500,000. The Company is continuing to lease this space on a month to month
basis. In the opinion of management, PACA's facilities are adequate for its
current needs and for its needs in the foreseeable future. Management believes
that the terms of the lease are at the current market price that would be
obtained from an unrelated party.
NDL/Point Blank/OPI Facility. NDL Products leases a 67,000 square foot
office and warehouse facility (the "Oakland Park Facility") located at 4031 N.E.
12th Terrace, Oakland Park, Florida 33334 from V.A.E. Enterprises ("V.A.E."), a
partnership controlled by Mrs. Terry Brooks, wife of Mr. David H. Brooks, and
beneficially owned by Mr. and Mrs. Brooks' minor children. V.A.E. purchased the
Oakland Park facility as of January 1, 1995. Point Blank and OPI entered into a
net-net lease for a portion of the space in the Oakland Park facility. Annual
aggregate base rental is $480,000 and is scheduled to increase by 4% per year.
NDL Products, Point Blank, and OPI, as lessees, are responsible for all real
estate taxes and other operating and capital expenses. Management believes that
the terms of the lease are at the current market price that would be obtained
from an unrelated party. In April 1997, the Company entered a one year lease for
a 60,000 square foot warehouse adjacent to the Oakland Park, Florida facility
with an annual rental of approximately $210,000 and an option to extend the
lease for four years. This warehouse is located at 1201 NE 38th Street Oakland
Park, Florida.
Zunblindage Facility. Zunblindage leases a 5,700 square foot office and
warehouse facility located at Rue Leon Frederiq, 14, 4020 Liege, Belgium and a
1,800 square foot store located at Passage Lemonnier, 84000 Liege, Belgium.
These space are occupied pursuant to a nine year lease with annual rentals of
approximately, $42,000.
Item 3. PENDING LITIGATION
Renaissance Financial Securities Corp. ("Renaissance") filed an action
against the Company and David H. Brooks in the United States District Court for
the Southern District of New York in connection with the breach of a consulting
agreement pursuant to which Renaissance was to provide certain services to the
Company. Renaissance seeks, among other things, compensatory damages of not less
than $2,500,000, punitive damages of not less than $500,000 or in the
alternative, Renaissance seeks to executie certain stock purchase warrants. The
Company filed an Answer and Counter-Claim and intends to vigorously defend the
claim and to pursue its Counter-Claims.
In June 1996, the Company commenced a lawsuit against the former
president of NDL, Mr. Barry Finn, for breach of his employment agreement. On
December 13, 1996 , Mr. Finn filed a counterclaim against the Company asserting
Breach of Contract. The Company intends to vigorously pursue its claim and
vigorously defend Mr. Finn's counterclaim.
<PAGE>
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 litigation
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.
Item 4. Submission of Matters to a Vote of Security Holders. An Annual Meeting
of Shareholders was held on December 30, 1997. The only matter to be voted on
was the election of directors. The following people were elected directors:
David H. Brooks, Mary Kreidell, Gary Nadelman, and Morton Cohen.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Common Stock of the Company has been traded on the over-the-counter
market ("OTC Bulletin Board") since September 22, 1993. Prior thereto, there was
no public market for the Company's securities. The bid prices set forth below
represent quotations by brokers making a market in the Company's Common Stock,
have been adjusted to reflect a 50% Stock Dividend declared June 1, 1996, and do
not include retail mark-ups, mark-downs or commissions, and may not necessarily
reflect actual transactions. Commencing on June 8, 1994, the Company was listed
on the Boston Stock Exchange and traded under the symbol "DHB."
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Low High
1996: 1st Quarter 2.00 2.75
2nd Quarter 2.67 6.67
3rd Quarter 5.00 10.00
4th Quarter 3.00 5.88
1997: 1st Quarter 1.75 3.00
2nd Quarter 1.75 4.25
3rd Quarter 3.31 6.00
4th Quarter 3.25 4.375
1998: 1st Quarter 3.88 4.75
(through March 20,
1998)
</TABLE>
On July 1, 1996, the Board of Directors declared a 50% Stock
Dividend payable on July 16, 1996, to holders of record as of July 15, 1996.
With respect to the Company's current policy on cash dividends, if the Company
generates earnings, the Company will retain such earnings for further
development of its business. The payment of cash dividends in the future will
depend upon the earnings and financial requirements of the Company and all other
relevant factors, including approval of such dividends by the Board of
Directors.
The number of holders of record of the Company's Common Stock on March
20, 1998, was 146; however, the number of holders of record includes several
brokers and depositories for the accounts of their customers. The Company
estimates that shares of Common Stock are held by approximately 1,600 beneficial
owners.
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the Company's financial condition and results
of operations should be read in conjunction with the financial statements,
including the notes thereto, contained elsewhere in this document.
General
The Company is a holding company which conducts its business through
wholly-owned subsidiaries organized in two divisions. The Armor Group through
which develops, manufactures and distributes bullet- and projectile-resistant
garments, and DHB Sports Group which engages in the manufacture and distribution
of protective athletic equipment and apparel and the manufacture of orthopedic
products and is a distributor of general medical supplies. The Armor Group's
products are sold both nationally and internationally. Sales are directed
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
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 Company also
owns a minority interest in several other companies, some privately held and
some publicly held, including the pharmaceutical business, health care,
telecommunications, and electronics. 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, PACA was the Company's only source of revenue from operations. Thereafter,
the Company purchased a business each year and thus to date, NDL, Point Blank,
OPI and Zunblindage are also sources of revenue from operations.
The discussion that follows must be read in conjunction with the
financial statements, including the notes thereto.
Results of Operations
Year Ended December 31, 1997, compared to year ended December 31, 1996.
Consolidated net sales of the Company for the year ended December 31, 1997
increased by $9,892,909 to approximately $33,271,607. This increase was
primarily due to the increased sales volume for Point Blank, PACA, and NDL.
Gross profit in 1997 increased $6,766,725 to $11,117,682. The Company's gross
profit percentage increased from 19% in 1996 to 33% in 1997. This increase was
the result of improved production efficiencies, as well as, increased sales
volume. The Company had a consolidated net income of approximately $1,541,000
for 1997 as compared to a consolidated net loss of approximately $4,866,000 for
1996.
The Company had net income for the year ended December 31, 1997 of
$1,540,809 as compared to a net loss of $4,865,872 for the year ended December
31, 1996. This turn around was due to the successful implementation of the
Company's strategic plan put in place in late 1996.
During the last quarter of 1996, the Company instituted major changes
at their Florida facility which houses Point Blank, NDL and OPI. New management
was put in place in October 1996 including a new production manager. Pricing was
reviewed and better controls where put into place to yield higher profit
margins.
<PAGE>
The Company's selling, general and administrative expenses ("S,G&A
expenses") for 1997 increased to $9,641,655 from $8,668,950 in 1996. As a
percentage of net sales, the S,G & A expenses were 28% in 1997 compared to 37%
in 1996. This increase of approximately $1.5 million was due mainly to increased
selling costs including sales commissions, show expenses and increase
advertising and travel expenses associated with sales.
In 1997, the Company continued aggressive measures to regain its market
share by increasing its marketing efforts. This amounted to 8% of the S,G&A
expenses for 1996 as compared 20 % of the S,G&A expenses for 1997.
Interest expense, net of interest income, for 1997 increased to
$339,754 from $327,347 in 1996 due to a decline of interest income on the
Company's cash balances.
Year Ended December 31, 1996, compared to year ended December 31, 1995.
Consolidated net sales of the Company for the year ended December 31, 1996
increased by $8,884,604, or 61% to approximately $23,378,698. The increase was
primarily due to the inclusion of Point Blank for a full year. Gross profit in
1996 decreased $1,054,520. The Company's gross profit percentage decreased from
27% in 1995 to 19% in 1996. This decrease was the result of lower selling prices
to induce new customers and a weakness in production management and production
controls which allowed for above normal usage of raw materials. The Company had
a consolidated net loss of approximately $4,866,000 for 1996 as compared to a
consolidated net income of approximately $244,000 for 1995.
During the last quarter of 1996, the Company instituted major changes
at their Florida facility which houses Point Blank, NDL and OPI. New management
was put in place in October 1996 including a new production manager. Pricing was
reviewed and controls put in place to yield better profit margins and better
material usage. The new management instituted a policy regarding the
capitalization of salesmen samples after finding that the returned samples were
normally reissued to other salesmen and seldomly sold for their recorded value.
Therefore, the decision was made to write these salesman samples off in 1996
resulting in a $292,000 charge to income. Additionally, the Company changed it
policies regarding the percentage of inventory to reserve for future slow moving
inventory, which resulted in a charge of approximately $700,000 against income
in 1996.
The Company's selling, general and administrative expenses ("S,G&A
expenses") for 1996 increased to $8,668,950 from $5,140,399 in 1995. As a
percentage of net sales the S,G & A expenses were 37% in 1996 compared to 35% in
1995. In 1996 the Company wrote off a loan-receivable of approximately $52,000
which was made to an individual relating to the acquisition of Media. All
attempts to collect the debt were unsuccessful, and therefore, the loan was
written off. In connection with the major changes instituted above the Company
incurred some non-recurring consulting and management fees during the year ended
1996 for approximately $250,000. Included in rent expense for 1996 was a one
time buy-out of OPI's lease for its former location of $80,000. Additionally,
the Company increased accounts receivable allowance which resulted in a $233,320
increase in S,G,&A expenses.
In 1996 the Company aggressively sought to regain its market share by
increasing its marketing efforts. This amounted to 8% of the S,G&A expenses for
1996 as compared 4 % of the S,G&A expenses for 1995. The Company also incurred
additional research and development to launch an new product line which
increased S,G&A expenses $150,000 over 1995's levels.
<PAGE>
The Company incurred additional legal and professional fees for the
year ended 1996 relating to the purchase of OPI and a proposed merger which was
terminated. Additionally, the Company commenced a lawsuit against the former
shareholders of OPI. Legal fees increased over $50,000 in 1996 compared to 1995.
Interest expense, net of interest income, for 1996 increased to
$327,347 from $303,615 in 1995 due to a decline of interest income on the
Company's cash balances
At the end of Fiscal 1996, Management of the Company analyzed its
current operations to examine the most effective/profitable ways to direct its
future efforts. This resulted in the decision to put on hold, for an indefinite
period, the pursuit of ID's patents and technology and the film library of DHB
Media. These write-downs resulted in a loss on the "Net write-down of Investment
in Subsidiaries" for the year ended December 31, 1996 of approximately $530,000.
Also included in other income (expense) is a $1,000,000 write-off of two of the
Company's long term investments. The Company's entire $500,000 investment in
Solid Manufacturing was written off as a result of their filing for bankruptcy.
The Company recorded a valuation allowance for the full value of their $500,000
investment in Pinnacle Diagnostic as a result of Pinnacles' insolvency. The
Company had a net realized gain of $381,337 and an unrealized gain of $69,168
for the year ended December 31, 1996 as compared to a $675,743 realized gain and
a $347,481 unrealized gain for the year ended December 31, 1995
Liquidity and Capital Resources.
The Company's primary capital requirements over the next twelve months
are to assist PACA, Point Blank, NDL, OPI, Zunblindage and two newly acquired
companies, LAP and LEC, in financing their working capital requirements, and to
fund any possible acquisitions. PACA, Point Blank, and NDL sell the majority of
their products on 60 - 90 day terms, and OPI sells the majority of its products
on 30-60 day terms. Working capital is needed to finance the receivables,
manufacturing process and inventory. Working capital at December 31, 1997 was
$13,621,014 compared to $8,900,398 at December 31, 1996 and its ratio of current
assets to current liabilities was 2.59:1 and 2.88:1, respectively, on such
dates.
Cash, cash equivalents and marketable securities totaled $2,586,690 at
December 31, 1997 compared to $2,591,682 at December 31, 1996. Although the
total of cash, cash equivalents and marketable securities remained almost
constant, the cash generated by the net income for the year ended December 31,
1997 was utilized to repurchase of the Company's common stock in the open market
which amounted to approximately $2,145,000 for the year ended December 31, 1997.
Since the year end, the Company has repurchased and retired an additional
604,595 shares of its common stock in the open market for approximately
$2,384,000. At the present time, it has a loan of $2,675,000 from the Bank of
New York coming due in May 1998, bearing interest at 6.625% per year. This is a
$1,275,000 increase over last year's line of credit. 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 December 31, 1997 consisted of
obligations under their operating leases for its facilities.
The Company's capital expenditures for 1997 were $801,150 as compared
to $1,123,739 for 1996. The Company purchased OPI in March 1996 and Zunblindage
in February 1997 by issuing stock in lieu of a cash payment.
<PAGE>
Special Note Regarding Forward-Looking Statements
This Annual Report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this document, the words "anticipate,",
"believe," "estimate", "expect", "going forward", and the similar expressions,
as they relate to the Company or Company management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements.
Item 7. Financial Statements: See Index to Consolidated Financial Statements
Appearing in the Consolidated Financial Statement Annexed Hereto.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
On January 23, 1998, the firm of Paritz and Company P.A. was engaged as the
Company's principal certifying accountant, replacing Capraro, Centofranchi,
Kramer & Co., P.C. who resigned December 9, 1997.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The Directors serve for a term of one year following their election at
the Annual Meeting of Shareholders, and until their successors have been elected
and qualified. The officers serve at the discretion of the Board of Directors.
Directors and Executive Officers
David H. Brooks, age 43, has served as Chairman of the Board and Chief
Executive Officer of the Company since its inception in 1992. Mr. Brooks has
been the Chairman of the Board, President and a Director of Brooks Industries of
L.I., Inc. ("Brooks Industries"), since October 1988, a New York corporation of
which he is the sole shareholder and through which he makes investments. Brooks
Industries engages in the venture capital business and in securities trading.
Mr. Brooks received a bachelor of science degree in accounting from New York
University in 1976. Since that time he has been engaged principally as an
investor for his own account.
Mary Kreidell, age 44, has served as Treasurer, Secretary, and a
Director of the Company since its inception. Mrs. Kreidell became a Certified
Public Accountant in 1991. She worked for Israeloff, Trattner & Co. CPA'S, P.C.,
a certified public accounting firm, for four years prior thereto.
<PAGE>
Leonard Rosen, age 60, is a founder of PACA and has served as its
President since its inception in 1975. He is actively involved in all facets of
PACA's operations, from production to sales. Mr. Rosen has experience in the
apparel industry for over 35 years. He worked closely in the research and
development of ballistic-resistant soft body armor and helmets with the Federal
Government, including serving as a charter member of the committee that
conceived the National Institute of Justice "0l" Standard for ballistic body
armor.
Sandra Hatfield, age 44, has been President of Point Blank since
October 1996. For more than 5 years prior thereto, she was the Vice President of
Production at PACA.
Joseph Giaquinto, age 34, has been President of NDL's Flex Aid division
since March, 1995. For more than 7 years prior thereto, he was a Vice President
of Sales for Tru-Fit Marketing, of Boston, Massachusetts.
Gary Nadelman, age 46, has been the president of Synari, Inc., of New
York, NY, a privately held manufacturer and distributor of women's sportswear
and other apparel, for more than 5 years. Mr. Nadelman has been a director of
the Company since 1995.
Morton A. Cohen, age 62, has over ten years experience in venture
capital and over twenty-five years experience in the public securities industry,
both as a securities analyst and a investment banker. Also, he has successfully
managed several emerging growth companies. Mr. Cohen has been Chairman,
President and Chief Executive Officer of Clarion Capital Corp. since 1982. Mr.
Cohen served as Governor of the Montreal Stock Exchange, is a Chartered
Financial Analyst and holder of a M.B.A. from the Wharton School of Business of
the University of Pennsylvania. Mr. Cohen was a member of the Small Business
Investment Advisory of Small Business Investment Companies and is a member of
the Small Business Investment Advisory Council. He is the Chairman of Monitek
Technologies, Inc. (NASDAQ), Chairman of Cohesant Technologies (NASDAQ) and
Director of Gothic Energy (NASDAQ) and a director of Zemex Corp (NYSE). Mr.
Cohen has been a director of the Company since 1996.
Robert Beckel, age 48, has had an active consulting practice advising
corporations, trade associations and labor unions on communication strategy,
consensus-building and public policy for the last twelve years. He is one of
Washington's leading political analysts, the on-air American political analyst
for Britian's Independent Television Network. He also is the co-host of CNN's
Crossfire Sunday and a political analyst for CBS's This Morning Show. Mr. Beckel
became a director in January 1998.
Because of the relatively small size of the Company, the loss of a
senior executive may have a materially adverse effect upon the Company until a
suitable replacement can be found.
<PAGE>
Item 10. Executive Compensation.
Summary Compensation Table. The following table sets forth certain
summary information regarding the compensation of the Company's Chief Executive
Officer and each of its other executive officers whose total salary and bonus
for the year ended December 31, 1997 and 1996, exceeded $100,000:
<TABLE>
<CAPTION>
Long-term
Compenstation
Annual Compensation Awards
----------------------------------------- ---------------
Securities
Other Annual underlying
Name and Principal Position Year Salary(1) Bonus Compensation Options/SAR's(4)
--------------------------- ---- --------- ----- ------------ ----------------
<S> <C> <C> <C> <C> <C>
David Brooks,(2)
Chairman, CEO 1997 191,917
1996 191,667
Mary Kreidell 1997 100,000 0 0 0
Chief Financial Officer 1996 80,424
Sandra Hatfield 1997 100,330 0 0 0
President of Point Blank 1996 48,860
Joseph Giaquinto 1997
President of Flex Aid 1996 100,000 0 0 0
100,000
Leonard Rosen,(3) President 1997 147,596 0 0 0
of PACA 1996 135,000
</TABLE>
- ---------
(1) Although certain officers receive certain perquisites, such as auto
allowances and expense allowances, the value of such perquisites did
not exceed the lesser of $50,000 or 10% of the respective officers'
salary and bonus.
(2) Certain warrants were awarded to Mrs. Terry Brooks in 1994 and Mr.
David Brooks in 1996; see "Employment Agreements" and "Certain
Transactions."
(3) Mr. Rosen is the lessor of PACA's premises in Norris, Tennessee. See
"Properties" and "Certain Transactions." The Company does not consider
the lease payments to be compensation, because they are not in excess
of the fair market value of the lease.
(4) In October 1995, the Company adopted a plan (the "1995 Stock Option
Plan" or the "Plan") pursuant to which the Board of Directors or a
committee (the "committee") of the Board is authorized to award up to
3,500,000 shares of Common Stock, after giving effect to the 50% stock
dividend paid on July 16, 1996, to selected officers, employees,
agents, consultants and other persons who render services to the
<PAGE>
Company. The options may be issued on such terms and conditions as
determined by the Board or Committee, and may be issued so as to
qualify as incentive stock options under Internal Revenue Code Section
422A. The directors who are authorized to award options are not
eligible to receive options under the Plan. The Company has filed a
registration statement with respect to the Plan, and shares ("Option
Shares") of Common Stock acquired under the Plan are eligible for
resale by non-affiliates without further registration under the Act;
Option Shares acquired by affiliates of the Company are subject to the
registration requirements of the Act. No shares have been issued under
this plan.
Employment Agreements. Mr. Brooks, the CEO and Chairman of the Board of
DHB Capital Group Inc. is employed pursuant to a five year employment agreement
which was entered into April 1, 1996. Pursuant to the agreement Mr. Brooks
receives an annual salary of $250,000 through April 1997 with annual increases
of $25,000. The terms of Mr. Brooks' contract provides for 750,000 warrants per
year exercisable at $2.33 for five years. As the Company has businesses in
Florida and requires Mr. Brooks to spend considerable time there, this contract
includes provisions for certain of his Florida living expenses.
Mr. Rosen is employed pursuant to a five-year employment agreement with
PACA which was entered into at the time the Company acquired PACA, i.e.,
November 6, 1992. Pursuant to the agreement, Mr. Rosen receives an annual base
salary of $115,000 in 1993 with annual increases, plus certain fringe benefits.
Mr. Rosen is currently employed under the same terms and conditions.
Mr. Giaquinto, has a three year employment contract entered into in
February 1995, providing for an annual base salary of $100,000 and options to
purchase 49,500 shares of common stock at a price of $1.33 per share exercisable
at the rate of not more than 16,500 shares per year.
In 1997, the Company entered into an employment agreement with a
salesman for DHB Armor Group, expiring in 2000 with an annual salary of $100,000
plus certain fringe benefits.
Stock Options. In the years ended December 31, 1997 and 1996, the
Company granted 750,000 stock warrants per year exercisable at $2.33 for five
years to the CEO, David Brooks, in connection with his employment contract. The
Board of Directors also granted during the year ended December 31, 1997, 50,000
warrants exercisable at $2.00 for three years to the president of Point Blank,
Sandra Hatfield. No additional stock options, warrants or similar securities,
rights or interests to any of the executive officers of the Company listed in
the Summary Compensation Table above, and no options, warrants or similar
securities, rights or interests were exercised by any such executive officers.
In 1994, a warrant was issued to Mrs. Terry Brooks in exchange for loans by Mrs.
Brooks and her pledging of certain assets to secure the Company's indebtedness
to The Chase Manhattan Bank, N.A.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes of ownership of Common Stock and other equity securities of the
Company.
<PAGE>
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater-than-ten-percent beneficial owners were complied with.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of the
Company's Common Stock as of March 20, 1998, for (i) each person known by the
Company to beneficially own more than five percent of the shares of outstanding
Common Stock, (ii) each of the executive officers listed in the Summary
Compensation Table in "Executive Compensation" and (iii) all of the Company's
executive officers and directors as a group. Except as otherwise indicated, all
shares are beneficially owned, and investment and voting power are held by the
persons named as the owners.
<TABLE>
<CAPTION>
Number of Shares
Name and Address Beneficially Owned Percent Owned(1)
---------------- ------------------ --------------
<S> <C> <C>
David H. Brooks(3) 17,250,600(2) 57%
11 Old Westbury Road
Old Westbury, New York 11568
Jeffrey Brooks (3) 2,353,500 8%
44 Coconut Row
Palm Beach, Florida 33480
Mary Kreidell
11 Old Westbury Rd
Old Westbury, NY 11568 84,375 (4) *
Leonard Rosen
148 Cedar Place
Norris, Tennessee 120,142 (5) *
Sandra Hatfield
4031 NE 12th Terrace
Oakland Park, Fl 33334 50,000 (6) *
Joseph Giaquinto
4031 NE 12th Terrace
Oakland Park, Fl 33334 66,000 (7) *
Gary Nadelman
11 Old Westbury Rd
Old Westbury, NY 11568 235,000 *
Morton Cohen8
11 Old Westbury Rd
Old Westbury, NY 11568 450,000 (8)
All officers and Directors as a group 18,281,245 (9) 60%(6)
</TABLE>
* Less than one (1%) percent
<PAGE>
1. Based upon 24,837,229 shares outstanding as of March 20, 1998 increased
by the currently exercisable options and warrants of 5,424,600 shares
of common stock held by directors and officers for an aggregate total
of 30,261,829 shares. Currently exercisable options or warrants are
those which are exercisable within 60 days after the filing of this
Annual Report on Form 10-KSB.
2. Consists of 7,500,600 shares owned by Mr. Brooks and 4,500,000 owned by
his wife as custodian for his minor children, and 3,750,000 shares
which may be acquired by Mrs. Brooks upon exercise of a currently
exercisable warrant to purchase such shares at a price per share of
$1.33 and 1,500,000 shares which may be acquired by Mr. Brooks at $2.33
per share upon exercise of a currently exercisable warrant.
3. Messrs. Jeffrey Brooks and David H. Brooks are brothers. Each disclaims
beneficial ownership of shares owned by the other.
4. Includes 75,000 shares acquirable under currently exercisable warrants
awarded to Mrs. Kreidell.
5. Includes 75,000 shares acquirable under currently exercisable warrants
awarded to Mr. Rosen; does not include 4,350 shares owned by Mr.
Rosen's wife, as to which Mr. Rosen disclaims beneficial ownership.
6. Includes 50,000 shares acquirable under currently exercisable warrants
awarded to Mrs. Hatfield.
7. Includes 49,500 shares acquirable under currently exercisable warrants
awarded to Mr. Giaquinto
8. These shares are owned by Clarion Capital Corporation and Clarion
Partners of which Morton Cohen is the director, President, CEO and
Chairman.
9. Includes 5,424,600 currently exercisable warrants of common stock held
by directors and officers.
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company obtained $1,140,000 from term loans Mr. Brooks and term
loans from Mrs. Brooks for the cash payment required to carry out the
acquisition of the assets used to start up NDL, and for working capital for NDL.
Presently the outstanding balance of this loan is $550,000 expiring November
1999 bearing interest at 12% per year.. The interest paid on this loan to date
is $218,877. Under a collateral agreement [third party] (the "Collateral
Agreement") covering securities owned by Mr. David H. Brooks, Chairman of the
Board of the Company, and Mrs. Terry Brooks, his wife, Mr. Brooks and Mrs.
Brooks have pledged certain marketable securities to the Bank to fully secure
the Bank Loan and other obligations of the Company to the Bank. In exchange for
this, the Company has granted to Mrs. Brooks 5-year warrants to purchase
3,750,000 shares of Common Stock, at a price of $1.33 per share expiring in
1999. The warrants contain provisions for a one-time demand registration, and
piggyback registration rights. Mr. David Brooks also lent $2,000,000 to the
Company to provide the funds needed to purchase the Point Blank Assets; the
outstanding balance on that loan is now $750,000 at 12% interest payable
November 1998; the Company obtained funds to pay down the loan by liquidating
certain investments at a profit. The Company has paid for the account of Mr. and
Mrs. Brooks a total of $133,274 in interest on their loans to the Company. Mr.
and Mrs. Brooks have also pledged personal assets to Bank of New York to secure
the Company's debt to that bank. The Company entered into an employment
agreement in April 1996 with Mr. Brooks, See - "Employment Agreements".
NDL, Point Blank and OPI operate at a 67,000 square foot office and
warehouse facility (the "Facility") located at 4031 N.E. 12th Terrace, Fort
Lauderdale, Florida 33334, which it leases from V.A.E. Enterprises ("V.A.E."), a
partnership controlled by Mrs. Brooks and beneficially owned by Mr. and Mrs.
Brooks' minor children, which purchased the Facility on or about January 1,
1995. The lease is a 5-year net-net lease expiring in 2000; with annual base
rental is $480,000 and is scheduled to increase by 4% per year. The Company, as
lessee, is responsible for all real estate taxes and other operating and capital
expenses.
PACA leases 23,400 square feet of office, manufacturing and warehouse
space at 148 Cedar Place, Norris, Tennessee from Leonard Rosen, President of
PACA, at a present annual rental of $43,200, plus real estate taxes of
approximately $4,800 annually. The space was occupied pursuant to a five-year
lease which expired October 31, 1997, with an option to acquire the property for
$500,000. The Company is currently leasing this space on a month to month basis.
In the opinion of management, the rental is fair and reasonable and is
approximately at the same rate that could be obtained from an unaffiliated
lessor for property of similar type and location. In the opinion of management,
PACA's facilities are adequate for its current needs and for its needs in the
foreseeable future.
<PAGE>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
CONTENTS
INDEPENDENT AUDITORS' REPORT
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996
Consolidated Notes to the Financial Statements
Schedule II Valuation and Qualifying Accounts
<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, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit 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, 1997 and the results of its operations and its
cash flows for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/Paritz and Company P.A.
- -------------------------
Paritz and Company P.A.
Hackensack, New Jersey
March 11, 1997
<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, 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit 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, 1996 and the results of its operations and its
cash flows for the year ended December 31,1996 in conformity with generally
accepted accounting principles.
/s/Capraro, Centofranchi, and Kramer Co P.C.
- --------------------------------------------
Capraro, Centofranchi, and Kramer Co P.C.
So. Huntington, NY
March 21, 1997
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ..................................... $ 882,884 $ 1,249,655
Marketable securities ......................................... 1,703,806 1,342,027
Accounts receivable, less allowance for doubtful
accounts of $353,320 and $303,320 ....................... 6,285,181 3,499,535
Inventories ................................................... 12,543,474 7,290,205
Prepaid expenses and other current assets ..................... 727,421 255,218
----------- -----------
Total Current Assets ........................... 22,142,766 13,636,640
----------- -----------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization ........................... 2,374,085 1,834,777
----------- -----------
OTHER ASSETS
Intangible assets, net ...................................... 588,017 214,213
Investments in non-marketable securities .................... 1,688,750 2,316,750
Deferred tax assets ......................................... 455,300 819,300
Deposits and other assets ................................... 425,711 338,739
----------- -----------
Total Other Assets ............................. 3,157,778 3,689,002
----------- -----------
TOTAL ASSETS ................................... $27,674,629 $19,160,419
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - bank ......................................... $ 2,675,000 $ 1,400,000
Current maturities of long term debt ........................ 65,192 61,664
Accounts payable ............................................ 5,072,929 3,019,804
Accrued expenses and other current liabilities .............. 708,631 254,774
----------- -----------
Total Current Liabilities ...................... 8,521,752 4,736,242
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
LONG TERM LIABILITIES
Long term debt, net of current maturities .................... 111,258 144,091
Notes Payable shareholder .................................. 1,300,000 1,300,000
----------- -----------
Total Long Term Debt ........................... 1,411,258 1,444,091
----------- -----------
Total Liabilities .............................. 9,933,010 6,180,333
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY .......................................... 17,741,619 12,980,086
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... $27,674,629 $19,160,419
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1997 1996
------------ -----------
<S> <C> <C>
Net sales ................................................... $ 33,271,607 $ 23,378,698
Cost of sales ............................................... 22,153,925 19,027,741
------------ ------------
Gross Profit .......................................... 11,117,682 4,350,957
Selling, general and administrative expenses ............... 9,641,655 8,668,950
------------ ------------
Income(Loss) before other income (expense) ............ 1,476,027 (4,317,993)
------------ ------------
Other Income (Expense)
Interest expense, net of interest income .............. (339,754) (327,347)
Other income .......................................... 51,599 24,350
Write-down of net assets in Subsidiary ................ -- (529,578)
Loss on holding of equity investments ................. 372,000 (1,000,000)
Realized gain on marketable securities ................ (72,175) 381,337
Unrealized gain on marketable securities .............. 449,702 69,168
------------ ------------
Total Other Income (Expense) ................. 461,372 (1,382,070)
------------ ------------
Income (loss) before income taxes (benefit) ........... 1,937,399 (5,700,063)
Income taxes (benefit) ................................ 396,509 (834,191)
------------ ------------
Net Income (loss) ..................................... $ 1,540,890 $ (4,865,872)
============ ============
Earnings (loss) per common share
Primary ...................................... $ 0.06 ($ 0.20)
============ ============
Fully Diluted ................................ $ 0.05 ($ 0.20)
============ ============
Weighted average number of common share outstanding:
Primary ...................................... 24,837,771 24,879,521
============ ============
Fully Diluted ................................ 28,053,959 24,879,521
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Number of Number of Additional
Preferred Par Common Par Paid-in
Shares Value Shares Value Capital
------ ----- ------ ----- -------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 ............... 21,875 $ 219 20,761,991 $ 20,762 $ 12,123,470
Net Loss for the year ended Dec 31, 1996 -- -- -- -- --
Issuance of stock to purchase subsidiary -- -- 180,000 180 578,820
Stock issued to buy-out lease ........... -- -- 6,000 6 79,994
Sale of common stock .................... -- -- 1,345,000 1,345 4,806,154
Conversion of preferred stock
into Common Stock ....................... (21,875) (219) 43,750 44 175
Common Stock - 50% dividend ............. -- -- 717,828 718 --
Preferred Dividend - Common Stock ....... -- -- 7,939 8 --
Fee for services regarding dividends .... -- -- -- -- (5,000)
Stock issued for services ............... -- -- 83,500 83 372,417
------- ---------- ---------- ------------ ------------
Balance December 31, 1996 ............... 0 0 23,146,008 $ 23,146 $ 17,956,030
Net Income for the year ended 12-31-97 .. -- -- -- -- --
Issuance of stock to purchase subsidiary -- -- 666,000 666 999,334
Stock issued to purchase lease .......... -- -- 144,200 144 209,856
Sale of common stock .................... -- -- 1,825,000 1,825 3,648,175
Stock issued for services ............... -- -- 13,500 13 67,487
Exercise of warrants .................... -- -- 100,000 100 149,900
Fee for services regarding stock issued . -- -- -- -- (9,171)
Stock issued in settlement of a lawsuit . -- -- 75,000 75 149,925
Stock returned in settlement of a lawsuit -- -- (38,625) (38) (73,596)
Effect of foreign currencytranslation ... -- -- -- -- --
Purchase of treasury stock .............. -- -- (583,859) (584) (2,144,833)
------- ---------- ---------- ------------ ------------
Balance December 31, 1997 ............... 0 0 25,347,224 $ 25,347 $ 20,953,107
======= ========== ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common
Stock Foreign
Subscription Currency Retained
Receivable Translation Earnings Total
---------- ----------- -------- -----
<S> <C> <C> <C> <C>
Balance December 31, 1995 ............... $ (437,500) $ 0 $ 95,017 $ 11,801,968
Net Loss for the year ended Dec 31, 1996 -- -- $ (4,865,872) $ (4,865,872)
Issuance of stock to purchase subsidiary -- -- -- 579,000
Stock issued to buy-out lease ........... -- -- -- 80,000
Sale of common stock .................... 210,000 -- -- 5,017,499
Conversion of preferred stock
into Common Stock ....................... -- -- -- --
Common Stock - 50% dividend ............. -- -- (718) --
Preferred Dividend - Common Stock ....... -- -- (17) (9)
Fee for services regarding dividends .... -- -- -- (5,000)
Stock issued for services ............... -- -- -- 372,500
------------ ----------- ------------ ------------
Balance December 31, 1996 ............... $ (227,500) $ 0 $ (4,771,590) $ 12,980,086
Net Income for the year ended 12-31-97 .. -- -- 1,540,890 1,540,890
Issuance of stock to purchase subsidiary -- -- -- 1,000,000
Stock issued to purchase lease .......... -- -- -- 210,000
Sale of common stock .................... 227,500 -- -- 3,877,500
Stock issued for services ............... -- -- -- 67,500
Exercise of warrants .................... -- -- -- 150,000
Fee for services regarding stock issued . -- -- -- (9,171)
Stock issued in settlement of a lawsuit . -- -- -- 150,000
Stock returned in settlement of a lawsuit -- -- -- (73,634)
Effect of translation ................... -- (6,135) -- (6,135)
Purchase of treasury stock .............. -- -- -- (2,145,417)
------------ ------------ ------------ ------------
Balance December 31, 1997 ............... 0 (6,135) $ (3,230,700) $ 17,741,619
============ ============ ============ ============
</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,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) .............................................. $ 1,540,890 $(4,865,872)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ........................... 440,650 343,564
Valuation allowances/reserves ........................... (372,000) 2,462,898
Stock issued for services ............................... 67,500 452,500
Stock issued in settlement of a lawsuit ................. 150,000 --
Stock returned in settlement of a lawsuit ............... (73,596) --
Stock issued to purchase a lease ........................ 210,000 --
Unrealized gain on transfer from investment
in non-marketable securities to marketable securities (598,900) --
Deferred income taxes ................................... 364,000 (843,000)
Changes in assets and liabilities (Increase) Decrease in:
Accounts receivable ..................................... (2,663,565) 86,716
Marketable securities ................................... 1,237,121 487,829
Inventories ............................................. (5,018,686) (134,006)
Prepaid expenses and other current assets ............... (472,203) (46,708)
Deposits and other assets ............................... (86,972) (177,918)
Increase (decrease) in:
Accounts payable ........................................ 2,013,134 172,114
Accrued expenses and other current liabilities .......... 439,377 (57,304)
State income taxes payable .............................. (14,134) (39,772)
----------- -----------
Net cash used by operating activities ............................. (2,837,384) (2,158,959)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchase of assets of subsidiary,
net of cash acquired ................................. 134,356 --
Payments made for property and equipment ................ (801,150) (1,123,739)
----------- -----------
Net Cash (used) by investing activities ........................... (666,794) (1,123,739)
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (Repayments) of note payable- bank ............. 1,275,000 (1,150,000)
Proceeds from issuance of long-term debt ................ -- 243,573
Repayments of note payable- shareholder ................. -- (590,000)
Principal payments on long-term debt .................... (45,657) (37,818)
Dividends Paid .......................................... -- (7,656)
Proceeds from the exercise of warrants - common stock ... 150,000 --
Foreign Currency Translation ............................ (6,135) --
Purchase of treasury stock .............................. (2,145,417) --
Net proceeds from sale of common stock .................. 3,909,616 5,599,146
----------- -----------
Net cash provided (used) by financing activities .................. 3,137,407 4,057,245
----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ................... (366,771) 774,547
CASH AND CASH EQUIVALENTS - BEGINNING ............................. 1,249,655 475,108
----------- -----------
CASH AND CASH EQUIVALENTS - END ................................... $ 882,884 $ 1,249,655
=========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
DHB CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of
DHB Capital Group, Inc. and its subsidiaries ("DHB"), all of which
are wholly-owned. DHB has two major divisions, DHB Armor Group and
DHB Sports Group. DHB Armor Group consists of Protective Apparel
Corporation (PACA), Point Blank Body Armor Inc. and Zunblindage S.A.
DHB Sports Group consists of NDL Products Inc. (NDL) and Orthopedic
Products Inc. (OPI). All material inter-company balances and
transactions have been eliminated.
Business description
DHB Armor Group develops, manufactures, and distributes bullet
and projectile resistant garments, bullet resistant and
fragmentation vests, bomb projectile blankets, and related ballistic
accessories. DHB Sports Group manufactures and distributes
specialized protective athletic apparel and equipment and orthopedic
products.
Uses of estimates in the preparation of financial statements
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
net revenue and expenses during each reporting period. Actual
results could differ from those estimates.
Revenue recognition
Revenue from product sales is recognized at the time the
product is shipped.
Inventories
Inventories, consisting of merchandise purchased for resale,
are valued at the lower of cost or market, determined on the
first-in, first-out basis (replacement cost).
Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost. Major
additions, improvements, and renewals, which substantially increase
the useful lives of assets, are capitalized. Maintenance, repairs,
and minor renewals are expensed as incurred.
<PAGE>
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Depreciation is provided for both financial reporting and
income tax purposes using the straight-line and accelerated methods.
Marketable/Non-Marketable Securities
Investments in marketable securities are accounted for
according to the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). Management of DHB classified all its
marketable securities as trading securities and, accordingly,
unrealized gains and losses are reflected in earnings.
Non-marketable securities are valued at historical cost and if
necessary, reduced by a valuation allowance to the net realizable
value.
Intangible assets
Intangible assets are stated at cost and are amortized over
their estimated useful lives (see Note 7).
Income taxes
DHB and its domestic subsidiaries file a consolidated Federal
income tax return and separate state income tax returns.
DHB accounts for deferred income taxes in accordance with SFAS
Statement No. 109 which requires that deferred tax assets and
liabilities be recognized for the future tax consequence
attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. In addition, SFAS No. 109 requires recognition of future tax
benefits, such as net operating loss carryforwards, to the extent
that realization of such benefits is more likely than not and that a
valuation allowance be provided when it is more likely that not that
some portion of the deferred tax asset will not be realized.
Stock based compensation
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS 123) encourages, but
does not require companies to record compensation cost for
stock-based employee compensation at fair value. DHB has chosen not
to adopt SFAS 123 and to continue to account for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, of
any, of the quoted market price of the Company's stock at the date
of the grant over the amount an employee must pay to acquire the
stock.
<PAGE>
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Impairment of long-lived assets
DHB accounts for the impairment of long-lived assets in
accordance with SFAS No. 121 which requires that long-lived assets
and identifiable intangibles held and used by a company be reviewed
for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable.
Reclassification
Certain items on the 1996 financial statements have been
reclassified to conform to 1997 presentation..
Note 2 SUPPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C> <C>
Cash paid for:
Interest 269,450 535,859
Taxes 11,971 33,301
</TABLE>
During the years ended December 31, 1997 and 1996, the Company had
non-cash investing activities when in issued common stock to acquire
all of the outstanding stock of Zunblindage and of OPI, respectively.
Note 3 BUSINESS ACQUISITIONS
In February, 1997 DHB acquired 100% of the issued and
outstanding common stock of Zunblindage S.A. ("ZSA"), a Belgian
corporation, in exchange for 666,000 shares of DHB common stock
valued at an aggregate of $1,000,000. ZSA manufactures and
distributes bullet resistant equipment, apparel and related products
generally in Europe and the Middle East.
In March, 1996 DHB acquired 100% of the issued and outstanding
common stock of Orthopedic Products, Inc. ("OPI"), a manufacturer
and distributor of orthopedic products to the medical industry, in
exchange for 270,000 shares of DHB common stock. In 1997, 38,625 of
these shares were returned as a result of a lawsuit which DHB won
against the former shareholders for misrepresentation and violating
a covenant not to compete. An additional 6,625 shares will be
returned in 1998.
The above acquisitions were accounted for using the purchase
method of accounting, pursuant to which the purchase price was
allocated based upon the estimated fair values of the assets
acquired as of the dates of acquisition. The purchase of Zunblindage
resulted in goodwill of $541,000.
<PAGE>
Note 3 BUSINESS ACQUISITIONS (continued)
In the opinion of management, if the results of operations of
the acquired businesses had been included in the consolidated
financial statements since the beginning of the year, it would not
have a materially effect on the results of operations.
Note 4 MARKETABLE SECURITIES/NON-MARKETABLE SECURITIES
The following is a comparison of the cost and market value of
marketable securities included in current assets:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cost .......... $1,254,104 $1,272,859
Unrealized gain 449,702 69,168
---------- ----------
Market Value .. $1,703,806 $1,342,027
========== ==========
</TABLE>
The Company's has acquired minority interests in
non-marketable securities, at December 31, 1997 the historical cost
was $2,316,750 reduced by a valuation allowance of $628,000 to bring
the carrying value of these securities to the net realizable value
of $1,688,750.
Note 5 INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Finished goods ........... $ 5,776,562 $ 2,638,256
Work in process .......... 1,646,610 997,308
Raw materials and supplies 5,120,302 3,654,641
----------- -----------
$12,543,474 $ 7,290,205
=========== ===========
</TABLE>
<PAGE>
Note 6 PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment and the estimated
lives used in the computation of depreciation is as follows:
<TABLE>
<CAPTION>
Estimated
1997 1996 useful life
---------- ---------- -----------
<S> <C> <C> <C>
Land ............................ $ 47,500 $ 47,500 --
Buildings ....................... 427,500 427,500 39 years
Machinery and equipment ......... 1,225,812 1,025,072 5-10 years
Furniture, fixtures and
computer equipment ........... 819,019 343,098 5-7 years
Transportation equipment ........ 244,510 144,361 3-5 years
Leasehold improvements .......... 480,928 372,240 5-31.5 years
---------- ----------
3,245,269 2,359,771
Less accumulated depreciation and
amortization .................... 871,184 524,994
---------- ----------
$2,374,085 $1,834,777
========== ==========
</TABLE>
Note 7 INTANGIBLE ASSETS
A summary of intangible assets and the estimated lives used in
the computation of amortization is as follows:
<TABLE>
<CAPTION>
Estimated
1997 1996 useful life
---------- ---------- -----------
<S> <C> <C> <C>
Goodwill .................... $ 694,473 $ 226,209 15 years
On-going government
contracts ............... 312,086 312,086 1-5 years
Other ....................... 129,563 129,563 1-7 years
---------- ---------
1,136,122 667,858
Less accumulated amortization 548,105 453,645
---------- ---------
$ 588,017 $ 214,213
========== =========
</TABLE>
Note 8 NOTES PAYABLE - BANK
Notes payable - bank are due on demand and are collateralized
by marketable securities owned by the majority stockholder of the
Company. The weighted average interest rate on these borrowings was
6.6% at December 31, 1997.
<PAGE>
Note 9 NOTE PAYABLE STOCKHOLDER
These notes bear interest at 12% per annum and are due, as
extended, in November, 1999 (see Note 15 in connection with
additional loans made by the majority stockholder in 1998.)
Note 10 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Notes payable in monthly principal installments of $112,798 $155,998
$3,600. Interest at the rate of 9% per annum
accrues and is payable upon maturity in 2001.
Note payable in monthly installments of $1,876 32,754 49,757
inclusive of interest at 9.71% per annum. This note
is collateralized by certain equipment originally
costing approximately $90,000.
Capital lease obligation payable in monthly 20,109 --
installments of $432 inclusive of interest at
9.87%. This note is collateralized by certain
equipment originally costing approximately $23,000.
Other 10,789 --
-------- --------
176,450 205,755
Less Current Portion 65,192 61,664
-------- --------
$111,258 $144,091
======== ========
</TABLE>
Long-term debt matures as follows:
1998 $58,917
1999 39,332
2000 4,069
2001 4,489
2002 4,451
-------
111,258
=======
Note 11 STOCKHOLDERS' EQUITY
Common and preferred stock
(1) During 1996, DHB amended its certificate of
incorporation increasing the number of authorized
shares of its $.001 par value Common Stock from
25,000,000 to 100,000,000. In addition, DHB is
authorized to issue 1,500,000 shares of Class A 10%
convertible Preferred Stock.
(2) In July, 1996, DHB declared a 50% stock dividend on
the outstanding Common Stock.
<PAGE>
Note 11 STOCKHOLDERS' EQUITY (continued)
Stock option plan
In October, 1995, the Company adopted a plan (the "1995 Stock
Option Plan" or the "Plan") pursuant to which the Board of Directors
is authorized to award options to purchase up to 3,500,000 shares of
Common Stock to selected officers, employees, agents, consultants
and other persons who render services to the Company. The options
may be issued on such terms and conditions as determined by the
Board or Committee, and may be issued so as to qualify as incentive
stock options under Internal Revenue Code Section 422A. No options
have been granted under this plan.
Stock warrants
During 1997, the Board of Directors granted 50,000 stock
warrants exercisable at $2.00 per share to a key employee expiring
in June 2000. Pursuant to employment agreements (See Note 14), the
Company has 1,549,500 stock warrants outstanding exercisable at
$1.33 per share and expiring in 2001. In December 1994, in
consideration for monies loaned to the Company, the Board of
Directors granted a relative of the majority stockholder, stock
warrants to purchase 3,750,000 shares of common stock for $1.33 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 with 150,000 warrants still
outstanding exercisable at $1.33 and expiring in June 1998.
Note 12 RELATED PARTY TRANSACTIONS
A summary of related party transactions for the years ended
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Rental expense paid or accrued to the
relatives of the majority stockholder $546,000 $480,000
Rental expense paid to the President
of a subsidiary of DHB 48,000 48,000
Interest paid or accrued on a loan from
DHB's majority stockholder. 177,340 170,142
</TABLE>
See Note 14 for details of the lease with a related party
Note 13 RISKS AND UNCERTAINTIES
The Company maintains cash balances at various financial
institutions. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000. The Company's
accounts at these institutions may, at times, exceed the Federally
insured limits. The Company has not experienced any losses in such
accounts.
<PAGE>
Note 13 RISKS AND UNCERTAINTIES (continued)
Approximately 27% and 23% for the years ended December 31,
1997 and 1996, respectively, of DHB's sales were made to the United
States Government or its agencies.
Certain factors relating to the industries in which DHB
operates and the Company's business should be carefully considered.
All of the products sold by DHB are used in situations which could
result in serious personal injuries or death, whether on account of
the failure of such products, or otherwise. Although DHB maintains
substantial amounts of insurance coverage to cover such risks, there
is no assurance that these amounts would be sufficient to cover the
payment of any potential claims. In addition, there is no assurance
that this or any other insurance coverage will remain available or,
if available, that DHB would be able to obtain such insurance at a
reasonable cost. The inability to obtain such insurance coverage
would prohibit DHB from bidding for certain orders for bullet
resistant products from certain governmental customers.
Substantially all of the raw materials used in the
manufacturing of ballistic-resistant garments are made from fabrics
which are patented by major corporations and which are purchased
from three independent weaving companies. Although, in the opinion
of management of DHB, DHB enjoys a good relationship with these
vendors, should any of the manufacturers cease to produce these
products for any reason, DHB would be required to use other fabrics.
In such an event, an alternative fabric would have to be selected
and ballistic test would have to be performed. Until this was done,
DHB's sale of ballistic resistant products would be severely
curtailed and DHB's financial condition would be materially
adversely affected.
Note 14 COMMITMENTS AND CONTINGENCIES
Leases
DHB leases a warehouse and manufacturing facility from a
partnership indirectly owned by the majority stockholder of DHB. The
lease provides for annual rentals of $480,000 for 1996 and 4% annual
increases through expiration in 1999. In addition, DHB must pay real
estate taxes and certain operating expenses of this property.
DHB leases a warehouse and manufacturing facility from the
president of one of its subsidiaries. The lease provides for annual
rentals of $43,200, plus real estate taxes. The space is occupied
pursuant to a five-year lease which expired in October 1997 and is
currently leased on a month to month basis.
In April 1997, the Company entered a one year lease for a
60,000 square foot warehouse adjacent to the existing Florida
facility with an annual rental of approximately $210,000, and an
option to extend the lease for four years.
In association with the acquisition of Zunblindage, the
Company assumed a lease for their warehouse and store in Liege,
Belgium. This space is occupied pursuant to a nine year lease with
annual rentals of approximately, $42,000.
<PAGE>
Note 14 COMMITMENTS AND CONTINGENCIES (continued)
Rent and real estate taxes expense charged to operations for
the years ended December 31, 1997 and 1996 aggregated approximately
$962,000 and $616,000, respectively.
Employment agreements
The Company is committed under an employment agreement with
its majority stockholder which expires in April, 2001 and provides
for an annual salary of $250,000 through April, 1997 and annual
increases of $25,000 thereafter. In addition, the contract provides
for the annual grant of 750,000 warrants to the principal
stockholder, which are exercisable at $2.33 per share and expire
five years from date of grant.
Concurrent with the purchase of PACA, the President of PACA
was given a five year employment agreement which expired in 1997.
This agreement calls for annual salaries of $115,000 with annual
increases of $10,000 plus certain fringe benefits. During the year
ended December 31, 1995, the vice president of NDL was given a three
year employment contract. This agreement calls for an annual base
salary of $100,000 and 16,500 stock warrants per year exercisable at
$1.33 and expiring in February 2001, as extended.
In 1997, the Company entered into an employment agreement with
a salesman for DHB Armor Group, expiring in 2000 with an annual
salary of $100,000 plus certain fringe benefits.
Litigation
DHB is a defendant in a lawsuit filed in the United States
District Court for the Southern District of New York. The lawsuit
seeks, among other things, compensatory damages of not less than
$2,500,000, punitive damages of not less than $500,000 breach of
contract and an order enabling the plaintiff to execute certain
stock purchase warrants.
DHB has filed an Answer and Counter-Claim and intends to
vigorously defend the claim and to pursue its Counter-Claims.
Due to the preliminary status of this litigation, counsel to
DHB is unable to predict the outcome of this litigation. In the
opinion of management of DHB, the ultimate outcome of this
litigation will not have a material adverse effect on the financial
condition of DHB.
The Company is subject to other legal proceedings and claims
which have risen in the ordinary course of its business and have not
been finally adjudicated. These actions when ultimately concluded
and determined will not, in the opinion of management, have a
material adverse effect on the results of operations or the
financial condition of the Company.
<PAGE>
Note 15 INCOME TAXES
Components of income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current:
Federal .................. $ 455,000 $ 0
State .................... 22,509 8,809
Benefit of net operating
loss carryforward (455,000) --
----------- -----------
Total current ...... 22,509 8,809
Deferred:
Federal .................. 690,000 (1,686,000)
State .................... 430,700 (562,000)
Less: valuation allowance (1,494,700) 1,406,000
----------- -----------
Total Deferred ... 374,000 (843,000)
----------- -----------
Total income taxes (benefits) $ 396,509 $ (834,191)
=========== ===========
</TABLE>
The composition of the federal and state deferred taxes at
December 31, 1997 was arrived at as follows:
<TABLE>
<CAPTION>
<S> <C>
Operating Loss Carryforward $ 1,762,600
Allowance for Doubtful Accounts 141,200
Valuation Allowance - Non marketable securities 51,200
Net write down of investment in subsidiaries 175,000
Unrealized gain on Marketable Securities (180,000)
----------
Subtotal 1,950,000
Less: Valuation Allowance 1,494,700
----------
Net Deferred Taxes $ 455,300
==========
</TABLE>
<PAGE>
Note 16 SUBSEQUENT EVENTS
On January 16, 1998, DHB signed an exclusive (except for
certain rights in the field of products for horses) licensing
agreement, to make, use and sell magnetic products covered by
certain US and Canadian patents, along with the technical know how
related to the magenetic products in the possession of Magnesystems.
On February 9, 1998, the Company purchased the common stock of
two privately held Delaware corporations, Lanxide Armor Products
Inc. (LAP) and Lanxide Electronic Components Inc. (LEC). The
purchase price was approximately $4.8 million and was funded by
increasing loans from the majority shareholder of $7 million,
including amounts for working capital. LAP specializes in the
design, development and manufacture of ceramic/metal matrix
composites for protective armor applications. LEC is a leading
supplier of Silicon Carbide / Aluminum composites. This transaction
was accounted for as a purchase.
Since December 31, 1997, the Company has repurchased and
retired an additional 536,495 shares of the Company's common stock
in open market transactions for approximately $2,111,000 as
authorized by the Board of Directors. This was funded in part by an
additional shareholder loan of $2.2 million.
<PAGE>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
SCHEDULE II TO THE FINANCIAL STATEMENTS
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1997
Allowances deducted from related balance sheet accounts:
<TABLE>
<CAPTION>
Additions Subtractions
Balance at charged to charged to Balance
the beginning costs and costs and at end of
of the year expenses expenses year
------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Accounts Receivable ...... $ 303,230 $ 50,000 -- $ 353,230
Inventory ................ 700,000 -- (700,000) 0
Investment in Non-
marketable securities .... 1,000,000 0 (372,000) 628,000
Net Write down of ........ $ 529,578 -- -- $ 529,578
Investment in subsidiaries
</TABLE>
<PAGE>
<PAGE>
Item 13 (a) Exhibits.
Exhibit Description
2.1 Securities Purchase Agreement dated November 6, 1992, between the
Company, E.S.C. Industries, Inc., The Thunder Group, Inc. and
Protective Apparel Corporation of America
3.1 Certificate of Incorporation of DHB Capital Group Inc., a New York
corporation (hereinafter, "DHB-New York")
3.2 Certificate of Amendment to the Certificate of Incorporation of DHB-New
York filed November 5, 1992
3.3 Restated and amended Certificate of Incorporation of DHB New York dated
February 10, 1993
3.4 By-laws of DHB-New York
3.5 Certificate of Incorporation of DHB Capital Group Inc., a Delaware
corporation (hereinafter, "DHB Delaware"), filed with the Delaware
Secretary of State on or about September 1, 1994
3.5(a) Certificate of Amendment to Certificate of Incorporation of DHB Capital
Group Inc. filed December 31, 1996 Note 10
3.6 By-laws of DHB Delaware
3.7 Plan of merger of DHB-New York into DHB-Delaware
3.8 Certificate of Ownership and Merger, Merging DHB-New York into
DHB-Delaware, pursuant to Section 253 of the General Corporation Law of
the State of Delaware, filed in the Office of the Secretary of State of
Delaware on or about April 17, 1995
4.1 Specimen Common Stock Certificate
4.2 Specimen Class A Preferred Stock Certificate
4.3 Form of Warrant Agreement with respect to the Redeemable Warrant
together with list of purchasers
7.1 Opinion regarding Liquidation Preference
10.1 Employment Agreement dated November 6, 1992 between Protective Apparel
Corporation of America and Leonard Rosen
10.2 Lease dated November 6, 1992, between Protective Apparel Corporation of
America and Leonard Rosen in Norris, Tennessee
10.3 Domestic and International Non-Competition Agreement dated March 12,
1990 between the Company and American Body Armor & Equipment, Inc. (the
"American Body Armor Non-competition Agreement")
10.4 GSA Contracts dated January 21, 1991 and March 19, 1992
<PAGE>
10.5 Indemnification Agreements between certain officers of E.S.C.
Industries, Inc., Protective Apparel Corporation of America and the
Company regarding Certain Liabilities in Connection with the
Acquisition of Protective Apparel Corporation of America
10.6 Warrant to purchase 2,000,000 shares of common stock of The Thunder
Group, Inc.
10.7 Registration Rights Agreement between the Company and the Thunder
Group, Inc.
10.8 Loan Agreement dated November 6, 1992, between the Company and E.S.C.
Industries, Inc.
10.9 Security Agreement dated November 6, 1992 of TL Fasteners Corp.
10.10 Promissory Note between the Company and David Brooks dated November 6,
1992
10.11 Loan and Security between the Company and Protective Apparel
Corporation of American dated December 7, 1992
10.12 Chase Manhattan Bank, N.A. ("Chase") Loan dated November 24, 1992
10.13 Form of Registration Rights Agreement between the Company and
participants in the Company's private placement
10.14 Form of Unit Purchase Option
10.15 Agreement between the Company, Jeffrey Brooks Securities, Inc., Jeffrey
Brooks, Paul Kazak and Jason Chang dated September 13, 1993
10.16 Agreement between the Company, Jeffrey Brooks Securities, Inc., Jeffrey
Brooks, Paul Kazak and Jason Chang dated September 17, 1993
10.17 Promissory note, general security agreement and related loan documents
dated September 15, 1993 between the Company, PACA and Chase
10.18 Subscription agreement dated March 17, 1994 (the "ID Subscription
Agreement"), between the Company and Intelligent Data Corporation, a
Nevada corporation ("ID"), regarding the purchase by the Company of
shares of the common stock and preferred stock of ED 5
10.19 Amendment dated March 30, 1994, of the ID Subscription Agreement
10.20 Shareholders' agreement dated March 17, 1994, among the Company, ID,
and shareholders of ID 10.21 Employment agreement dated March 17, 1994,
between ID and Sam Balabon, including written termination thereof
10.22 Bill of sale dated December 20, 1994, made by N.D.L. Products, Inc., a
Delaware corporation, and its subsidiaries, N.D.L. International, Inc.,
Dr. Bonesavers, Inc., Grid, Inc., Hitman, Inc., and Flex-Aid, Inc.,
each being a Florida corporation, to DHB Acquisition, Inc., covering
the NDL Assets
10.23 Order Determining Successful Bidder, etc., dated December 20, 1994, In
Re N.D.L. Products, Debtor, of the United States Bankruptcy Court,
Southern District of Florida, Case No. 9421458-BKC-RBR, Chapter 11
(Lead Case), jointly administered with Case Nos. 94-21459 through
94-21463
<PAGE>
10.24 Term loan to the Registrant in the amount of $1,150,000 due September
19, 1995, from The Chase Manhattan Bank, N.A., of New York, New York
(the "Secured Lender"), bearing interest at 7.2% per year
10.25 Collateral Agreement [Third Party] dated October 18, 1994, made by Mr.
David H. Brooks in favor of the Secured Lender
10.26 Agreement dated August 4, 1995, terminating the American Body Armor
Non-Competition Agreement
10.27 Bill of sale dated August 3, 1995, made by the Trustee in Bankruptcy of
Point Blank Body Armor, L.P.
10.28 Order Authorizing Sale at Auction dated July 25, 1995, In Re Point
Blank Body Armor, L.P., Debtor, of the United States Bankruptcy Court,
Eastern District of New York, Case Nos. 895-83336-2D and 895-83335-2D
10.29 1995 Stock Option Plan
10.30 Stock Purchase Agreement with respect to the outstanding capital stock
of Orthopedic Products, Inc., dated as of March 22, 1996 11
10.31 Definitive Merger Agreement with The Lehigh Group Inc and Plan of
Reorganization
10.32 Employment Agreement with Michael Bell dated March 7, 1997.
10.33 Assignment Agreement dated as of February 6, 1998 by and between DHB
Capital Group, Inc. and E.I. Du Point Nemours and Company.
10.34 Transfer Agreement, dated as of February 6, 1998 by and among Lanxide
Corporation, DHB Capital Group, Inc., Lanxide Armor Products, Inc.
Lanxide Electronic Components, Inc. and Lanxide Technology company,
L.P.
10.35 Notification Letter from Lanxide Corporation of E.I. Du Pont de Nemours
and Company dated February 6, 1998.
10.36 Negotiable Promissory Note form DHB Capital Group, Inc. to David H.
Brooks dated February 9, 1998. Notes to Exhibit Table:
1. Incorporated by reference to the Company's Registration Statement on
Form SB-2, No. 33-59764, which became effective on May 14, 1993.
2. Incorporated by reference to the Company's Definitive Proxy Material
filed with the Commission in connection with the Special Meeting in
Lieu of Annual Meeting of Shareholders of the Company held on February
15, 1995.
3. Incorporated by reference to the Company's Registration Statement on
Form SB-2, No. 33-70678, which became effective on December 29, 1993.
4. Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1993.
5. Incorporated by reference to Post-Effective Amendment No. 1 of the
Company's two Registration Statements on Form SB-2, Nos. 33-59764 and
33-70678, which became effective on October 17, 1994.
6. Incorporated by reference to the Current Report on Form 8-K dated
December 20, 1994.
<PAGE>
7. Incorporated by reference to Amendment No. 1 dated March 2, 1995, of
the Current Report on Form 8-K dated December 20, 1994.
8. Incorporated by reference to the Current Report on Form 8-K dated
August 3, 1995.
9. Incorporated by reference to Registration Statement on Form S-8 filed
on or about October 1, 1995.
10. Incorporated by reference to Post-Effective Amendment No. 33-59764, on
Form SB-2, File # filed on Jan 31, 1997.
11. Incorporated by reference to the Current Report on Form 8-K dated March
22, 1996, including the amendments thereof.
12. Incorporation by reference to Registration Statement on Form SB-2, File
No. 333-31383 Filed on July 24, 1997.
13. Incorporated by reference to Current Report on Form 8-K filed February
25, 1998.
<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 on its
behalf by the undersigned, thereunto duly authorized on this the 23rd day of
March, 1998.
DHB Capital Group Inc.
/S/ David Brooks
----------------
David Brooks
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 23, 1998.
Signature Capacity Date
- --------- -------- ----
/S/David H. Brooks Chairman of the Board March 23, 1998
- ------------------- and Director
David H. Brooks
/S/Mary Kreidell Treasurer/Director March 23, 1998
- ----------------- Principal Financial Officer
Mary Kreidell Principal Accounting Officer
/S/Gary Nadelman Director March 23, 1998
- ----------------
Gary Nadelman
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,249,655
<SECURITIES> 1,342,027
<RECEIVABLES> 3,499,535
<ALLOWANCES> 303,230
<INVENTORY> 7,290,205
<CURRENT-ASSETS> 13,636,640
<PP&E> 1,834,777
<DEPRECIATION> 669,018
<TOTAL-ASSETS> 19,160,419
<CURRENT-LIABILITIES> 4,736,242
<BONDS> 0
0
0
<COMMON> 23,146
<OTHER-SE> 12,956,937
<TOTAL-LIABILITY-AND-EQUITY> 19,160,419
<SALES> 23,378,698
<TOTAL-REVENUES> 23,378,698
<CGS> 19,027,741
<TOTAL-COSTS> 8,668,950
<OTHER-EXPENSES> 1,382,070
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327,347
<INCOME-PRETAX> (5,703,313)
<INCOME-TAX> (834,191)
<INCOME-CONTINUING> (4,865,872)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,865,872)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
