U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[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, 1999
[ ] 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 Identification No.)
of incorporation)
555 Westbury Avenue, Carle Place, New York 11514
(Address of principal executive offices)
11 Old Westbury Road, Old Westbury, New York 11568
(Former 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-K or any amendment to
this Form 10-K [ X ]
Issuer's revenues for the most recent fiscal year: $35,140,728
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 23, 2000: $15,296,076.
Number of shares outstanding of the issuer's common equity, as of March
23, 2000 (exclusive of securities convertible into common equity) : 32,332,181
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Item 1. BUSINESS
Business - History
DHB Capital Group, Inc. (the "Company") was originally incorporated as
a New York corporation on October 22, 1992, by Mr. David H. Brooks, the
Company's Co-Chairman. 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 became holders of a like
number of securities of the Delaware corporation.
DHB Capital Group Inc. is a holding company, which has three divisions,
DHB Armor Group, DHB Sports Group, and DHB Electronics Group. DHB Armor Group
consists of Protective Apparel Corporation of America ("PACA"), Point Blank Body
Armor Inc. ("Point Blank"), Point Blank International S.A. ("PB Int'l"), and
Lanxide Armor Products Inc. ("LAP"). DHB Sports Group consists of NDL Products
Inc. ("NDL") and Orthopedic Products Inc. ("OPI"). On March 10, 2000 the Company
sold the DHB Electronics Group, which consisted of Lanxide Electronic Components
Inc. ("LEC") and DHB KK. 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 braces, a
line of magnetic therapy products, as well as, orthopedic products. OPI is
engaged in the manufacture and sale of medical and orthopedic products directly
to the medical industry, including hospitals, sports medicine centers and
medical practices. DHB Electronics Group manufactures and markets metal matrix
composite materials (e.g. silicon carbide/aluminum composites), which function
as packaging and structural thermal management components for the electronics
industries.
Recent Developments
Sale of DHB Electronics Group. On March 10, 2000, DHB Capital Group
Inc. (the "Company") sold its subsidiaries Lanxide Electronic Components Inc.
and DHB KK to DMC2 Electronic Components Corporation (an unrelated third party).
The purchase price was $4,375,000 less the outstanding loan balance of Lanxide
Electronics' Delaware Economic Loan of $141,217. The proceeds of this sale
retired all of the outstanding bank debt of the Company. The sales price was
determined through arms length negotiations, at a price the Company believes was
fair. The sale of the Lanxide subsidiaries reflects the Company's strategic
decision to refocus on its core businesses, the design, development and
production of technologically advanced soft body armor for the U.S. Military and
Law Enforcement communities.
NASDAQ Small Cap Listing. On September 4, 1998, the Company's stock
became listed on the NASDAQ Small Cap MarketTM listing. The listing was granted
pursuant to satisfying certain conditions the NASDAQ Listing Qualifications
Panel required. The Nasdaq Listing Qualifications Panel determined that the
Company did not meet those conditions and delisted the Company's securities from
the NASDAQ Small Cap Market effective with the close of business on December 20,
1999.
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Exclusive license and trademark agreement with Magnesystems. On January
16, 1998, the Company 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 magnetic products in the possession of
Magnesystems.
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 1,360,004 shares at a cost of
$6,514,308.
The Company has no specific plans, arrangements, understandings or
commitments with respect to any future acquisition, 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.
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BUSINESS
DHB Armor Group ("The Armor Group")
Products. Point Blank, PACA, and PB Int'l comprise the Armor Group and
they manufacture 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 the concealable and tactical vests are manufactured using multiple
layers and/or a combination of KevlarTM, Gold FlexTM, SpectrashieldTM,
SpectraFlexTM, Zylon(TM), and other ballistic fabrics, 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 have and are expected to continue to minimize the extent to which
products of the two companies may impact each other's sales.
Concealable vests are contoured to closely fit the user's body shape.
The Armor Group also 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 VelcroTM type elastic strapping.
Concealable vests may be supplemented for additional protection and supplied
with an additional armor plate, which consists of either metal or certain
composite materials to withstand greater threat levels than the vest is
otherwise designed to protect against.
During 1999, the Armor Group introduced more than 12 new NIJ (National
Institute of Justice) certified vests. Among the more notable was the updating
of the original Hi-Lite line, which now provides law enforcement customers with
exceptional protection (under one pound per square foot). This was a remarkable
improvement of an already excellent design and will continue to be an Armor
Group asset in the future. In addition, the introduction of the Fusion line
provided federal law enforcement officers with the highest level of ballistic
protection in all NIJ threat levels available in the body armor industry today.
The Armor Group also introduced the New Beast technology decreasing the weight
by 45%, the thickness by 50%, and increasing the V50 and multiple hit
capabilities. In addition, the Armor Group entered into an agreement with
Gall's, a premier Law Enforcement Catalog. This agreement promotes the
production of low cost, high performance, private label body armor as an
exclusive product manufactured by the Armor Group for Gall's . The Armor Group
also launched the KGS (Kevlar, Goldflex, Spectraflex) Ballistic series of vests
in late 1998 and it hit full stride in 1999. This series features a soft,
comfortable Level IIIA vest at .93 lbs. psf, making it one of the highest
performing, lightest weight, and advanced hybrid designs on the market today.
DHB Armor's Corrections Division also introduced the CounterPoint
Fusion SLA, SLB, and SLC, a new series of stab / slash resistant panels that are
used
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independently or in conjunction with ballistic panels to provide
previously unavailable soft armor protection. In addition, TAC Pants were
developed to provide the corrections professional with the ultimate in lower
torso stab / slash protection. DHB Armor Group's full line of correctional vests
for anti-stab protection is derived from extensive research and the realization
that corrections officers have specific needs unique to law enforcement. The
Armor Group's correctional department provides complete solutions for unique
requirements by combining the Hit-ManTM Training Suit with the Thrust-GuardTM
Anti Stab technology to be utilized as a cell extraction suit.
The Armor Group was awarded a $150 million "Interceptor" contract from
the U.S. Army Soldier Systems and the Department of Defense. The Interceptor
System increases the level of fragmentation and ballistic protection while
dramatically reducing the overall weight of the vest. Designed as a continually
up-gradable modular, soft body armor system, the Outer Tactical Vest consists of
a base vest, collar assembly, throat protector and groin protector. The
Interceptor Program, the most prestigious body armor contract ever awarded by
the U.S. Military, moved forward during 1999. The Armor Group is currently in
full production of the Interceptor Body Armor. In addition, although Interceptor
has already been accepted by the Marine Corps, with the cooperation of
manufacturers such as DuPont, the Armor Group is able to continue with
unlimited, non-stop research and development to further optimize the Interceptor
project, increasing performance, reducing weight, and maximizing protection.
In 1999 the Armor Group was the first company to address two unique
needs in the marketplace at the same time; how to keep an officer cool while
wearing armor and making the ballistic panel more comfortable by giving the
wearer increased features and adjustments to the garment. At the International
Association of Chiefs of Police Conference in October 1999, the Armor Group
successfully introduced the Vector(TM) garment system and Armor Ice(TM). The
combination of these two products provides the wearer with substantially
increased comfort. The Armor Group has long recognized that the single most
important factor in officers not wearing body armor is excessive body heat
buildup under the armor. Working in conjunction with Frisby Technology, the
Armor Group developed a system to keep an officer cool while wearing armor. In
mid-1999, the Armor Group negotiated the exclusive worldwide distribution rights
to Frisby Technology's Comfortemp(TM) for all body armor applications and is
marketing it under the brand name Armor Ice(TM). Armor Ice(TM) is the first
active cooling system proven to work under armor utilizing a patented open-cell
foam technology that incorporates microencapsulated phase change materials into
the structure of the foam.
PACA's wholesale prices for 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 PB Int'l's prices range from
$300 to $500. The Armor Group expects to continue these price levels.
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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 high 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. PACA's wholesale prices of these products range from
approximately $370 to approximately $1,200. Point Blank's wholesale prices for
its tactical garments range from approximately $500 to $1,350, and PB Int'l's
prices range from $700-$1,400. The Armor Group expects to continue these price
levels.
The Armor Group's other body-armor products include a tactical police
jacket, military field jacket, executive vests, NATO-style vests, K-9 vests
fragmentation vests and attack vests. Blast and fragmentation armor is designed
to specifications in U.S. government contracts to offer full torso protection
against materials and velocities associated with the fragmentation of explosive
devices such as grenades and artillery shells. In general, concealable vests
sold to law enforcement agencies and distributors are designed to resist bullets
from handguns. Blast and Fragmentation 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 of such products, or otherwise. The Armor Group maintains product
liability insurance for PACA and Point Blank in the amount of $20,000,000 each
per occurrence, and $20,000,000 in the aggregate less a deductible of $5,000 for
each company. PB Int'l maintains product liability insurance in the amount of
$2,000,000 for 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 PB Int'l would be able to
obtain such insurance 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 PB Int'l as applicable,
from bidding for orders from certain governmental customers, as 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-, blast-, fragmentation- 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 KevlarTM, a
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patented product of E.I. Du Pont de Nemours & Co. SpectrashieldTM, GoldFlexTM,
and SpectraFibreTM, which are patented products of Honeywell (formerly Allied
Signal), are used in approximately 45% of all vests. 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. In 1999, Point Blank became one of only two
companies to pioneer the development of ZylonTM based armor. This new
relationship with Toyobo, utilizing ZylonTM, facilitates the introduction of
lighter, more flexible, higher performance body armor. 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 are stitched
together. The Armor Group utilizes several hundred patterns based upon size,
shape and style (depending upon whether the garment is a bullet-, blast- or
fragmentation-resistant garment). KevlarTM, GoldFlexTM, SpectrashieldTM,
SpectraFibreTM, TwaronTM, and ZylonTM 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, SpectraFibreTM, and Zylon(TM). If,
however, Du Pont, the manufacturer of Kevlar fibers, 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.
Research and Development DHB Armor Group's research and development
team has combined 50 years of notable ballistic research and development
experience, previously retained in various positions of responsibility by H.P.
White Laboratories, for a total of 23 years experience in an NIJ certification
environment. Allen Price who heads an eight-man department that is responsible
for certification and new product development directs the research and
development department. Each location/facility for DHB Armor Group has on-site
ballistic laboratory test facilities, where percentages of certification
potentials are improved, and in certain cases individual lots can be tested for
quality control purposes. As soon as materials are received at these facilities
their ballistic integrity is assured which provides a continuous flow to the
manufacturing and production process.
Customers. The Armor Group's products are sold domestically 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
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sheriffs' departments accounted for 55% and 66%, respectively, of the Armor
Group's revenues in each of the years ended December 31, 1999 and 1998. One
customer, the New York City Police Department, accounted for approximately 6%,
8% and 5 % of PACA's sales for the years ended December 31, 1999, 1998 and 1997,
respectively. The California Highway Patrol accounted for 14.6% of PACA's
revenue for the year ended December 31, 1999. New York City Police Department
accounted for approximately 10% and 14% of Point Blank's sales for the year
ended December 31, 1999 and 1998 respectively. Also, one customer, DFAS
Columbus, accounted for 33 % of Point Blank's sales for the year ended December
31, 1999. Besides domestic customers, Point Blank also has international
customers that accounted for 5 %, 6 %, and 17 % of Point Blank's sales for the
years ended December 31, 1999, 1998 and 1997 respectively. 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 19 %, 5 % and 8 % of revenues for the years ended
December 31, 1999, 1998 and 1997, 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 Schedule". The Armor Group
also responds to invitations by military branches and government agencies to bid
for particular orders. GSA Schedule contracts accounted for approximately 19%,
25% and 28 %, respectively, of the Armor Group's sales for the year ended
December 31, 1999, 1998 and 1997.
PACA and Point Blank, as GSA Schedule Contract vendors, are obligated
to make all sales pursuant to such contracts at its lowest unit price. Their
current GSA Contracts expires July 31, 2001.
During the years ended December 31, 1999, 1998 and 1997, commercial
sales (i.e., sales to non-governmental entities) were 26 %, 44 % and 49 % of the
Armor Group's revenues.
Marketing and Distribution. The Armor Group employs fifteen customer
support representatives, five regional sales managers and in addition has twenty
independent sales representatives who are paid solely on a commission basis.
These personnel and distributors are responsible for marketing the Armor Group's
products to law enforcement agencies in the United States. These individuals and
entities 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.
Government and Industry Regulations and Standards. Bullet and
blast-resistant garments and accessories manufactured and sold by the Armor
Group are not currently the subject of government regulations. However, law
enforcement agencies and
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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, the Armor Group's
research and development team is actively involved in the development of NIJ
standard 0101.04 and the new stab standard.
The Armor Group regularly submits bullet-resistant garments and
hard-armor inserts 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 PB
Int'l 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 of ballistic-resistant garments in the United States is the Armor
Group. 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 PB Int'l 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's 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.
The Armor Group's Backlog. As of December 31, 1999, the Armor Group had
a backlog of approximately $32.7 million, as compared to approximately $16
million as of December 31, 1998. Backlog at any one date is not a reliable
indicator of future sales or sales trends.
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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 extended over a 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 February 29, 2000, there were two officers of the Armor Group,
19 persons employed in supervisory capacities, and 344 employed for
manufacturing, shipping and warehousing, 3 technical/research development
personnel and 24 were office personnel. All of the Armor Group's employees are
employed full time. In the opinion of management, the Armor Group enjoys good
relationships with its employees.
DHB SPORTS GROUP.
The Sports Group is a collection of brands that service specific segments of the
sporting goods and health care markets with its sports medicine, protective
gear, orthopedic soft goods and magnetic therapy products. The Sports Group also
offers private label or house brand programs to major retailers and large
wholesalers along with specific OEM programs to outside brands that service the
same markets.
Currently, the Sports Group manufactures and markets products under the brands
NDL(TM), GRID(TM), MagneSystems(TM), FLEX-AID(TM), OPI(TM) and Doctor Bone
Savers(TM). The Sports Group markets its product to a variety of distribution
points with an emphasis on major retailers. Mass merchandisers, chain drug
stores, food chains, independent sporting goods and pharmacy retailers, catalog,
wholesale and e-commerce offer the various brands to the consumer. The Sports
Group account list includes retail and wholesale establishments such as
Wal-Mart, Target, Rite Aid, Meijer and Phar Mor. Two customers accounted for 51%
of the Sports Group revenue.
During 1999, the Sports Group successfully negotiated and began to implement and
ship private label programs with three of the largest wholesalers to the retail
trade: Amerisource, Cardinal Health and CDMA. These wholesalers have begun
servicing their 10,000 store networks with their Family Pharmacy(TM), Leader(TM)
and Quality Choice Brands(TM) of health support products.
In addition, the Sports Group added valuable distribution during 1999 in the
area of magnetic therapy by securing the Vitamin Shoppes, Vitamin World and
Nature's Bounty's catalog as distribution partners.
The Sports Group is a member of NACDS (National Association of Chain Drug
Stores), PLMA (Private Label Manufacturers Association), and SGMA (Sporting
Goods Manufacturers Association).
The Sports Group employs 4 sales executives who are responsible for sales
throughout the United States, Western Europe, Asia, the Middle East and Latin
America. These sales
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executives also manage more than 50 independent sales representatives who call
on all classes of trade. The Sports Group has in house sales support and state
of the art EDI order/invoicing capabilities.
The Sports Group manufactures and distributes 80% of its entire product
domestically at its Oakland Park, Florida facilities. The balance of products
sold are sourced either domestically or imported from various contract
manufacturers around the world.
DHB Sports Group's Potential Products Liability. Some of the products
manufactured or distributed by the Sports Group are used in situations where
serious personal injuries could occur, whether on account of the failure of the
Sports Group's products or otherwise. The Sports Group maintains product
liability insurance in the amount of $20,000,000 per occurrence and $20,000,000
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 the Sports Group
would be able to obtain it at reasonable cost. Any substantial uninsured loss
would have to be paid out of the Sports Group's assets and could have a material
adverse effect on the Company's financial condition and results of operations.
Employees. As of February 29, 2000, there was one officer of the Sports
Group, 8 persons employed in supervisory capacities, 67 employed for
manufacturing, shipping and warehousing, 8 in sales and customer service and 10
were office personnel. All of the Sports Group's employees are employed full
time. In the opinion of management, the Sports Group enjoys good relationships
with its employees.
DHB Electronics Group
LEC is a manufacturer of unique and patented thermal management, packaging, and
structural components for the electronics industry. LEC has over seven years of
experience in the design, manufacture, and sale of products in the electronics
industry. On May 29, 1998, the Company acquired a Japanese subsidiary, DHB KK,
for a cash payment of $375,000. This Company markets LEC's products in Japan. On
March 10, 2000 the Company sold the Electronics Group to an unrelated third
party for approximately $4.375 million less the outstanding LEC loan balance of
$141,217.
Products - LEC's current products are based on silicon carbide particle
reinforced aluminum composite technology applied to thermal management,
packaging, and structural components for the electronics industry. The silicon
carbide/aluminum composites provide a unique combination of desirable
properties: High thermal conductivity, low coefficient of thermal expansion,
lightweight, and high stiffness. These properties are useful in a wide variety
of electronic applications: Power Module and Amplifier Heat Sinks or Base
plates, microprocessor package lids and heat spreaders, printed wiring board
cores, carriers, package bases, and fluid cooled heat sinks. Power Module and
Amplifier Heat Sinks provide heat dissipation and thermal expansion
characteristics, which minimize thermal stresses.
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LEC's lightweight Printed Wiring Board Cores are used extensively for
constraining surface mount assemblies, where they provide improved reliability,
excellent thermal performance, and weight reductions of up to 70% of
conventional cores. LEC's carriers provide high heat dissipation and weight
savings, while matching the thermal expansion of many semiconductor devices and
ceramic substrates. Major weight savings can be obtained by substituting LEC's
package bases for those made of conventional materials for various package
applications. For applications requiring higher levels of heat dissipation, LEC
produces unique flow-through heat sinks with internal cooling passages for air
or liquid cooling. LEC markets these products under the trade names
PRIMECOOL(TM) and PRIMEFLO(TM) composite components.
LEC's products are fabricated using patented technologies. Composites with high
loading of silicon carbide are made using the PRIMEX(TM) pressure less metal
infiltration technology ("infiltrated products"). Lower silicon carbide loadings
are achieved using the PRIMEX CAST(TM) composite casting technology ("cast
products"). Together these technologies provide a comprehensive range of SiC/A1
products to meet customer needs.
LEC's original business strategy was initially to address the military markets
to establish a base business from which to attack the commercial/industrial
markets. This sequence offered a natural progression from low-to-moderate
volume, high value products to high volume, low cost products, and compatible
with the need to develop production experience with a new process technology.
The strategy has been only partially successful: while LEC has achieved numerous
product adoptions in military applications, dramatic changes in DOD procurement
plans during the past several years have precluded the development of a
profitable business based solely on this market segment. LEC's current strategy
is to maintain and grow, where possible, its military business on a selective
basis, while directing its primary attention toward the commercial/industrial
markets. The commercial/industrial business has shown strong growth in the past
two years and this trend is projected to continue.
Competition and Customers. LEC has established itself as a market leader in
SiC/A1 products. LEC estimates its current business share to be approximately
50% of all SiC/A1 electronic products sold. LEC's leadership position will be
key in maintaining the level of growth necessary to pursue opportunities in
areas currently dominated by lower cost incumbent materials, such as copper and
aluminum, as well as competitively priced materials, such as copper/tungsten and
molybdenum/copper. LEC's position will also be critical in protecting its market
share from competitors attempting to "buy" new business as it develops.
12
<PAGE>
LEC's Marketing and Distribution. LEC employs a sales executive (along with two
customer service specialists) who are responsible for sales and marketing
throughout the United States, Europe, and Japan. Additionally, LEC utilizes 17
independent sales representatives who are paid on a commission basis. LEC
utilizes a website to market its products. Their address is
http//www.LEC-Inc.com.
In addition, LEC has obtained strong access to the Japanese market through LEC's
affiliate, DHB KK, in Japan. DHB KK has established customer contacts with key
accounts in Japan that taken together have the major share of the power
electronics market; these include almost all of the major electronic and/or
electronic components manufacturers in Japan. Product adoption has been
achieved, and most of the key customers are pursuing additional qualification
programs.
Segment Information
As described in detail above, the Company operates in three principal segments:
Ballistic-resistant equipment, Electronic Components and Protective
athletic/medical equipment. The Company disposed of the Electronics Group in
March 2000, and closed its hard armor company, LAP in October 1999. These two
divestures are accounted for as discontinued operations. Financial information
on the Company's business segments was as follows:
13
<PAGE>
<TABLE>
<CAPTION>
Net Sales 1999 1998 1997
- --------- ---- ---- ----
<S> <C> <C> <C>
Ballistic-resistant equipment $30,358,537 $28,695,127 $26,805,471
Electronic components 8,441,393 8,398,107 -
Protective athletic & medical equipment 6,236,438 8,388,544 7,094,808
--------- --------- ---------
45,036,368 45,481,778 33,900,279
Less inter-segment sales (2,781,099) (3,647,353) (628,672)
Less discontinued operations (3) (7,524,541) (8,761,007)
----------- -----------
Consolidated Net Sales $35,140,728 $33,073,418 $33,271,607
=========== =========== ===========
Income from Operations
Ballistic-resistant equipment $(9,629,504) $2,485,395 $2,017,281
Electronic components (1,835,137) (782,908) -
Protective athletic & medical equipment (2,390,834) 1,207,743 498,062
Corporate and Other (1) (2,824,826) (1,508,027) (1,039,316)
----------- ----------- -----------
Sub-total (16,680,301) 1,402,203 1,476,027
Less discontinued operations (3) 6,809,082 1,451,216 -
----------- --------- ----------
Consolidated Operating Income $(9,871,219) $2,853,419 $ 1,476,027
============== ============ ==========
Identifiable Assets (2)
Ballistic-resistant equipment $14,283,739 $23,743,604 $17,572,698
Electronic components 6,177,019 5,749,438 -
Protective athletic & medical equipment 3,335,253 8,844,627 6,322,150
--------- --------- ---------
23,796,011 38,337,669 23,894,848
Corporate and Other 400,038 4,641,566 3,779,781
------- --------- ---------
Sub-total 24,196,049 42,979,235 27,674,629
Discontinued operations (3) (4,825,532) (5,568,122) -
Assets held for sale 3,928,980 3,952,697 -
----------- ----------- -----------
Consolidated Net Assets $23,299,497 $41,363,810 $27,674,629
=========== =========== ===========
</TABLE>
Foreign sales accounted for 17%, 12% and 10%, respectively of the total
<PAGE>
revenues for the years ended December 31, 1999, 1998 and 1997. Foreign
identifiable assets accounted for 13%, 5% and 2% of the total assets at
December 31, 1999, 1998 and 1997.
14
<PAGE>
(1) Corporate and Other includes corporate general and administrative expenses
(2) Corporate assets are principally cash, marketable securities, and deferred
charges
(3) Discontinued operations included the Companies sold, LEC and DHB KK
as well as the loss from the shut-down of the LAP plant.
Item 2. PROPERTIES
Corporate Headquarters. On January 1, 2000 the Company relocated its
corporate headquarters to a 3,750 square foot office located at 555 Westbury
Avenue, Carle Place, NY 11514 pursuant to a three year lease with an annual
rental of $44,250 and 5% increases each year. Previously the corporate
headquarters were located in a one-story building bought January 17, 1996, on
two-acre lot located at 11 Old Westbury Road, Old Westbury, New York; this
building is currently for sale.
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 Company leases 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 manufacturing 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
five-year lease for a 60,000 square foot warehouse adjacent to the Oakland Park,
Florida facility with an annual rental of approximately $210,000. This warehouse
is located at 1201 NE 38th Street Oakland Park, Florida.
Point Blank International Facility. PB Int'l leases a 5,700 square foot
office and warehouse facility located at Rue Leon Frederiq, 14, 4020 Liege,
Belgium. This space is occupied pursuant to a three-year lease with options to
renew for six years and annual rentals of approximately, $42,000.
Lanxide Facility. LAP and LEC lease an 82,000 square foot office and
warehouse facility located at 1300 Marrows Road, Newark, Delaware and a 3,500
square foot ballistic
15
<PAGE>
testing range at Forge Dr., Newark, Delaware, which is adjacent to the
manufacturing facility. The Marrow's road space is occupied pursuant to a lease,
which provides for annual base rentals of $420,000 and expires in March 2001. In
January 1999 the sublessor filed for bankruptcy protection and the Trustee has
not yet decided on the assumption or rejection of the LAP or LEC leases. This
premise was released in conjunction with the sale of the Electronics Group on
March 10, 2000.
Item 3. PENDING LITIGATION
On or about January 20, 1999, DL Cromwell Investments, Inc. commenced
an action against DHB Capital Group Inc. and David Brooks in the Supreme Court
of New York, County of Nassau. The Plaintiff claims it was fraudulently induced
to enter into a consulting agreement with the defendant and for breach of the
consulting agreement and a supplemental agreement and for quantum merit for the
fair and reasonable value of services rendered. In September 1999, the Company
settled with DL Cromwell.
The Company initiated a lawsuit against Bioflex Medical Magnetics for
patent infringement, unfair competition under federal and state law and breach
of contract. Bioflex Medical Magnetics commenced an action against NDL and DHB
Capital in the US District Court for the Southern District of Florida. Bioflex
claims patent and trademark infringement, as well as, breach of contract. NDL
has filed a claim with its general liability insurance carrier, and they
acknowledge that it is their duty to defend this action. In June 1999 the
Company reached a settlement with Bioflex.
Thomas "Hitman" Hearns filed a complaint against NDL Products in the US
District court for the Eastern District of Michigan alleging unfair competition,
and violation of Mr. Hearn's right of publicity and seeking cancellation of
NDL's "Hitman" trademark. NDL has filed a claim with its general liability
insurance carrier. Due to the preliminary status of this litigation, counsel to
DHB is unable to predict the outcome of this litigation. In February 2000, the
case was settled.
Barry Finn, the former president of NDL Products Inc., obtained a
judgment against NDL Products Inc. and DHB Capital Group Inc. on March 25, 1999
for breach of an employment contract. The Company settled this lawsuit in June
1999.
The Company is involved in other minor litigation, none of which is
considered by management to be material to its business or, if adversely
determined, would have a material adverse effect on the Company's financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders.
There was no meeting of Security Holders in 1999. There will a meeting
for 1999 and 1998 by June 30,2000.
16
<PAGE>
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Common Stock of the Company has been traded on the NASDAQ Small Cap
MarketTM from September 4, 1998 until December 20, 1999 and traded under the
symbol "DHBT". Before and after that it was traded on over-the-counter market
("OTC Bulletin Board") since September 22, 1993. Prior thereto, there was no
public market for the Company's securities. Commencing on June 8, 1994, the
Company was listed on the Boston Stock Exchange and traded under the symbol
"DHB."
Low High
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 5.063
2nd Quarter 4.00 4.500
3rd Quarter 4.00 4.9375
4th Quarter 4.5625 5.6875
1999 1st Quarter 3.25 5.25
2nd Quarter 3.25 5.1875
3rd Quarter 3.0625 4.5625
4th Quarter .25 3.0625
2000 1st Quarter (through March 23, 2000) .75 1.75
No cash dividend were declared for the last three years. 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
28, 2000 was 144; however, the number of holders of record includes several
brokers and depositories for the accounts of their customers. The Company
estimates that approximately 1,600 beneficial owners hold shares of Common
Stock.
Recent Sales of Unregistered Securities
In January and May 1999, the Company sold 25,000 and 344,000 shares of
common stock in a private placement to accredited investors for proceeds of
$1,197,000. These proceeds were used for general working capital requirements.
The offering price per common share was $4.00 in January and $3.00 in May.
17
<PAGE>
Commissions of $20,000 was paid and the Company relied on the exemption to
registration provided by Regulation D pursuant to the Securities Act of 1933, as
amended.
In December 1999, the Company sold 6,150,000 shares and 66,700 shares
of common stock in a private placement to accredited investors for proceeds of
$3,125,000. These proceeds were used for general working capital requirements.
The offering price per common share was $0.50 and $0.75 respectively. A
commission of $43,700 was paid and the Company relied on the exemption to
registration provided by Regulation D pursuant to the Securities Act of 1933, as
amended.
Item 6. SELECTED FINANCIAL INFORMATION
The selected consolidated financial data set forth below for the year
ended December 31, 1999, 1998, 1997, 1996, 1995 were derived from the audited
consolidated financial statements of the Company. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related Notes appearing elsewhere in this 10-K.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net Sales $35,140,728 $33,073,418 $33,271,607 $23,378,698 $14,494,094
Cost of Sales 27,566,278 20,441,663 22,153,925 19,027,741 9,088,617
---------- ---------- ---------- ---------- ---------
Gross Profit 7,574,450 12,631,755 11,117,682 4,350,957 5,405,477
Selling, General and
Administrative expenses 17,445,669 9,778,336 9,641,655 8,668,950 5,140,399
---------- --------- --------- --------- ---------
Operating income (loss) (9,871,219) 2,853,419 1,476,027 (4,317,993) 265,078
Interest expense (2,908,495) (1,095,553) (339,754) (327,347) (303,615)
---------- ---------- -------- -------- --------
Other income (expense) (9,560,523) (21,957) 801,126 (1,054,723) 774,934
----------- -------- ------- ----------- -------
Income before discon-tinued
operations (22,340,237) 1,779,823 1,937,399 (5,700,063) 736,397
Discontinued operations (9,714,291) (1,628,371) -- -- --
----------- ----------- -- -- --
Income before income taxes
(32,054,528) 151,452 1,937,399 (5,700,063) 736,397
Income taxes 67,385 21,650 396,509 (834,191) 491,922
------ ------ ------- --------- -------
Net income (loss) $(32,121,913) $129,802 $1,540,890 $(4,865,872) $244,475
============= ======== ========== ============ ========
Earnings per share
Basic $(1.24) $0.005 $0.06 $(0.20) $0.01
Diluted $(1.09) $0.005 $0.05 $(0.20) $0.01
Balance Sheet Data
Working capital $2,047,312 $21,634,389 $13,621,014 $8,900,398 $6,526,004
Total Assets 23,299,497 41,363,810 27,674,629 19,160,419 19,465,208
Short-term debt 5,152,815 4,334,607 2,740,192 1,461,664 2,550,000
Long-term debt 16,280,051 11,915,116 1,411,258 1,444,091 ---
Stockholders' equity (10,186,322) 18,172,267 17,741,619 12,980,086 11,801,968
</TABLE>
18
<PAGE>
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Second Third Quarter Fourth Quarter
Quarter
<S> <C> <C> <C> <C>
Fiscal 1999
Net Sales $7,370,132 $8,347,387 $11,993,788 $7,429,421
Cost of sales 4,697,820 4,667,251 7,552,182 10,649,025
--------- --------- --------- ----------
Gross profit 2,672,312 3,680,136 4,441,606 (3,219,604)
1,941,518 2,605,673 3,023,836 9,874,642
--------- --------- --------- ---------
Selling, general and admin expense
Operating income 730,794 1,074,463 1,417,770 (13,094,246)
Other income (expense) (322,546) (323,392) (478,194) (11,344,886)
--------- -------- --------- -----------
Income before discontinued operations
408,248 751,071 939,576 (24,439,132)
(333,871) (612,597) (619,765) (8,148,058)
--------- -------- --------- -----------
Discontinued operations
Income before income taxes 74,377 138,474 319,811 (32,587,190)
Income taxes 42,967 9,410 10,523 4,485
------ ----- ------ -----------
Net income 31,410 129,064 309,288 (32,591,675)
====== ======= ======= ============
Earnings per share
Basic 0.001 0.005 0.012 (1.242)
===== ===== ===== =======
Diluted
0.001 0.004 0.010 (1.199)
===== ===== ===== =======
Weighted average shares outstanding
Basic shares 25,555,440 25,660,833 26,013,541 26,244,905
========== ========== ========== ==========
Diluted shares 30,074,496 30,135,176 30,319,931 27,175,515
========== ========== ========== ==========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal 1998 Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $8,600,681 $8,045,467 $7,585,125 $8,842,125
5,859,642 4,963,208 3,816,378 5,802,415
--------- --------- --------- ---------
Cost of sales
Gross profit 2,741,039 3,082,259 3,768,747 3,039,710
2,718,509 2,411,404 2,872,816 1,775,607
--------- --------- --------- ---------
Selling, general and admin expense
Operating income 22,530 670,855 895,931 1,264,103
Other income (expense) (93,559) (139,617) (367,480) (472,940)
-------- --------- --------- ---------
Income before discontinued operations
(71,029) 531,238 528,452 791,163
(406,092) (419,014) (265,157) (538,108)
--------- --------- --------- ---------
Discontinued operations
Income before income taxes (477,121) 112,224 263,294 253,055
7,950 3,534 7,469 2,697
----- ----- ----- -----
Income taxes
Net income (485,071) 108,690 255,825 250,358
========= ======= ======= =======
Earnings per share
Basic (0.017) 0.004 0.010 0.009
======= ===== ===== =====
Diluted
(0.017) 0.003 0.008 0.008
======= ===== ===== =====
Weighted average shares outstanding
Basic shares 27,137,331 24,774,376 24,832,394 25,160,628
========== ========== ========== ==========
Diluted shares 28,053,959 29,227,939 29,505,594 30,345,085
========== ========== ========== ==========
</TABLE>
19
<PAGE>
Item 7. 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. Except as
otherwise noted herein, this discussion relates to the Company and its
subsidiaries on a consolidated basis.
General
The Company is a holding company, which conducts business through its
wholly owned subsidiaries organized in three divisions. The Armor Group, which
develops, manufactures and distributes bullet and projectile resistant garments,
out 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 and the Electronic
Group, which engages in the manufacture and distribution of electronic
components. The Company sold the Electronics Group on March 10, 2000. 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 Sheriff's 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 telecommunications, health care, 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 bulletproof
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, PB Int'l, LEC and DHB KK are also sources of revenue from operations.
20
<PAGE>
The Company closed LAP in October 1999 and sold LEC and DHB KK in March 2000.
Results of Operations
Year Ended December 31, 1999, compared to year ended December 31, 1998.
Consolidated net sales of the Company for the year ended December 31, 1999
increased from $33,073,418 to $35,140,728 as a result of increased sales
volumes. The sales numbers do not include the revenue from discontinued
operations of approximately $7.5 million for the year ended December 31, 1999
and $8.7 million for the year ended December 31, 1998. In October 1999, the
Company announced its plan to divest its "Lanxide subsidiaries". This plan
included the closure of the LAP plant and to enter into negotiations for the
sale of the Electronics Group. The sale of the Electronics group was consummated
on March 10, 2000 for a cash payment of approximately $4.2 million. The
divestiture of the Lanxide subsidiaries reflects the Company's strategic
decision to refocus and rededicate is efforts and resources on the design,
development and production of technologically advanced soft body armor. All
revenue and expenditures associated with LAP and the Electronics Group are
presented as a loss from discontinued operations. The year ended December 31,
1998 has been restated to reflect the discontinued operations. The Company
believes that by divesting the Company of these subsidiaries it will increase
profitability and cash flow in 2000.
Gross profit in 1999 was a $7,574,450 as compared to $12,631,755 for
1998. Impacting a lower gross profit in 1999 was the write-off of additional
research and development costs. Previously, the Company's ballistic testing for
a contract was a prepaid expense and expensed to the cost of goods sold over the
life of the contract. This change resulted in approximately $200,000 additional
expenditures in 1999. Also impacting the gross profit was the write-off of
certain obsolete inventory.
The Company's selling, general and administrative expenses ("S, G & A,"
expenses") for 1999 increased to $ 17,445,669 from $9,778,336 in 1998. The
reason for the increase is S,G, & A expenses is by-fold. Professional fees were
increased approximately $5 million in 1999. The increase in professional fees is
associated with winning the interceptor contract award, the defense of the
protest of the award, the professional fees associated with becoming Y2K
compliant and ISO9000 certified, and the legal fees associated with the lawsuits
against the company. Most of the professional fees are non-recurring in nature
and the majority of the cases were settled in 1999. The Company had one year
where their liability insurance deductible was $100,000, now it is $5,000 per
year. A claim was made during the year under that insurance policy and the
Company expensed $100,000 in legal fees in the defense of the claim. The
insurance company will pay the balance of the claim. The second reason selling,
general and administrative expenses is higher during 1999 is that advertising
expenditures increased from approximately $640,000 in 1998 to approximately
$1,062,000 in 1999. The Sports group successfully negotiated agreements with
some large retail companies, which required a one-time advertising rebate.
Included in expense for 1999 is approximately $400,000 in advertising
incentives. The Sports Group also produced an infomercial for $250,000 in 1999.
Also the construction of DHB and subsidiaries website cost the company
approximately $70,000. Also included in
21
<PAGE>
expense was promotional samples given to promote our various new lines of vests
to our numerous distributors and salesman resulting in a $600,000 charge to
expense during 1999.
Other income (expense) also increased in 1999 to ($12,469,018) over
(1,073,596)in 1998. The primary reason was the Company suffered a dollar was on
October 15, 1999, the office and manufacturing facility located in Oakland Park,
Florida suffered extensive damage, $7.7 million due to Hurricane Irene.
Substantial damage was done to the building as well as inventory. The loss was
primarily inventory and the corresponding overhead expenses on that inventory.
The Company currently has a lawsuit with their insurance companies to recover
some of the loss, but as of today no agreement has been reached. The Company
expensed the entire loss in October 1999 and has not recorded a receivable for
any amount, which may be due from the insurance companies. Interest expense
increased due to an increase in borrowing of approximately $11,000,000
associated with the purchase of LAP and LEC. The Company also wrote off the
goodwill associated with their investment in Belgium Company as well as the
write down of their non-marketable securities, which resulted in a $688,000
expense.
Year Ended December 31, 1998, compared to year ended December 31, 1997.
Consolidated net sales of the Company for the year ended December 31, 1997
increased by $8,562,818 to $41,834,425. This increase was the result of the
acquisitions made this year, as well as, increased growth in sales volume for
Point Blank and NDL. Gross profit in 1998 increased $3,349,932 to $14,467,614.
The Company's gross profit percentage increased from 33% in 1997 to 35% in 1998
due to increased sales volumes as well as a change in the product mix being sold
that yield higher margins. The Company had a consolidated net income of
approximately $130,000 for 1998 as compared to a consolidated net income of
approximately $1,541,000 for 1997. The decrease in net income in 1998 was
primarily due to the acquisition of Lanxide Armor Products and Lanxide
Electronic Components. The Company has cut their operating cost significantly
throughout 1998 and believes these companies will not impact net income as
negatively in 1999.
The Company's selling, general and administrative expenses ("S, G & A,"
expenses") for 1998 increased to $13,065,411 from $9,641,655 in 1997. As a
percentage of net sales, the S,G, & A expenses were 31% in 1998 compared to 28%
in 1997. This increase of approximately, $3,424,000 was due mainly to the
acquisitions made during 1998.
Interest expense, net of interest income for 1998 increased to
$1,278,867 for 1998 from $339,754 in 1997 due to an increase in borrowing of
approximately $11,000,000 associated with the purchase of LAP and LEC.
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.
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. 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.
22
<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.
Liquidity and Capital Resources.
The Company's primary capital requirements over the next twelve months
are to assist PACA, Point Blank, NDL, PB Int'l, LAP, LEC and DHB KK, in
financing their working capital requirements. PACA, Point Blank, PB Int'l, LEC
and NDL sell the majority of their products on 60 - 90 day terms, and OPI, LAP
and DHB KK sells the majority of its products on 30-60 day terms, and working
capital is needed to finance the receivables, manufacturing process and
inventory. Working capital at December 31, 1999, 1998 and 1997 was $(912,766),
$19,103,841 and $13,621,014, respectively. Without the Electronics Group which
was subsequently sold in March 2000, the working capital as of December 31, 1999
would be $4,831,970.
Cash, cash equivalents and marketable securities totaled $473,441,
$1,048,445 and $2,586,690 at December 31, 1999, 1998 and 1997 respectively. The
cash generated by the net income for the year ended December 31, 1997, was
utilized to repurchase the Company's common stock in the open market, which
amounted to approximately $2,145,000 for the year ended December 31, 1997. The
Company has repurchased and retired an additional 700,995 shares of its common
stock in the open market for approximately $2,770,002 in 1998. During 1999, the
Company repurchased 75,150 shares in the open market for $315,320. At December
31, 1999 the Company had a loan of $5,000,000 from the Bank of New York which
was due in April 1999, bearing a default interest of approximately 12% per year.
Even thought the line had expired, the bank was working with the Company on a
repayment schedule. The assets of the Company are held as collateral for this
loan. The loan was repaid in March 2000, utilizing the proceeds from the sale of
the Electronics Group.
The Company's principal commitments at December 31, 1999 consisted of
obligations under its operating leases for its facilities.
The Company's capital expenditures for 1999, 1998, and 1997 were
$707,374, $1,423,267, $801,150 respectively. The Company sold the Electronics
Group in March 2000 for a cash payment of approximately $4,375,000 less an
outstanding loan balance to LEC for $141,216. The Company purchased LAP and LEC
in February 1998 for $4.8 million dollars,
23
<PAGE>
DHB KK in May 1998 for $375,000 and PB Int'l in February 1997 by issuing stock
in lieu of cash payment.
Special Note Regarding Forward-Looking Statements
This Annual Report contains certain forward-looking statements and information
relating to the Company that is 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 7A. Qualitative and Quantitative Disclosures About Market Risks
There has not been a material change in the Company's exposure to
interest rate and foreign currency risks since the date of the 1998 Form 10-K.
Interest Rate Risk: The Company's exposure to market risk for changes
in interest rate relates primarily to its investment portfolio. The Company
ensures the safety and preservation of the invested principal funds by investing
in safe and high-credit quality securities, which includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
Foreign Currency Exchange Risk: The Company transacts business in
various foreign countries. Its primary foreign currency cash flows are in Japan
and Western Europe. Currently, the Company does not employ a foreign currency
hedge program utilizing foreign currency exchange contracts as the foreign
currency transactions and risks to date have not been significant.
Item 8. Financial Statements: See Index to Consolidated Financial Statements
Appearing in the Consolidated Financial Statement Annexed Hereto.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
Part III
Item 10. 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
<PAGE>
David H. Brooks, age 45, has served as the Chairman and Chief Executive
Officer of the Company since its inception in 1992. In September 1998, Mr.
Brooks resigned his position as CEO and COB as a condition for listing on
NASDAQ. He is currently serving as Co-Chairman of the Board. 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.
24
<PAGE>
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.
Morton A. Cohen, age 64, is a director of the Company and 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. He
presently serves on the audit committee.
Joseph Giaquinto, age 36, has been President of NDL since March, 1995.
For more than 7 years prior thereto, he was a Vice President of Sales for
Tru-Fit Marketing, of Boston, Massachusetts. He has more than 12 years
experience in the selling, marketing & production of successful manufacturing
programs to mass merchandisers, chain stores and food retailers.
Sandra Hatfield, age 46, 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. She has over twenty-five years experience in all aspects of
the apparel industry, with specialties in quality assurance and control as well
as manufacturing engineering and job flow systems.
Gary Nadelman, age 48, as 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 and he became Co-Chairman of the Company in September
1998. He presently serves on the audit committee.
Leonard Rosen, age 62, 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.
25
<PAGE>
Dawn M. Schlegel, age 30, is the Chief Financial Officer of the
Company. She has also served as Treasurer and Secretary of the Company since
September 1999. She has functioned in various positions within the Company's
operations and finances since 1996. Mrs. Schlegel became a Certified Public
Accountant in 1993. She worked for Israeloff, Trattner & Co. CPA's P.C., a
certified public accounting firm, for five years prior thereto.
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.
Item 10. Executive Compensation.
Summary Compensation Table. The following table sets forth certain
summary information regarding the compensation of the executive officers whose
total salary and bonus for the year ended December 31, 1999, 1998, and 1997,
exceeded $100,000:
26
<PAGE>
<TABLE>
<CAPTION>
Long-term
Compenstation
Annual Compensation Awards
Other Annual Securities
Name and Principal Position Compensa- underlying
Year Salary(1) Bonus tion Options/SAR's(4)
<S> <C> <C> <C> <C>
1999 $143,750
David Brooks,(2) 1998 50,000 0 0 0
Co-Chairman 1997 191,917 0 0 0
1999 $ 58,333 0 0 0
Mary Kreidell 1998 100,000 0 0 0
Chief Financial Officer 1997 100,000 0 0 0
Sandra Hatfield 1999 $149,196 0 0 0
President of Point Blank 1998 149,080 0 0 0
1997 100,330 0 0 0
1999 $118,841 0 0 0
Joseph Giaquinto President of 1998 107,886 0 0 0
NDL 1997 100,000 0 0 0
Leonard Rosen,(3) President of 1999 $165,400 0 0
PACA 1998 163,750 0 0 0
1997 147,596 0 0 0
0
</TABLE>
-------------------------
(1) Although certain officers receive certain benefits, 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
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
27
<PAGE>
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.
Employment Agreements. Mr. Brooks, Co-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 2001, 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. In September
1998, Mr. Brooks' employment agreement was amended to reflect his position as
Co-chairman. There were no other changes to Mr. Brooks' employment agreement.
Stock Warrants. The Board of Directors 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 were granted to any of the executive
officers of the Company listed in the Summary Compensation Table above, no
options, warrants or similar securities, rights or interests were exercised by
any such executive officers with the exception of Joseph Giaquinto, who
exercised 49,500 warrants in 1998.
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.
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, 1999, 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 23, 2000, 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 the persons named as the owners hold
investment and voting power.
28
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Name Address Beneficially Owned Percent Owned1
---- ------- ------------------ --------------
<S> <C> <C> <C>
David Brooks 2,3 11 Old Westbury Rd 19,275,6002 49%
Old Westbury, NY 11568
Jeffrey Brooks 3 1500 South Ocean Blvd. 1,595,758 4%
Boca Raton, FL 33234
Morton Cohen 4 11 Old Westbury Rd 790,3007 *
Old Westbury, NY
Joseph Giaquinto 5 4031 NE 12th Terrace Oakland 63,800 *
Park, Fl 33334
Sandra Hatfield 6 4031 NE 12th Terrace Oakland 50,0006 *
Park, Fl 33334
Gary Nadelman 7 11 Old Westbury Rd 260,000 *
Old Westbury, NY
Leonard Rosen 8 148 Cedar Place 45,1425 *
Norris, TN
Dawn Schlegel 9 555 Westbury Ave.
Carle Place, NY 11514 5,000 *
All officers and Directors as a group 10 20,989,842 53%
</TABLE>
- -------------------------
1. Based upon 32,332,181 shares outstanding as of March 23, 2000 increased
by the currently exercisable options and warrants of 7,417,000 shares
of common stock held by directors and officers for an aggregate total
of 39,747,181 shares. Currently exercisable options or warrants are
those, which are exercisable within 60 days after the date of this 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 4,250,000 shares
which may be acquired by Mrs. Brooks upon exercise of a currently
exercisable warrant and 3,000,000 shares which may be acquired by Mr.
Brooks at $2.33 per share and 25,000 which may be acquired by Mr.
Brooks at $3.25 per share upon exercise of a currently exercisable
warrant.
3. Messrs. Jeffrey Brooks and David H. Brooks are brothers. Each disclaims
beneficial ownership of the shares owned by the other.
4. Clarion Capital Corporation, Clarion Offshore Fund LTD. and Clarion
Partners of which Morton Cohen is the executive and or director own
1,265,300 shares and 25,000 shares which may be acquired by Mr. Cohen
at $3.25 per share upon exercise of a currently exercisable warrant for
serving on the Board.
5. Includes 33,000 shares acquirable under currently exercisable warrants
awarded to Mr.Giaquinto.
29
<PAGE>
6. Includes 50,000 shares acquirable under currently exercisable warrants
awarded to Mrs. Hatfield.
7. Includes 25,000 shares acquirable under currently exercisable warrants
awarded to Mr. Nadelman.
8. Does not include 4,350 shares owned by Mr.
Rosen's wife, as to which Mr. Rosen disclaims beneficial ownership.
9. Includes 5,000 shares acquirable under currently exercisable warrant.
10. Includes 7,417,000 currently exercisable warrants of common stock held
by directors and officers.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has funded certain of its acquisitions through the use of
term loans from Mr. David H. Brooks, Chairman of the Board of the Company, and
Mrs. Terry Brooks, his wife. On February 6, 1998 Mr. Brooks loaned the Company
$6 million, $4.8 million of which was connection with the purchases of LAP and
LEC. The balance of the shareholder loans at December 31, 1999 is $16,046,469
These shareholders loans expire in November 2001. The interest paid on
shareholder loans to date is $475,447. In 1998, the Company granted warrants to
purchase 500,000 shares of Common Stock, at a price of $3.50 per share and
expiring in 2001, to Mrs. Brooks in consideration for the outstanding and
additional loans lent to the Company in February 1998. 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
manufacturing 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. 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.
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 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.
30
<PAGE>
Item 13. Exhibits and Reports on Form 8K: See Exhibits annexed hereto after the
financial statements.
Form 8-K, March 10, 2000 - Sale of the DHB Electronics Group
<PAGE>
Item 13 (a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation of DHB Capital Group Inc., a New York
corporation (hereinafter, "DHB-New York") 1
3.2 Certificate of Amendment to the Certificate of Incorporation of
DHB-New York filed November 5, 1992 1
3.3 Restated and amended Certificate of Incorporation of DHB New York
dated February 10, 1993 1
3.4 By-laws of DHB-New York 2
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 2
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 2
3.7 Plan of merger of DHB-New York into DHB-Delaware 2
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 2
4.3 Form of Warrant Agreement with respect to the Redeemable Warrant
together with list of purchasers 1
10.1 Employment Agreement dated November 6, 1992 between Protective
Apparel Corporation of America and Leonard Rosen 1
10.2 Lease dated November 6, 1992, between Protective Apparel Corporation
of America and Leonard Rosen in Norris, Tennessee 1
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") 1
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.4 GSA Contracts dated January 21, 1991 and March 19, 1992 1
10.10 Promissory Note between the Company and David Brooks dated November
6, 1992 1
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 6
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 7
10.25 Collateral Agreement [Third Party] dated October 18, 1994, made by
Mr. David H. Brooks in favor of the Secured Lender 7
10.26 Agreement dated August 4, 1995, terminating the American Body Armor
Non-Competition Agreement 9
10.27 Bill of sale dated August 3, 1995, made by the Trustee in Bankruptcy
of Point Blank Body Armor, L.P. 8
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 8
10.29 1995 Stock Option Plan 9
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 12
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:
10.37 Asset Purchase Agreement dated March 10, 2000.
10.38 Agreement on Transfer of Business dated March 10, 2000.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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.
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.
</TABLE>
- --------
33
<PAGE>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS INDEX
CONTENTS
Page
----
INDEPENDENT AUDITORS' REPORT F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997 F-5
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1999, 1998 and 1997 F-6
Notes to the Consolidated Financial Statements F-7 - F-18
Schedule II Valuation and Qualifying Accounts F-19
Pro Forma Balance at December 31, 1999 F-20
34
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Board of Directors of
DHB Capital Group Inc.
We have audited the accompanying consolidated balance sheets of DHB Capital
Group Inc. and Subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity, comprehensive
income and cash flows for each of the years in the period ended December 31,
1999. 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 audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of DHB
Capital Group Inc. and Subsidiaries as of December 31, 1999 and 1998 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/Paritz and Company P.A.
- --------------------------
Paritz and Company P.A.
Hackensack, New Jersey
March 13, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------
ASSETS 1999 1998
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 473,441 $ 519,117
Marketable securities -- 529,328
Accounts receivable, less allowance for doubtful
Accounts of $757,741and $507,739 5,208,365 7,913,767
Inventories 9,045,853 18,063,616
Net assets held for sale 3,928,980 3,952,697
Prepaid expenses and other current assets 596,441 1,932,291
------------ ------------
Total Current Assets 19,253,080 32,910,816
------------ ------------
PROPERTY AND EQUIPMENT 2,252,693 4,629,041
------------ ------------
OTHER ASSETS
Intangible assets, net 14,353 1,248,231
Investments in non-marketable securities 1,000,000 1,688,750
Deferred tax assets 444,000 334,000
Deposits and other assets 335,371 552,972
------------ ------------
Total Other Assets 1,793,724 3,823,953
------------ ------------
TOTAL ASSETS $ 23,299,497 $ 41,363,810
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Notes payable $ 5,000,000 $ 4,175,000
Accounts payable 9,495,663 5,129,147
Accrued expenses and other current liabilities 2,557,290 1,812,673
Current maturities of long term debt 152,815 159,607
------------ ------------
Total Current Liabilities 17,205,768 11,276,427
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
LONG TERM LIABILITIES
Long term debt, net of current maturities 233,582 387,512
Note Payable - stockholder 16,046,469 11,527,604
------------ ------------
Total Long Term Debt 16,280,051 11,915,116
------------ ------------
Total Liabilities 33,485,819 23,191,543
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY) (10,186,322) 18,172,267
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 23,299,497 $ 41,363,810
============ ============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 35,140,728 $ 33,073,418 $ 33,271,607
Cost of Goods Sold 27,566,278 20,441,663 22,153,925
------------ ------------ ------------
Gross Profit 7,574,450 12,631,755 11,117,682
Selling, general & administrative expenses 17,445,669 9,778,336 9,641,655
------------ ------------ ------------
Income (Loss) before other income (expense) (9,871,219) 2,853,419 1,476,027
------------ ------------ ------------
Other Income (Expense)
Interest expense, net of interest income (2,908,495) (1,095,553) (339,754)
Hurricane Loss (7,740,231) -- --
Other income 255,844 34,835 51,599
Settlement of employment contract (270,000) (220,000)
Income (Loss) on holding of equity investments (688,000) -- 372,000
Write down of investment in subsidiary (1,000,000) -- --
Realized gain (loss) marketable securities (16,050) 154,155 (72,175)
Unrealized gain (loss) on marketable securities (102,086) 52,967 449,702
------------ ------------ ------------
Total Other Income (Expense) (12,469,018) (1,073,596) 461,372
------------ ------------ ------------
Income (Loss) from Continuing Operations before
income taxes (22,340,237) 1,779,823 1,937,399
Income taxes 0 612,000 396,509
------------ ------------ ------------
Income (Loss) from Continuing Operations (22,340,237) 1,167,823 15,410,890
Discontinued Operations
Loss from discontinued operations (4,238,800) (1,016,371) --
Loss on disposal of discontinued operations (5,475,491) -- --
------------ ------------ ------------
Total discontinued operations (9,714,291) (1,016,371) --
Income (loss) before income taxes (32,054,528) 151,452 1,540,890
Income taxes 67,385 21,650 --
------------ ------------ ------------
Net Income (Loss) $(32,121,913) $ 129,802 $ 1,540,890
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Earnings (loss) per common share (Note 11)
Continuing Operations (0.86) $0.046 $0.06
Discontinued Operations (0.38) (0.041) 0.00
----- ------ ----
Net earnings (loss) per common Share $(1.24) $0.005 $0.06
====== ====== =====
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Number of Additional Common Stock Foreign
Common Par Paid-in Subscription Currency
Shares Value Capital Receivable Translation
------ ----- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1997 23,146,008 $23,146 $17,956,030 $(227,500) $ 0
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 3,639,004 227,500 -
Stock issued for services 13,500 13 67,487 - -
Exercise of warrants 100,000 100 149,900 - -
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 currency translation - - - - (6,135)
Purchase of treasury stock (583,859) (584) (2,144,833) - -
---------- ------- ----------- --------- --------
Balance December 31, 1997 25,347,224 $ 25,347 $ 20,953,107 0 $ (6,135)
Net Income for the year ended 12-31-98
Sale of common stock 686,500 687 2,705,313
Stock issued for services 65,211 64 260,780
Exercise of warrants 49,500 50 65,950
Effect of foreign currency translation 38,004
Purchase of treasury stock (700,995) (701) (2,769,301) - -
---------- ------- ----------- --------- --------
Balance December 31, 1998 25,447,440 $ 25,447 $ 21,215,849 0 $ 31,869
Net Loss for the year ended 12-31-99
Sale of common stock 6,714,700 6,715 4,241,609 (700,025)
Stock issued for services 204,214 204 390,777
Exercise of warrants 40,977 41 83,709
Effect of foreign currency translation (19,461)
Purchase of treasury stock (75,150) (75) (240,170) - -
---------- ------- ----------- --------- --------
Balance December 31, 1999 32,332,181 $ 32,332 $ 25,691,774 $ (700,025)A $ 12,408
========== ======== ============ ========== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Retained
Earnings
(Deficit) Total
--------- -----
<S> <C> <C>
Balance January 1, 1997 $(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 - 3,868,329
Stock issued for services - 67,500
Exercise of warrants - 150,000
Stock issued in settlement of a lawsuit - 150,000
Stock returned in settlement of a lawsuit - (73,634)
Effect of foreign currency translation - (6,135)
Purchase of treasury stock - (2,145,417)
----------- -----------
Balance December 31, 1997 $(3,230,700) $17,741,619
Net Income for the year ended 12-31-98 129,802 129,802
Sale of common stock 2,706,000
Stock issued for services 260,844
Exercise of warrants 66,000
Effect of foreign currency translation 38,004
Purchase of treasury stock - (2,770,002)
----------- -----------
Balance December 31, 1998 $(3,100,898) $18,172,267
Net Loss for the year ended 12-31-99 (32,121,913) (32,121,913)
Sale of common stock 3,548,299
Stock issued for services 390,981
Exercise of warrants 83,750
Effect of foreign currency translation (19,461)
Purchase of treasury stock - (240,245)
----------- -----------
Balance December 31, 1999 $(35,222,811) $(10,186,322)
============ ============
</TABLE>
A - The subscription receivable at December 31, 1999 was repaid in January
2000.
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Income (Loss) $(32,121,914) $ 129,802 $ 1,540,890
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 592,213 644,046 440,650
Valuation allowances/reserves 4,017,806 -- (372,000)
Stock issued for services 200,981 260,844 67,500
Stock issued in settlement of a lawsuit 190,000 -- 150,000
Stock returned in settlement of a lawsuit (73,596)
Stock issued to purchase a lease 210,000
Unrealized gain on transfers from non-marketable securities (598,900)
Deferred income taxes (110,000) -- 364,000
Changes in assets and liabilities (Increase) Decrease in:
Accounts receivable 2,705,402 (910,080) (2,663,565)
Marketable securities 529,328 1,174,478 1,237,121
Inventories 9,017,763 (4,146,468) (5,018,686)
Assets held for sale 23,717 (3,952,697)
Prepaid expenses and other current assets 1,335,850 (1,192,632) (472,203)
Deposits and other assets 217,601 (136,900) (86,972)
Increase (decrease) in:
Accounts payable 4,366,516 (1,101,290) 2,013,134
Accrued expenses and other current liabilities 768,988 531,064 439,377
State income taxes payable (24,371) 39,173 (14,134)
------------ ------------ ------------
Net cash used by operating activities (8,290,120) (8,660,660) (2,837,384)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchase of assets of subsidiary, net of cash
acquired -- (2,884,360) 134,356
Payments made for property and equipment (311,043) (819,870) (801,150)
------------ ------------ ------------
Net Cash used by investing activities (311,043) (3,704,230) (666,794)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of note payable- bank 825,000 1,500,000 1,275,000
Proceeds of note payable- shareholder 4,518,865 10,227,604 --
Proceeds from the issuance of long term debt -- 250,000 --
Principal payments on long-term debt (160,722) (16,483) (45,657)
Proceeds from the exercise of warrants - common stock 83,750 66,000 150,000
Foreign Currency Translation (19,461) 38,004 (6,135)
Purchase of treasury stock (240,245) (2,770,002) (2,145,417)
Net proceeds from sale of common stock 3,548,300 2,706,000 3,909,616
------------ ------------ ------------
Net cash provided by financing activities 8,555,487 12,001,123 3,137,407
------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NET DECREASE IN CASH AND EQUIVALENTS (45,676) (363,767) (366,771)
CASH AND CASH EQUIVALENTS - BEGINNING 519,117 882,884 1,249,655
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END $ 473,441 $ 519,117 $ 882,884
============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the years ended December 31,
-------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Income (Loss) $(32,121,914) $ 129,802 $ 1,540,890
Other comprehensive
income (loss)
Foreign currency translation (19,461) 38,004 (6,135)
------------ ------------ ------------
Comprehensive Income (Loss) $(32,141,375) $ 167,806 $ 1,534,755
============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-7
<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 three major divisions, DHB Armor Group,
DHB Electronics Group, and DHB Sports Group. DHB Armor Group
consists of Protective Apparel Corporation ("PACA"), Point Blank
Body Armor Inc., Lanxide Armor Products Inc. ("LAP") and Point Blank
International S.A ("PB Int'l"). DHB Sports Group consists of NDL
Products Inc. ("NDL") and Orthopedic Products Inc. ("OPI"). DHB
Electronics Group consists of Lanxide Electronic Components ("LEC")
and DHB KK. 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, aircraft armor,
bullet resistant plates and shields and related ballistic
accessories. DHB Sports Group manufactures and distributes
specialized protective athletic apparel and equipment and orthopedic
products. DHB Electronics Group manufactures and markets thermal
management, packaging and structural components for the electronic
industry within the United States and Japan.
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 are valued at the lower of cost (determined on the
first-in, first-out basis), or market.
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.
F-8
<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 than not that
some portion of the deferred tax asset will not be realized.
Research and development expenses
Research and development expenses are expensed as incurred.
The Company expensed approximately $825,000 in 1999, $523,000 in
1998 and $278,000 in 1997 for research and development costs.
Advertising expenses
The cost of advertising is expensed as incurred. The Company
incurred approximately $1,062,000, $642,000, and $904,000 of
advertising costs in 1999, 1998, and 1997 respectively.
<PAGE>
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Earnings per share
In 1997, the Company adopted SFAS no. 128, "Earnings Per
Share" which required retroactive adoption. The new standard
simplifies the computation of earnings per share and requires the
presentation of basic and diluted earnings per share. Basic income
per share amounts are based on the weighted average number of shares
of common stock outstanding during the years presented. Diluted
income per share amounts are based on the weighted average number of
shares of common stock and stock options outstanding during the
years presented.
Comprehensive income (loss)
Effective January 1, 1998, the Company adopted the provision
of statement No. 130, Reporting comprehensive income which modifies
the financial presentation of comprehensive income and its
components. In accordance with this Statement, a Consolidated
Statement of Comprehensive Income is included in the Consolidated
financial statements to present all changes in Stockholders' equity
in the periods presented other than changes resulting from
transactions relating to the Company's stock.
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, if
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.
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.
Note 2 SUPPPLEMENTAL CASH FLOW INFORMATION
Cash paid for: 1999 1998 1997
---- ---- ----
Interest 355,160 308,282 269,450
Taxes 63,933 78,877 11,971
During the year ended December 31, 1998, the Company purchased
LEC and LAP for a cash payment of $4.8 million less cash acquired of
$250,927. The Company also purchased DHB KK for a cash payment of
$375,000. The total cash paid for acquisitions during 1998, net of
<PAGE>
cash acquired total $4,924,073. During the year ended December 31,
1997, the Company had non-cash investing activities when it issued
common stock to acquire all of the outstanding stock of PB Int'l.
F-10
<PAGE>
Note 3 BUSINESS ACQUISITIONS
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 an
additional loan from the Company's majority shareholder. 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
for heat management applications in the electronics industry. This
transaction was accounted for as a purchase. On May 28, 1998, the
Company acquired a Japanese subsidiary, DHB KK, for a cash payment
of $375,000. This company markets LEC's products in Japan.
In February, 1997 DHB acquired 100% of the issued and
outstanding common stock of Zunblindage S.A., a Belgian
corporation, in exchange for 666,000 shares of DHB common stock
valued at an aggregate of $1,000,000. In January 1999, Zunblindage
S.A.'s name was changed to Point Blank International ("PB Int'l").
PB Int'l manufactures and distributes bullet resistant equipment,
apparel and related products generally in Europe and the Middle
East.
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 PB Int'l
resulted in goodwill of $541,000. The purchases of LAP, LEC, and
DHB KK resulted in goodwill of approximately $500,000.
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 material 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:
1999 1998
---- ----
Cost $0 $476,361
Unrealized gain -- 52,967
-- --------
Market Value $0 $529,328
== ========
The Company 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 at
December 31, 1998. An additional valuation allowance of $688,750 was
realized during 1999 to bring the carrying value of the securities to
$1,000,000 at December 31, 1999.
F-11
<PAGE>
Note 5 INVENTORIES
Inventories consist of the following:
1999 1998
---------- ----------
Finished goods $3,376,747 $7,901,221
Work in process 1,889,701 5,533,648
Raw materials and supplies 5,001,428 6,566,678
--------- ----------
Sub-total 10,267,876 20,001,547
Discontinued Operations (1,222,023) (1,937,931)
----------- -----------
$ 9,045,845 $18,063,616
=========== ===========
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
1999 1998 useful life
--------- ---------- -----------
<S> <C> <C> <C>
Land $47,500 $47,500 --
Buildings 427,500 427,500 39 years
Machinery and equipment 5,012,360 6,709,810 5-30 years
Furniture, fixtures and
computer equipment 828,552 796,049 5-7 years
Transportation equipment 234,270 231,579 3-5 years
Leasehold improvements 688,560 549,746 5-31.5 years
------- -------
7,238,742 8,762,184
Less accumulated depreciation and
amortization 2,119,578 1,657,951
--------- ---------
Sub-total 5,119,164 7,104,233
Discontinued Operations 2,866,471 2,475,192
--------- ---------
$2,252,693 $4,629,041
</TABLE>
Note 7 INTANGIBLE ASSETS
A summary of intangible assets and the estimated lives used in
the computation of amortization is as follows:
<TABLE>
<PAGE>
<CAPTION>
Estimated
1999 1998 useful life
---- ----
<S> <C> <C> <C>
Goodwill $ - $1,194,473 15 years
On-going
government - 612,106 1-5 years
contracts
Other 163,261 178,261 1-7 years
------- -------
163,261 1,984,840
Less accumulated amortization
131,210 713,172
Sub-total 32,051 1,271,668
Discontinued Operations 17,698 23,437
-------- ----------
$ 14,353 $1,248,231
======== ==========
</TABLE>
F-12
<PAGE>
Note 8 NOTES PAYABLE - BANK
Notes payable - bank was due in April 1999 and is collateralized
by the assets of the Company. The weighted average interest rate
on these borrowings was approximately 12% at December 31, 1999.
The entire note was repaid in March 2000 using the proceeds from
the sale of the DHB Electronics Group.
Note 9 NOTES PAYABLE STOCKHOLDER
These notes bear interest at 12% per annum and are due, as
extended, in November 2001
Note 10 LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following: 1999 1998
---- ----
<S> <C> <C>
Notes payable in monthly principal installments of $3,600. $29,998 $65,998
Interest at the rate of 9% per annum accrues and is payable
upon maturity in 2001.
Capital lease obligation payable in monthly payments of 169,519 238,390
$5,281 this note is collateralized by certain equipment
originally costing $250,000
Note payable in monthly installments of $4,729 inclusive of 153,500 201,097
interest at 5.1%.
Other 33,380 41,634
------ ------
386,397 547,119
Less Current Portion 152,815 159,607
------- -------
$233,582 $387,512
======== ========
</TABLE>
Long-term debt matures as follows:
2000 $152,815
2001 130,487
2002 97,237
2003 5,857
--------
Total $386,397
========
Note 11 STOCKHOLDERS' EQUITY
Common and preferred stock
DHB has 100,000,000 shares authorized of its $.001 par value
Common. In addition, DHB is authorized to issue 1,500,000 shares
of Class A 10% convertible Preferred Stock, none of which was
issued and outstanding at December 31, 1999 and 1998.
F-13
<PAGE>
Note 11 STOCKHOLDERS' EQUITY - Continued
Earnings Per share
Earnings per common share calculations are based on the weighted
average number of common shares outstanding during each period;
25,866,880, 24,982,394 and 24,837,771 for the years ended December 31,
1999, 1998, and 1995, respectively. Calculations for diluted earnings
per share are based on the weighted average number of outstanding
common shares and common share equivalents during the periods;
29,511,115, 29,685,262, and 28,053,959 for the years ended December 31,
1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
Income (loss) Shares Per Share
(numerator) (denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Loss from continuing operations-1999 $(22,340,237) 25,866,880 $ (1.24)
----------- ---------- ------
Diluted EPS $(22,340,237) 25,866,880 $ (1.24)
============= ========== =====
Basic EPS
Earnings from continuing operations-1998 $ 1,779,823 24,982,394 $0.005
----------- ---------- ------
Diluted EPS $ 1,779,823 24,982,394 $0.005
=========== ========== ======
Basic EPS
Earnings from continuing operations-1997 $ 1,937,399 24,837,771 $0.06
----------- ---------- ------
Diluted EPS $ 1,937,399 24,837,771 $0.06
=========== ========== =====
</TABLE>
Stock options outstanding of 3,644,236, and 4,704,868 and
3,216,188 at December 31, 1999, 1998, and 1997, respectively, have
not been included in diluted earnings per common share because to
do so would have bee antidilutive for the periods presented.
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 was 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 the plan.
<PAGE>
Stock warrants
During 1999, the three members of the board were awarded
25,000 warrants exercisable at $3.25 for three years for serving as
a board member. 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 2003. In A relative
of the majority stockholder, stock warrants to purchase 3,750,000
shares of common stock for $1.33 per share expiring in 1999, which
were extended until September 2003.
Note 12 DISCONTINUED OPERATIONS.
In October 1999, the Company announced its strategic
decision to discontinue the operations of its Lanxide Subsidiaries,
LAP and the Electronics Group (LEC and DHB KK). LAP operations where
shut down while the Electronics Group was put up for sale. The sale
price of the division would be $4.275 million, less the outstanding
long-term debt. The transaction was closed on March 10, 2000. See -
Note 19 - Subsequent Events. The results of the closure of LAP and
the Electronics Group have been reported separately as discontinued
operations. Prior year financial statements have been restated to
present LAP and the Electronics Group as a discontinued operation.
F-14
<PAGE>
Note 12 DISCONTINUED OPERATIONS.
The components of net assets of the discontinued operations
included in the balance sheet are as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
---------- ----------
<S> <C> <C>
Current assets (mainly trade receivables and inventory) $1,865,454 $3,037,574
Accounts payable and accrued expenses 896,552 1,615,425
---------- ----------
Net current assets 968,902 1,422,149
---------- ----------
Property, plant and equipment, net 2,866,471 2,475,192
Other non-current assets 93,607 55,356
---------- ----------
Net Long-term assets 2,960,078 2,530,548
---------- ----------
</TABLE>
The condensed statements of operations relating to the discontinued
operations are presented below
1999 1998
Net Sales $7,514,541 $8,761,007
Cost and expenses 11,753,701 10,390,038
---------- ----------
Loss before income taxes (4,239,160) (1,629,031)
Provision for taxes --- 660
Net Loss (4,239,160) (1,628,371)
----------- -----------
Note 13 HURRICANE LOSS
On October 15, 1999, the office and manufacturing facility located
in Oakland Park, Florida suffered extensive damage due to
hurricane Irene. Substantial damage was done to the building as
well as inventory. The Company currently has a lawsuit with their
insurance companies to recover some of the loss, but as of today
no agreement has been reached. The Company expensed the entire
loss in October 1999 and has not recorded a receivable for any
amount, which may be due from the insurance companies.
Note 14 RELATED PARTY TRANSACTIONS
A summary of related party transactions for the years ended
December 31, 1999, 1998 and 1997 is as follows:
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Rental expense accrued to the
relatives of the majority stockholder $711,858 $753,235 $546,000
Rental expense accrued to the President
of a subsidiary of DHB 48,000 48,000 48,000
Interest, rental, professional and other
expenses accrued on a loan from
DHB's majority stockholder 5,064,765 992,359 177,340
</TABLE>
See Note 14 for details of the lease with a related party
F-15
<PAGE>
Note 15 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.
Approximately 35%, 22% and 27% for the years ended December
31, 1999, 1998 and 1997, 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. A substantial portion 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 16 FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, accounts
receivable, accounts payable and long-term debt. The carrying
values of cash, accounts receivable, accounts payable and
long-term debt approximate their fair values. The Company's
long-term debt is not traded and has no quoted market value,
however management believes any difference between its carrying
value and fair value would not be material in relation to the
consolidated financial statements.
Note 17 SEGMENT INFORMATION:
The Company operates in three principal segments:
Ballistic-resistant equipment, Electronics and Protective
athletic/medical equipment. The Company designs, manufacturers and
markets products in the segments as described above.
F-16
<PAGE>
Note 17 SEGMENT INFORMATION - Continued
Financial information on the Company's business segments was as
follows:
<TABLE>
<CAPTION>
Net Sales 1999 1998 1997
- --------- ------------ ------------ ------------
<S> <C> <C> <C>
Ballistic-resistant equipment $ 30,358,537 $ 28,695,127 $ 26,805,471
Electronic components 8,841,393 8,398,107 --
Protective athletic & medical equipment 6,236,438 8,388,544 7,094,808
------------ ------------ ------------
45,436,368 45,481,778 33,900,279
Less inter-segment sales (2,781,099) (3,647,353) (628,672)
Less discontinued operations (3) (7,514,541) (8,761,007)
------------ ------------ ------------
Consolidated Net Sales $ 35,140,728 $ 33,073,418 $ 33,271,607
============ ============ ============
Income from Operations
Ballistic-resistant equipment $(9,629,504) $ 2,485,395 $ 2,017,281
Electronic components (1,835,137) (782,908) --
Protective athletic & medical equipment (2,390,834) 1,207,743 498,062
Corporate and Other (1) (2,824,826) (1,508,027) (1,039,316)
------------ ------------ ------------
Sub-total (16,680,301) 1,402,203 1,476,027
Less discontinued operations (3) 6,809,082 1,451,216 --
------------ ------------ ------------
Consolidated Operating Income $(9,871,219) $ 2,853,419 $ 1,476,027
============ ============ ============
Identifiable Assets (2)
Ballistic-resistant equipment $ 14,283,739 $ 23,743,604 $ 17,572,698
Electronic components 6,177,019 5,749,438 --
Protective athletic & medical equipment 3,335,253 8,844,627 6,322,150
------------ ------------ ------------
23,796,011 38,337,669 23,894,848
Corporate and Other 400,038 4,641,566 3,779,781
------------ ------------ ------------
Consolidated Net Assets 24,196,049 42,979,235 27,674,629
Discontinued operations (3) (4,825,532) (5,568,122) --
Assets held for sale 3,928,980 3,952,697
------------ ------------ ------------
Adjusted Net Assets $ 23,299,247 $ 41,363,810 $ 27,674,629
============ ============ ============
</TABLE>
Foreign sales accounted for 17%, 12% and 10%, respectively of the
total revenues for the years ended December 31, 1999, 1998 and 1997.
Foreign identifiable assets accounted for 13%, 5% and 2% of the total
assets at December 31, 1999, 1998 and 1997.
(1) Corporate and Other includes corporate general and administrative expenses
(2) Corporate assets are principally cash, marketable securities, and deferred
charges (3) Discontinued operations included the Companies sold, LEC and DHB KK
as well as the loss from the shutdown of the LAP plant.
F-17
<PAGE>
Note 18 COMMITMENTS AND CONTINGENCIES
Leases
DHB leases a warehouse and manufacturing facility from a
partnership indirectly owned by the majority stockholder of DHB
on a month-to-month basis with annual rentals of $480,000. 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 on a month-by-month basis
with annual rentals of $43,200, plus real estate taxes.
The Company has a four-year lease for a 60,000 square foot
warehouse adjacent to the existing Florida facility with an
annual rental of approximately $210,000.
In association with the acquisition of PB Int'l, 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.
In association with the acquisitions of LAP and LEC, the
Company assumed a lease for 82,000 square feet of office and
warehouse facility in Delaware, as well as, a 3,500 square foot
ballistic testing range. The lease expires in March 2001 and
provides for annual base rentals of $420,000. This location was
relinquished when the Company sold LEC in March 2000.
The Company entered into a three-year lease for their
corporate headquarters January 1, 2000. The premises are for a
3,750 square foot office space with annual rental of $44,250 with
annual increases of 5%.
Rent and real estate tax expense charged to operations for
the years ended December 31, 1999, 1998 and 1997 aggregated
approximately $1,684,000, $1,917,000 and $962,000, 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 $325,000 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.
F-18
<PAGE>
Note 18 COMMITMENTS AND CONTINGENCIES - Continued
Litigation
In October 1999, certain agencies of the United States
government began a preliminary investigation of the Company's
employment practices, amongst other things. Management has
indicated that the counsel for the Company feels that the
Government does not intend to pursue any criminal actions and
management believes the exposure to civil penalties is not a
material amount.
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.
Note 19 INCOME TAXES
Components of income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal
Current $ 0 $ 0 $ 0
Deferred 0 0 374,000
- - -------
Total federal 0 0 374,000
State
Current 67,385 21,650 22,509
Deferred 0 0 0
- - -
Total state $67,385 $ 21,650 $ 22,509
======= ======== ========
</TABLE>
The tax effects of significant items comprising the Company's net deferred tax
balances are as follows:
<PAGE>
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Deferred tax asset $10,920,000 $1,000,000
Net operating loss carryforwards 85,000 172,000
Accounts receivable reserve not deducted for tax purposes 212,000 0
Write down of marketable securities not deducted for tax purposes 234,000 213,000
Write down of investment in subsidiaries not deducted for
tax purposes 340,000 0
----------- -
11,791,000 1,385,000
Less valuation allowance 11,347,000 1,051,000
----------- ---------
Net deferred tax asset $ 444,000 $ 334,000
=========== =========
</TABLE>
F-19
<PAGE>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
SCHEDULE II TO THE FINANCIAL STATEMENTS
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1999, 1998 AND 1997
Allowances deducted from related balance sheet accounts:
<TABLE>
<CAPTION>
Investment Net Write
in Non- Down of
Accounts marketable investment in
Receivable Inventory securities subsidiaries
---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 303,230 $ 700,000 $1,000,000 $ 529,579
Additions charged to
costs and expenses 154,509
Subtractions charged to
costs and expenses -- -- -- --
---------- ---------- ---------- ----------
Balance at December 31, 1998 $ 507,739 $ 0 $ 628,000 $ 529,579
========== ========== ========== ==========
Additions charged to
costs and expenses 250,002 624,898 688,750 1,000,000
Subtractions charged to
costs and expenses -- -- -- --
---------- ---------- ---------- ----------
Balance at December 31, 1999 $ 757,741 $ 624,898 $1,316,750 $1,529,579
========== ========== ========== ==========
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
PROF FORMA CONSOLIDATED BALANCE SHEETS
DECMEBER 31, 1999
ASSETS Less
------ ----
Companies Pro Forma
Consolidated sold Adjustments Consolidated
------------ ---- ----------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 473,441 $ 188,871 1,850,000 $2,1345401
Accounts Receivable 5,780,292 571,927 5,208,365
Inventories 10,267,876 1,222,023 9,045,853
Prepaid expenses and other current assets 667,945 71,504 -- 596,441
----------- ---------- --------- ----------
Total Current Assets 17,189,554 2,054,325 1,850,000 16,985,229
----------- ---------- --------- ----------
PROPERTY AND EQUIPMENT 5,119,164 2,866,471 2,252,693
--------- --------- ---------
OTHER ASSETS
Intangible assets, net 32,051 17,698 14,353
Investments in non-marketable securities 1,000,050 1,000,050
Deferred tax assets 444,000 444,000
Deposits and other assets 411,280 71,504 40,000 335,371
----------- ---------- --------- ----------
Total Other Assets 1,887,331 5,054,403 40,000 1,793,724
----------- ---------- --------- ----------
TOTAL ASSETS $24,196,049 $1,890,000 $21,031,646
=========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Note payable $5,000,000 $2,575,000 $(2,425,000) $ --
Current maturities of long term debt 152,815 52,509 100,306
Accounts payable 10,188,364 692,701 9,495,663
Accrued expenses and other current liabilities 2,761,141 2,888,633 2,684,782 2,557,290
----------- ---------- --------- ----------
Total Current Liabilities 18,102,320 6,208,843 259,782 12,153,259
---------- --------- ------- ----------
LONG TERM LIABILITIES
Long term debt, net of current maturities 233,582 107,400 126,182
Note Payable - stockholder 16,046,469 - 16,046,469
---------- --------- ----------
Total Long Term Debt 16,280,051 107,400 16,172,651
---------- ------- ----------
Total Liabilities 34,382,371 6,316,243 259,782 28,325,910
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (10,186,322) (1,261,840) 1,630,218 (7,294,264)
------------ ----------- --------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $24,196,049 $5,054,403 $1,890,000 $21,031,646
=========== ========== ========== ===========
</TABLE>
F-21
<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 24d day of
March, 2000.
DHB Capital Group Inc.
/S/ David Brooks
----------------
David H. Brooks
Co-Chairman of the Board
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 24, 2000.
Signature Capacity Date
/S/ David H. Brooks Co-Chairman of the Board, March 24, 2000
- ------------------- and Director
David H. Brooks
/S/ Dawn Schlegel Treasurer March 24, 2000
- -----------------
Dawn Schlegel Principal Financial Officer
Principal Accounting Officer
/S/ Gary Nadelman Co-Chairman and Director March 24, 2000
-----------------
Gary Nadelman
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 473,441
<SECURITIES> 0
<RECEIVABLES> 5,208,365
<ALLOWANCES> 757,741
<INVENTORY> 9,045,853
<CURRENT-ASSETS> 19,253,080
<PP&E> 2,252,693
<DEPRECIATION> 1,841,442
<TOTAL-ASSETS> 23,299,497
<CURRENT-LIABILITIES> 17,205,768
<BONDS> 0
<COMMON> 32,032
0
0
<OTHER-SE> (10,154,290)
<TOTAL-LIABILITY-AND-EQUITY> 23,299,497
<SALES> 35,140,728
<TOTAL-REVENUES> 35,140,728
<CGS> 35,306,509
<TOTAL-COSTS> 45,001,947
<OTHER-EXPENSES> 12,469,018
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,908,495
<INCOME-PRETAX> (32,121,913)
<INCOME-TAX> 67,385
<INCOME-CONTINUING> (22,340,335)
<DISCONTINUED> (9,714,291)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,122,011)
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
