SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 30, 1996
-----------------------------
Armor Holdings, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-18863 59-3392443
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State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
191 Nassau Place Road, Yulee, Florida 32097
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (904) 261-4035
---------------------------
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(Former name or former address, if changed since last report.)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS
In connection with the acquisition by Armor Holdings, Inc.
(the "Company") of substantially all of the assets of Defense Technology
Corporation of America, a Wyoming corporation ("DTCoA") (such acquisition, the
"DTCoA Acquisition"), the Company's Current Report on Form 8-K, filed on
October 9, 1996, is hereby amended to include the following financial
statements and pro forma financial information, which were previously omitted
from such Current Report on Form 8-K.
(a) Financial Statements of Business Acquired.
The following financial statements for DTCoA, are submitted
herewith:
Page of
Form 8-K/A-1
------------
Independent Auditor's Report..................................................4
Balance Sheets - December 31, 1995 and December 31, 1994......................5
Statements of Income and Retained Earnings - December 31, 1995
and December 31, 1994................................................7
Statements of Cash Flows - December 31, 1995
and December 31, 1994................................................8
Notes to Financial Statements................................................10
The following unaudited interim financial information for DTCoA is
submitted herewith:
Page of
Form 8-K/A-1
------------
Unaudited Balance Sheet - June 30, 1996......................................16
Unaudited Statements of Income and Retained Earnings-
Six months ended June 30, 1996 and June 30, 1995....................18
Unaudited Statements of Cash Flows - Six months ended
June 30, 1996 and June 30, 1995.....................................19
Note to Unaudited Interim Financial Statements...............................21
(b) Pro Forma Financial Information.
The following unaudited pro forma income statements for the
six month period ended June 30, 1996 and for the year ended December 31, 1995
gives effect to the DTCoA Acquisition on September 30, 1996 and the issuance of
5% Convertible Subordinated Notes due April 30, 2001 (the "Notes") by the
Company on April 30, 1996 as if the DTCoA Acquisition
-2-
and Note offering had occurred as of January 1, 1996 and January 1, 1995,
respectively. The following unaudited pro forma balance sheet as of June 30,
1996 gives effect to the issuance of the Notes, the DTCoA Acquisition and the
acquisition of the NIK Public Safety Product Line from Ivers-Lee Corporation on
July 15, 1996, as if such transactions had occurred on June 30, 1996.
These unaudited pro forma financial statements may not be
indicative of the results that actually would have occurred if the transactions
referred to above had been in effect on the dates indicated or the results that
may be obtained in the future.
Page of
Form 8-K/A-1
------------
Unaudited Pro Forma Income Statements for the six
months ended June 30, 1996..........................................22
Unaudited Pro Forma Income Statements for the year
ended December 31, 1995.............................................23
Unaudited Pro Forma Balance Sheet - June 30, 1996............................24
Notes to Unaudited Pro Forma Financial Statements............................26
-3-
[LETTERHEAD OF MACY, MASON & SCHWARTZKOPF]
CERTIFIED PUBLIC ACCOUNTANTS
225 SOUTH DAVID
CASPER, WYOMING 82601
TELEPHONE (307) 266-1760 FAX (307) 234-5414
August 27, 1996
INDEPENDENT AUDITOR'S REPORT
To the Stockholder
Defense Technology Corporation of America
We have audited the accompanying balance sheets of Defense Technology
Corporation of America (an S corporation) as of December 31, 1995 and 1994, and
the related statements of income and retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 audits to
obtain reasonable assurance about whether the 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 financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Defense Technology Corporation
of America as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in Note 16 to the financial statements, on August 23, 1996 the
Company entered into a definitive purchase agreement to sell a substantial
portion of its assets in consideration for cash, securities, and assumption of
liabilities. The sale will represent a significant portion of the Company's
total assets and operations.
/s/ MACY, MASON & SCHWARTZKOPF
MACY, MASON & SCHWARTZKOPF
CERTIFIED PUBLIC ACCOUNTANTS
-4-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
BALANCE SHEETS
DECEMBER 31, 1995 & 1994
1995 1994
------------------------- -------------------------
ASSETS
CURRENT ASSETS
Cash & Cash Equivalents
(Notes 6 & 14) 149,089 13,537
Accounts Receivable - Net of
Allowance for Doubtful Accounts
of $75,000 in 1995 and $25,000
in 1994 (Notes 6, 9, & 14) 2,115,492 1,522,498
Available for Sale Securities
(Note 2) 106,875 200,000
Notes Receivable (Notes 3, 6,
& 14) 13,055 77,176
Inventories (Notes 1 & 6)
Raw Materials 829,423 615,251
Work In Progress 411,811 494,524
Finished Goods 2,722,820 2,293,994
Consigned -- 3,964,054 103,284 3,507,053
---------- ----------
Other Current Assets 139,435 194,398
---------- ----------
TOTAL CURRENT ASSETS 6,488,000 5,514,662
OTHER ASSETS
Investments 94,785 96,847
Intangible Assets - Net of
Accumulated Amortization
(Note 1) 64,950 62,113
Other Assets 20,305 180,040 -- 158,960
---------- ----------
PROPERTY, PLANT, & EQUIPMENT
(Notes 1, 4, 6, & 7)
Cost 7,060,370 6,932,993
Less Accumulated Depreciation 979,637 6,080,733 988,065 5,944,928
---------- ---------- ---------- ----------
12,748,773 11,618,550
========== ==========
The accompanying notes are an integral part of the financial statements.
-5-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
BALANCE SHEETS
DECEMBER 31, 1995 & 1994
1995 1994
---------------------------- ----------------------------
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Cash Overdraft 88,668 87,371
Accounts Payable 1,965,803 897,330
Accrued Taxes & Expenses 178,928 195,668
Litigation Settlement Payable
(Note 5) 410,000 --
Customer Deposits 46,415 --
Unearned Income 42,862 --
Notes Payable (Note 6) 4,562,288 3,270,994
Obligation Under Capital Lease
(Note 7) 5,262 14,483
----------- -----------
TOTAL CURRENT LIABILITIES 7,300,226 4,465,846
LONG TERM LIABILITIES
Notes Payable (Note 6) 4,995,410 4,379,430
Obligation Under Capital Lease
(Note 7) -- 5,262
Unearned Income 158,924 5,154,334 235,485 4,620,177
----------- -----------
STOCKHOLDER'S EQUITY (Note 8)
Common Stock, no par value,
5,625 shares authorized,
4,613 shares issued and out-
standing at amount paid in 789,271 789,271
Retained Earnings (Accumulated
Deficit) (273,279) 1,886,910
Less - Cost of 113 Shares of
Treasury Stock (43,654) (43,654)
Unrealized Loss on Available
for Sale Securities (Note 2) (178,125) 294,213 (100,000) 2,532,527
----------- ----------- ----------- -----------
12,748,773 11,618,550
=========== ===========
Subsequent Events (Notes 6, 10, & 16)
Contingencies (Note 15)
The accompanying notes are an integral part of the financial statements.
-6-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF INCOME & RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 & 1994
1995 1994
----------------------------- -----------------------------
Net Sales (Note 14) 10,705,899 11,524,262
Cost of Goods Sold (Note 9) 5,705,885 5,451,815
----------- -----------
Gross Profit 46.7% 5,000,014 52.7% 6,072,447
Selling, General, &
Administrative Expenses
(Notes 1, 10, & 11) 5,587,276 5,059,535
----------- -----------
Net Operating Income (Loss) (587,262) 1,012,912
OTHER INCOME (EXPENSE)
Interest Income 1,868 9,127
Interest Expense (Note 6) (648,024) (479,945)
License Agreement 42,862 43,111
Loss on Disposition of
Equipment (28,253) (166,879)
Loss on Disposition of
Investments (9,066) --
Miscellaneous 8,513 --
Litigation Settlement
(Note 5) (410,000) (1,042,100) -- (594,586)
----------- ----------- ----------- -----------
NET INCOME (LOSS) (Note 12) (1,629,362) 418,326
Retained Earnings, January 1 1,886,910 1,986,121
----------- -----------
257,548 2,404,447
Less: Dividends Paid 530,827 517,537
----------- -----------
RETAINED EARNINGS (ACCUMULATED
DEFICIT), DECEMBER 31 (273,279) 1,886,910
=========== ===========
The accompanying notes are an integral part of the financial statements.
-7-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 & 1994
1995 1994
-------------------------- ---------------------------
Cash Flows from Operating
Activities:
Net Income (1,629,362) 418,326
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Used in Operating Activities:
Depreciation & Amortization 713,894 741,409
Loss on Disposition of
Equipment 28,253 166,879
Loss on Sale of Investments 9,066 --
Write-Off of Notes Receivable 87,714 35,000
Increase in Accounts
Receivable (643,624) (743,817)
Increase in Inventory (457,001) (788,201)
Decrease in Other Current
Assets 54,963 61,584
Increase in Other Assets (20,305) --
Increase (Decrease) in
Accounts Payable 1,068,473 (506,431)
Increase (Decrease) in
Accrued Taxes & Expenses 81,992 (102,265)
Decrease in Accrued Income
Tax -- (197,923)
Decrease in Accounts
Payable - Def-Tec of Ohio -- (5,452)
Increase in Customer Deposits 46,415 --
Decrease in Unearned Income (33,699) (105,144)
Increase in Litigation
Settlement Payable 410,000 --
Other Adjustments -- 6,295
---------- ----------
Total Adjustments 1,346,141 (1,438,066)
---------- ----------
Net Cash Used in Operating
Activities (283,221) (1,019,740)
Cash Flows from Investing
Activities:
Proceeds from Sale of
Investments 5,934 --
Payments Received on Notes
Receivable 26,971 24,655
Note Receivable Issued -- (7,907)
Proceeds from Sale of
Equipment 7,577 50,489
Purchases of Property,
Plant, Equipment, &
Intangibles
Total Cost (956,180) (566,727)
Less Amounts Financed 140,005 171,598
---------- ----------
Net Cash Used in Investing
Activities (775,693) (327,892)
---------- ----------
Subtotal (1,058,914) (1,347,632)
(CONTINUED)
The accompanying notes are an integral part of the financial statements.
-8-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 & 1994
1995 1994
--------------------------- ---------------------------
Subtotal (Carried Forward) (1,058,914) (1,347,632)
Cash Flows from Financing
Activities:
Increase in Cash Overdraft 1,297 87,371
Dividends Paid (499,835) (377,547)
Borrowings Under Line of
Credit 3,810,000 5,520,600
Principal Payments on
Line of Credit (2,437,000) (3,586,100)
Proceeds from Issuance of
Notes 881,942 262,666
Principal Payments on
Notes & Lease Obligation (561,938) (805,420)
---------- ----------
Net Cash Provided by
Financing Activities 1,194,466 1,101,570
---------- ----------
NET INCREASE (DECREASE) IN CASH 135,552 (246,062)
Cash & Cash Equivalents,
January 1 (Note 1) 13,537 259,599
---------- ----------
CASH & CASH EQUIVALENTS,
DECEMBER 31 (Note 1) 149,089 13,537
========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash Paid During the Year
for:
Interest (Net of Amount
Capitalized) 566,268 449,435
Taxes -- 197,923
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING & FINANCING ACTIVITIES:
During the years ended December 31, 1995 and 1994, the Company had the
following noncash transactions:
113 shares of treasury stock were purchased in exchange for an account
receivable from the stockholder in the amount of $43,654 in 1994.
Accounts receivable in the amounts of $50,630 and $93,924 were converted into
notes receivable in 1995 and 1994, respectively.
In 1995, a vehicle and other assets owned by the Company were transferred to
the stockholder and recorded as a dividend in the amount of $30,992. Dividends
in the amount of $139,990 represent a prior year receivable from the
stockholder that was declared a dividend in 1994.
The Company incurred expense of $38,950 in 1994 for a manufacturing mold which
became obsolete in 1995 before it was paid for, and, therefore, the mold and
the accrued expense were written off.
Accrued interest payable of $59,783 at December 31, 1995 was added to the face
value of a note payable as a result of the modification of its terms.
The accompanying notes are an integral part of the financial statements.
-9-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The operations of Defense Technology Corporation of America (DTCOA) consist of
the manufacturing and sales of nonlethal crowd control devices. The Company
grants credit to its customers located throughout the United States and
selected customers abroad. Credit policies with some international customers
include letter of credit arrangements and prepayments, and all transactions are
in United States dollars. Outlined below are the Company's significant
accounting policies.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories - Inventories are stated at the lower of average cost (first-in,
first-out) or market based upon a physical count. Cost of work in process
inventories include related materials, labor, and applied overhead costs.
Amortization of Intangibles - Intangible assets are being amortized over their
useful lives using the straight-line method.
Property, Plant, and Equipment - The cost of property, plant, and equipment is
being depreciated over the estimated useful lives of the related assets.
Depreciation is computed on the straight-line method for financial reporting
purposes and on the accelerated and straight-line methods for income tax
purposes.
Cash and Cash Equivalents - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments with a maturity of three
months or less to be cash equivalents.
Advertising Costs - Advertising costs are expensed as incurred. Total amounts
charged to expense for the years ended December 31, 1995 and 1994 were $267,504
and $173,670, respectively.
NOTE 2 - AVAILABLE FOR SALE SECURITIES
The investment is in a publicly traded stock. Realized losses are determined by
using the specific identification method of valuation. The following is a
summary of the investment at December 31, 1995 and 1994:
1995 1994
--------- ---------
Fair Market Value 106,875 200,000
Historical Cost (285,000) (300,000)
--------- ---------
Gross Unrealized Holding Loss (178,125) (100,000)
========= =========
NOTE 3 - NOTES RECEIVABLE
At December 31, 1995 and 1994, the Company had various notes receivable with
varying terms. All of the notes were unsecured and were due within one year.
-10-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 4 - PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment is as follows:
1995 1994
--------- ---------
Computer Equipment 213,553 227,119
Office Furniture & Fixtures 232,776 219,042
Manufacturing Equipment 672,770 642,315
Manufacturing Molds 123,089 123,029
Vehicles 145,435 139,960
Airplane 4,127,389 4,702,604
Leasehold Improvements 147,543 131,503
Buildings 1,275,357 624,963
Land 122,458 122,458
--------- ---------
Total 7,060,370 6,932,993
Less Accumulated Depreciation 979,637 988,065
--------- ---------
6,080,733 5,944,928
========= =========
NOTE 5 - LITIGATION SETTLEMENT PAYABLE
The Company has entered into an agreement to settle a claim against the Company
which requires payment of $410,000. This amount is expected to be satisfied on
or prior to September 30, 1996 in connection with the transaction described in
Note 16.
NOTE 6 - NOTES PAYABLE
1995 1994
------------------------ -------------------------
Due Within Due After Due Within Due After
One Year One Year One Year One Year
----------- ---------- ----------- -----------
City of Casper-Natrona County Economic
Development Joint Powers Board; 5%
interest; payable $3,300 per month,
including interest, through April 1998
at which time the payments increase to
$8,546 per month, including interest;
secured by real property, equipment,
and personal guarantees of the
stockholder and a corporate officer; due
April 2003 15,442 474,683 -- 150,000
City of Casper-Natrona County Economic
Development Joint Powers Board, 5-1/4%
interest, payable $1,503 per month,
including interest, secured by
equipment, due November 1996 16,104 -- 16,712 16,102
Raytheon Aircraft Credit Corporation,
interest rate is the Bank of America
prime interest rate, interest and
principal payable monthly in payments
of approximately $57,300, secured by
equipment and personal guarantee of
a corporate officer, due May 2005 (D) 246,864 4,060,454 262,524 3,939,716
Finnoff & Associates, 8% interest,
payable $10,000 per month, including
interest, unsecured, due October
1998 (C) 99,599 200,401 265,557 --
Ford Motor Credit, various installment
loans, varying interest rates, payable
$4,927 per month, including interest,
secured by equipment, due
December 1996 through April 1999 51,081 60,563 41,637 63,069
-11-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 6 - NOTES PAYABLE (CONTINUED)
1995 1994
------------------------ -------------------------
Due Within Due After Due Within Due After
One Year One Year One Year One Year
----------- ---------- ----------- -----------
An individual, 9.25% interest, payable
$1,200 per month, including interest,
secured by real property, due April
1997 7,549 69,920 6,887 77,436
Rawlins National Bank, interest payable
monthly, due June 1995 (B) -- -- 2,627,000 --
Rawlins National Bank, 9.25% interest,
payable $320 per month, including
interest, secured by equipment, due
February 1995 -- -- 633 --
Rawlins National Bank, 1% over Norwest
Bank prime rate, secured by certificate
of deposit and personal guarantee of
the stockholder, due May 1996 70,000 -- -- --
An individual, 9% interest, payable
$1,296 per month, including interest,
secured by a first mortgage on real
estate, due May 1997 3,718 129,389 3,400 133,107
Key Bank of Wyoming, interest payable
monthly, due May 1996 (A) 4,000,000 -- -- --
Insurance financing contracts, various
installment loans, various interest
rates and payment terms which include
interest, due September 1996 51,931 -- 46,644 --
--------- --------- --------- ---------
4,562,288 4,995,410 3,270,994 4,379,430
========= ========= ========= =========
(A) The Company had a revolving line of credit with Key Bank of Wyoming
which provided a $4,000,000 open line of credit.
In March 1996, the Company modified the terms of the line of credit
with Key Bank. The modified agreement bifurcated the line of credit
into two obligations; a $3,000,000 line of credit and $1,000,000 term
loan. The $3,000,000 open line of credit is at 1.5% over the Key Bank
of Wyoming prime rate with interest payable monthly and is secured by
substantially all of the Company's assets, a second mortgage on real
property of the stockholder, and the personal guarantees of the
stockholder and a corporate officer. The line of credit is due
September 1996. The agreement contains various restrictive covenants.
The Company is not in compliance with several of those covenants.
The term loan is at 1.5% over the Key Bank of Wyoming prime rate and
is secured by real property of the stockholder and personal guarantees
of the stockholder and a corporate officer. Interest is payable
monthly and the loan is due September 1996. The term loan includes an
option to extend the due date until March 1997 if the real property
collateral has not been sold.
(B) The Company had a revolving line of credit with Rawlins National Bank
which provided a $3,000,000 open line of credit at 2% over the Norwest
Bank of Denver prime rate. Borrowings under this line of credit were
secured by inventory, equipment, accounts, contract rights, general
intangibles, fixtures, real property, and personal guarantee of the
stockholder. During 1995, the Company paid off the line by refinancing
with Key Bank of Wyoming.
(C) On January 4, 1996, the Company modified the terms of its note with
Finnoff & Associates based on the settlement of a legal suit filed by
the creditor. The note was originally due on March 4, 1994. Finnoff &
Associates has agreed to accept $300,000 due in monthly installments
of $10,000, including 8% interest, through October 1998.
-12-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 6 - NOTES PAYABLE (CONTINUED)
(D) On February 12, 1996, the terms of the note were modified to include
accrued interest in the note balance. No payments have been made on
this obligation in 1996 and the Company is negotiating for additional
revised terms.
For the years ended December 31, 1995 and 1994, total interest expense incurred
was $663,589 and $479,945, respectively. Capitalized interest for 1995 and 1994
was $15,565 and $0, respectively.
Maturities on notes payable for each of the subsequent five years ending
December 31 are as follows:
1996 4,562,288
1997 711,250
1998 550,901
1999 505,670
2000 540,739
NOTE 7 - OBLIGATION UNDER CAPITAL LEASE
The Company leases equipment under a noncancellable agreement which requires a
monthly payment of $1,352. The lease is a capital lease with the cost of the
assets of $42,400 reflected in property, plant, and equipment. The assets are
amortized over their estimated useful lives and that expense is included in
depreciation expense.
The following is a schedule by years of future minimum lease payments under the
lease together with the present value of the net minimum lease payments as of
December 31, 1995:
Year Ending December 31:
1996 5,406
------
Total Minimum Lease Payments 5,406
Less: Amount Representing
Interest 144
Present Value of Net Minimum ------
Lease Payments 5,262
======
Present value of net minimum lease payments is reflected in the balance sheets
as current and noncurrent obligations under capital leases of $5,262 and $0 for
1995 and $14,483 and $5,262 for 1994, respectively.
NOTE 8 - STOCKHOLDER'S EQUITY
The declaration of dividends is restricted to the total stockholder's equity
less the cost of the treasury shares held.
NOTE 9 - RELATED PARTIES
The Company has, at various times, purchased inventory, supplies, and fixed
assets; rented equipment; and made payments on behalf of Def-Tec of Ohio. At
one time, both of these companies were wholly owned subsidiaries of a common
parent. Def-Tec of Ohio ceased operations in November of 1994.
Following is a summary of transactions:
1995 1994
------- ----
Purchases & Other Acquisitions - 494,549
======= =======
Payments Made for Def-Tec of Ohio - 500,002
======= =======
During 1995, the Company had sales to Defense Technology GmbH, a German
corporation, of $63,081. $63,857 was due from the Company at December 31, 1995.
An officer of the corporation owns a 50% interest in Defense Technology GmbH.
-13-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 10 - RENTALS UNDER OPERATING LEASES
The Company has four buildings, three automobiles, and various equipment leased
under the operating lease method with the leases expiring in various years
through 2000. The following is a schedule by years of minimum future rentals on
the noncancellable operating leases as of December 31, 1995:
1996 147,567
1997 111,589
1998 97,269
1999 59,045
2000 23,946
-------
Total Minimum Future Rentals 439,416
=======
Rent expense for the years ended December 31, 1995 and 1994 was $178,608 and
$161,881, respectively.
Three of the building leases provide for purchase options. The purchase options
are at prices representing the expected fair value of the property at the
expiration of the lease term or the date the purchase option expires, if
earlier. Two of these buildings were vacated subsequent to December 31, 1995.
The fourth building lease provides for a 5% increase each year in the minimum
rental payments.
NOTE 11 - PENSION PLAN
During the year ended December 31, 1995, the Company established a cash or
deferral plan under Internal Revenue Code Section 401(k) that covers all
employees. The Company has the option of making contributions to the plan as
well as matching employee contributions. Contributions to the plan for the year
ended December 31, 1995 were $2,117.
NOTE 12 - INCOME TAX MATTERS
The Company and its stockholder have elected to have the federal income tax on
the corporate earnings paid directly by its stockholder as provided by
Subchapter S of the Internal Revenue Code. As a result, no income tax provision
has been made on the statements of income or the balance sheets, as this is a
personal obligation of the stockholder. The accumulated losses at December 31,
1995 for the stockholder were $1,080,166.
NOTE 13 - FINANCIAL INSTRUMENTS
The Company's financial instruments consist of notes receivable and notes
payable. The fair value of the notes receivable approximates carrying amounts
as does the fair value of notes payable based on the borrowing rates currently
available to the Company.
NOTE 14 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Financial instruments that are exposed to concentrations of credit risk consist
primarily of cash, cash equivalents, trade accounts receivable, and notes
receivable. The Company places its cash and temporary cash investments with
financial institutions. Included in cash at December 31, 1994 was $10,400 which
was invested in uninsured cash reserve funds whose underlying assets are short
term investments in United States government securities. At December 31, 1995,
the Company had cash deposits at a foreign financial institution in the amount
of $109,431. This deposit is not covered by FDIC insurance but is afforded
protection under the New York banking laws.
The Company routinely assesses the financial strength of their customers and,
as a consequence, believe that their trade accounts receivable credit risk
exposure is limited.
-14-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 14 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK (CONTINUED)
For the year ended December 31, 1995, approximately 13% of the Company's sales
were derived from sales to one major customer. The balance reflected in
accounts receivable at December 31, 1995 includes $790,832, or 37%, of accounts
receivable from that same major customer.
In addition, international sales were approximately 25% and 21% of the total
sales for the years ended December 31, 1995 and 1994, respectively. At December
31, 1995, accounts receivable included $419,012, or 20%, of accounts receivable
due from foreign entities.
NOTE 15 - CONTINGENCIES
The Company provides health insurance to its employees through a self-insured
plan. Under the plan, the Company has acquired stop-loss insurance to limit its
exposure to $25,000 per year for each employee. In addition, there is a maximum
amount the Company must pay for claims each month which is based upon an
experience factor and the number of employees covered by the plan. Claims which
exceed the maximum monthly payment are paid by the plan administrator. These
excess amounts, if any, accumulate and in future months when actual claims are
less than the maximum amount, cause the Company to have to pay an amount up to
the maximum monthly amount. There were no excess amounts at December 31, 1995.
The Company is involved in legal actions arising in the ordinary course of
business. Management believes the Company has adequate legal defenses or
insurance coverage with respect to these actions and does not believe they will
materially affect the Company's financial position and results of operations.
NOTE 16 - GOING CONCERN
These statements are presented on the basis that the Company is a going
concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The accompanying financial statements show a loss from
operations of $587,262 for the year ended December 31, 1995 and a total overall
loss of $1,629,362. As of December 31, 1995, current liabilities exceed current
assets by $812,226. Those factors, as well as uncertainties regarding the
Company's ability to retain or replace existing financing, create an
uncertainty about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
On August 23, 1996, management entered into a definitive purchase agreement
with Armor Holdings, Inc. for the sale of a substantial portion of its assets
in consideration for cash, securities, and the assumption of liabilities. The
transaction is expected to close on or prior to September 30, 1996. Management
believes the completion of this transaction will provide the opportunity for
the Company to continue as a going concern. Its activities then will be as a
sales company including international sales of products manufactured by Armor
Holdings, Inc. and its subsidiaries.
NOTE 17 - RECLASSIFICATIONS
The financial statements as of and for the year ended December 31, 1994 reflect
reclassifications between accounts with no resulting effect on net income or
retained earnings.
-15-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
BALANCE SHEET
JUNE 30, 1996
UNAUDITED
ASSETS
CURRENT ASSETS
Cash 118,437
Accounts Receivable - Net of
Allowance for Doubtful Accounts
of $75,000 2,741,443
Available for Sale Securities 32,000
Notes Receivable 10,290
Inventories
Raw Materials 555,410
Work In Progress 274,400
Finished Goods 2,180,901 3,010,711
Prepaid Expenses and Other Current Assets 378,710
-------------------
TOTAL CURRENT ASSETS 6,291,591
OTHER ASSETS
Investments 94,785
Intangible Assets - Net of
Accumulated Amortization of $36,469 61,564
Receivable From Shareholder 28,175
Other Assets 20,658 205,182
-----------------
PROPERTY, PLANT, & EQUIPMENT
Cost 6,985,250
Less Accumulated Depreciation 1,270,711 5,714,539
----------------- ------------------
12,211,312
===================
See Note to Unaudited Interim Financial Statements
-16-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
BALANCE SHEET
JUNE 30, 1996
UNAUDITED
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Cash Overdraft 49,969
Accounts Payable 1,380,354
Accrued Expenses 216,002
Litigation Settlement Payable 410,000
Customer Deposits 22,905
Unearned Income 42,862
Notes Payable 5,122,080
Obligation Under Capital Lease
-------------------
TOTAL CURRENT LIABILITIES 7,244,172
LONG TERM LIABILITIES
Notes Payable 4,597,060
Unearned Income 137,498 4,734,558
-----------------
STOCKHOLDER'S EQUITY
Common Stock, no par value,
5,625 shares authorized
4,613 shares issued and out-
standing at amount paid in 789,271
Retained Earnings (Accumulated Deficit) (464,035)
Less - Cost of 113 Shares of
Treasury Stock (43,654)
Unrealized Loss on Available
for Sale Securities (49,000) 232,582
----------------- -------------------
12,211,312
===================
See Note to Unaudited Interim Financial Statements
-17-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
1996 1995
--------------------------------------- --------------------------------------
Net Sales 4,933,530 5,946,909
Cost of Goods Sold 2,659,695 3,132,708
------------------- -----------------
Gross Profit 2,273,835 2,814,201
Selling, General &
Administrative Expenses 1,951,403 2,773,287
------------------- -----------------
Net Operating Income 322,432 40,914
OTHER INCOME (EXPENSE)
Interest Income 241 1,066
Interest Expense (394,201) (215,245)
License Agreement 21,426 22,326
Loss on Disposition of
Equipment (17,256)
Loss on Disposition of
Investments (126,065)
Miscellaneous 2,667 (513,188) 1,556 (190,297)
----------------- ------------------- ------------------ -----------------
NET LOSS (190,756) (149,383)
Retained Earnings (Accumulated
Deficit), January 1 (273,279) 1,886,910
------------------- -----------------
RETAINED EARNINGS (ACCUMULATED
DEFICIT), JUNE 30 (464,035) 1,737,527
=================== =================
See Note to Unaudited Interim Financial Statements
-18-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
1996 1995
--------------------------------------- --------------------------------------
Cash Flows From Operating
Activities:
Net Loss (190,756) (149,383)
Adjustments to Reconcile Net Loss
to Net Cash Provided by (Used in)
Operating Activities:
Depreciation & Amortization 351,376 378,071
Loss on Disposition of Equipment 17,256
Loss on Sale of Investments 126,065
Increase in Accounts Receivable (625,951) (815,402)
Decrease in Inventory 953,343 525,865
Increase in Prepaid Expenses and
Other Current Assets (239,275) (218,956)
Increase in Other Assets (353) (75,391)
Increase (Decrease) in
Accounts Payable (585,449) 317,615
Increase in Accrued Expenses 37,074 217,267
Decrease in Customer Deposits (23,510)
Increase (Decrease) in
Unearned Income (21,426) 84,221
Decrease in Obligation Under
Capital Lease (1,744)
----------------- ------------------
Total Adjustments (10,850) 411,546
------------------- -----------------
Net Cash Provided by (Used in)
Operating Activities (201,606) 262,163
Cash Flows from Investing
Activities:
Proceeds from Sale of
Investments 77,935
Payments Received on Notes
Receivable 2,765 25,820
Notes Receivable Issued (21,093)
Receivable from Shareholder (28,175) (337,228)
Proceeds from Sale of
Equipment 10,781
Purchase of Property, Plant,
Equipment, & Intangibles (9,833) (658,076)
----------------- ------------------
Net Cash Provided by (Used) in
Investing Activities 53,473 (990,577)
(Continued)
-19-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
Cash Flows from Financing
Activities:
Increase (Decrease) in (38,699) 71,408
Cash Overdraft
Borrowings Under Line of
Credit 2,583,000
Principal Payments on
Line of Credit (2,354,000)
Proceeds from Issuance of
Notes 417,959 748,377
Principal Payments on
Notes & Lease Obligation (261,779) (310,422)
----------------- ------------------
Net Cash Provided by
Financing Activities 117,481 738,363
------------------- -----------------
NET INCREASE (DECREASE) IN CASH (30,652) 9,949
Cash & Cash Equivalents,
January 1 149,089 13,537
------------------- -----------------
CASH & CASH EQUIVALENTS,
JUNE 30 118,437 23,486
=================== =================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash Paid During the Period
for:
Interest 130,414 132,003
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING & FINANCING ACTIVITIES:
During the six months ended June 30, 1996 and 1995, the Company had the
following noncash transactions:
Accounts receivable in the amount of $11,992 were converted into notes
receivable in 1995.
Office furniture with a book value of $2,970 was traded for 40 hours of
computer consulting in 1996.
See Note to Unaudited Interim Financial Statements
-20-
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTE TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(1) Basis of Presentation
---------------------
The accompanying condensed financial statements of Defense Technology
Corporation of America ("DTCoA") are unaudited for the interim periods,
but include all adjustments, consisting only of normal recurring accruals,
which management considers necessary for the fair presentation of results
as of June 30, 1996 and for the six month periods ended June 30, 1996
and 1995.
Moreover, the condensed financial statements should be read in conjunction
with the audited financial statements for DTCoA included herein for the
years ended December 31, 1995 and 1994.
-21-
Armor Holdings, Inc.
Unaudited Proforma Income Statements
for the six months ended June 30, 1996
Acquisition Issuance of
Historical of DTCoA Convertible
Armor Hldgs assets (3) Debt (4) Proforma
----------- ---------- ------------ -----------
NET SALES $6,862,849 $4,913,530 $11,776,379
COST AND EXPENSES:
Cost of sales $4,368,251 $2,463,432 $6,831,683
Selling, general and administrative expenses $1,976,488 $1,462,135 $85,000 $3,523,623
Interest expense, net $102,459 $29,010 $287,500 $418,969
($123,046) ($123,046)
----------- ---------- ------------ -----------
OPERATING INCOME $415,651 $958,953 ($249,455) $1,125,150
Amortization of intangibles $28,114 $33,167 $61,281
Amortization of reorganization value in excess of
amounts allocable to identifiable assets $25,495 $25,495
----------- ---------- ------------ -----------
INCOME BEFORE INCOME TAXES $362,042 $925,786 ($249,455) $1,038,373
INCOME TAXES (5) $147,000 $361,056 ($91,948) $416,108
----------- ---------- ------------ -----------
NET INCOME $215,042 $564,729 ($157,507) $622,265
=========== ========== ============ ===========
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARES $0.03 $0.08
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES (6) 7,679,536 7,950,264
See Notes to Unaudited Proforma Income Statements
-22-
Armor Holdings, Inc.
Unaudited Proforma Income Statements
for the year ended December 31, 1995
Acquisition Issuance of
Historical of DTCoA Convertible
Armor Hldgs assets (2) Debt (4) Proforma
------------ ----------- ------------ -----------
NET SALES $11,741,367 $10,352,701 $22,094,068
COST AND EXPENSES:
Cost of sales $7,443,080 $5,705,885 $13,148,965
Selling, general and administrative expenses $3,421,093 $3,339,023 $170,000 $6,930,116
Interest expense, net $280,891 $77,429 $575,000 $933,320
($246,091) ($246,091)
------------ ----------- ------------ -----------
OPERATING INCOME $596,303 $1,230,364 ($498,909) $1,327,758
Amortization of intangibles $66,334 $66,334
NON-OPERATING INCOME $227,500 $227,500
------------ ----------- ------------ -----------
INCOME BEFORE INCOME TAXES $823,803 $1,164,030 ($498,909) $1,488,924
INCOME TAXES (5) $303,650 $453,972 ($183,896) $573,726
------------ ----------- ------------ -----------
NET INCOME $520,153 $710,058 ($682,805) $915,198
============ =========== ============ ===========
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARES $0.08 $0.14
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES (6) 6,369,672 6,640,400
See Notes to Unaudited Proforma Income Statements.
-23-
Armor Holdings, Inc.
Unaudited Proforma Balance Sheet
As of June 30, 1996
Acquisition Acquisition
Historical of NIK of DTCoA
Armor Hldgs assets (1) assets (2) Proforma
----------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $9,004,168 ($1,200,000) ($2,047,399) $5,756,769
Accounts receivable $1,967,827 $300,000 $2,095,958 $4,363,785
Inventories $1,237,020 $500,000 $2,183,233 $3,920,253
Prepaid expenses and other current assets $804,096 $354,692 $1,158,788
----------- ----------- ----------- -----------
Total current assets $13,013,111 ($400,000) $2,586,484 $15,199,595
PROPERTY AND EQUIPMENT, net $466,746 $1,924,147 $2,390,893
REORGANIZATION VALUE IN EXCESS OF AMOUNTS
ALLOCABLE TO IDENTIFIABLE ASSETS, net $3,505,079 $3,505,079
PATENTS, TRADEMARKS, & OTHER INTANGIBLES $1,855,000 $1,658,364 $3,513,364
OTHER ASSETS $735,297 $735,297
----------- ----------- ----------- -----------
TOTAL ASSETS $17,720,233 $1,455,000 $6,168,995 $25,344,228
=========== =========== =========== ===========
See Notes to Unaudited Proforma Income Statements
-24-
Armor Holdings, Inc.
Unaudited Proforma Balance Sheet
As of June 30, 1996
Acquisition Acquisition
Historical of NIK of DTCoA
Armor Hldgs assets (1) assets (2) Proforma
----------- ----------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Liability for Acquisition of Assets $1,455,000 $1,987,500 $3,442,500
Short term borrowings and current portion of long-term debt $31,751 $499,119 $530,870
Accounts payable, accrued expenses & other current liabilities $947,631 $1,570,459 $2,518,090
----------- ----------- ---------- -----------
Total current liabilities $979,382 $1,455,000 $4,057,078 $6,491,460
5% CONVERTIBLE SUBORDINATED NOTES:
Due to directors and affiliates $3,450,000 $3,450,000
Due to others $8,050,000 $8,050,000
----------- -----------
Total 5% convertible subordinated notes $11,500,000 $11,500,000
OTHER LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATION, less current portion $24,479 $111,917 $136,396
----------- ----------- ---------- -----------
Total liabilities $12,503,861 $1,455,000 $4,168,995 $18,127,856
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $1 stated value, 1,700,000 shares
authorized, 0 shares issued and outstanding $0 $0
Common stock, $.03 par value, 15,000,000 shares
authorized, 6,919,816 shares issued and outstanding $207,594 $8,122 $215,716
Additional paid-in capital $3,829,058 $1,991,878 $5,820,936
Retained earnings $1,179,720 $1,179,720
----------- ----------- ---------- -----------
Total stockholders' equity $5,216,372 $0 $2,000,000 $7,216,372
----------- ----------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,720,233 $1,455,000 $6,168,995 $25,344,228
=========== =========== ========== ===========
See Notes to Unaudited Proforma Financial Statements
-25-
ARMOR HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) Acquisition of NIK Assets
Effective July 1, 1996, the Company acquired certain assets
of the NIK Public Safety Product Line from Ivers-Lee
Corporation (the "NIK Assets"). The purchase price of the
acquisition was $2,400,000 in stock plus $255,000 in costs
related to the purchase. The Company acquired inventory,
receivables and certain intangibles. The total purchase price
was allocated to the NIK Assets based on relative fair market
values. Patents, trademarks, and other intangibles will be
amortized over their respective useful lives which range from
5-25 years. The Company advanced the seller $1,200,000 in
cash at the closing which will be reimbursed to the Company
if the Company is able to sell the stock, on behalf of the
sellers of the NIK Assets, in the open market. The company is
not reflecting the stock as outstanding until it is sold in
the open market.
(2) Acquisition of DTCoA Assets
On September 30, 1996, the Company acquired substantially all
of the assets of Defense Technology Corporation of America, a
Wyoming corporation (the "DTCoA Assets"). The purchase
consideration was $838,025 in cash, approximately 630,000
shares of common stock, and the assumption of approximately
$2,250,000 in liabilities, of which $550,000 was paid at
closing. The purchase price was allocated based on relative
fair market values. Patents, trademarks, and other
intangibles will be amortized over their respective useful
lives which range from 5-25 years. As part of the
acquisition, the Company agreed to pay off the seller's main
credit facility of $3,000,000 for a total price of $2,650,000
in cash and stock.
In addition to the seller accepting an international
distributorship agreement with the Company (the
"International Distributorship Agreement"), the Company's
agreement with the seller provides that the Company will pay
the seller an additional $1,000,000 in stock if the Company
attains certain international sales goals over the next three
years.
(3) Acquisition of DTCoA Assets
Income Statement information was prepared using DTCoA's
audited financial statements as of December 31, 1995 with the
following adjustments:
- Sales were reduced for the new pricing which has been reduced
pursuant to the International Distribution Agreement.
- Cost of sales were reduced in order to reclassify product
liability insurance to a selling expense.
- Selling, general, and administrative expenses were
reduced to eliminate the international office
located in Miami, Florida and certain expenses
incurred relating to the previous owner of DTCoA,
including an airplane. In addition, these expenses
were increased to reflect new guaranteed commission
and life insurance premium costs incurred by the
Company in connection with the International
Distribution Agreement.
- Interest expense was reduced to reflect only the
interest relating to debt that was not paid off at
the closing of the acquisition.
- Amortization of intangibles reflect the Company's
policy of amortizing all patents, trademarks and
other intangibles over a life of 5-25 years.
-26-
(4) Issuance of Convertible Debt
On April 30, 1996, the Company issued 5% Convertible
Subordinated Notes due April 30, 2001 (the "Notes") whereby
the Company received cash of $11,500,000. The cash was
reduced by paying down the Company's credit facility by
approximately $1,700,000, and paying debt-related costs of
$850,000. The Notes have an interest rate of 5% which equates
to an interest cost of $575,000 annually, or $143,750
quarterly. In addition, deferred debt issue costs are being
amortized over the term of the Notes, which is five years.
The pro formas also reflect the reduction of historical
interest expense of $246,091 and $141,622 for the year ended
December 31, 1995 and for the six months ended June 30, 1996,
respectively, relating to debt paid off from the proceeds of
the issuance of the convertible debt.
(5) Income Taxes
The pro forma tax expense reflects the historical effective
tax rates incurred by the Company for each respective period.
In addition, no significant permanent differences are
associated with either acquisition, thus the federal
statutory rate of 39% has been applied in the pro forma.
(6) Earnings Per Share Calculation
No earnings per share calculations for each of the
acquisitions were performed because (1) there is no equity
interest in the NIK acquisition until the stock is sold into
the market and (2) calculating earnings per share on the
DTCoA acquisition on a stand alone basis is misleading and
distorts the consolidated earnings per share.
-27-
(c) Exhibits.
The following Exhibits were previously filed as part of this
Current Report on Form 8-K on October 9, 1996.
EXHIBIT DESCRIPTION
2.1 Asset Purchase Agreement, dated as of August 23, 1996 by and among the
Company, DTC, Robert Oliver, Sandra Oliver and DTCoA.
10.1 Letter Agreement, dated August 16, 1996, by and among the Company, Key
Bank, DTCoA, Robert Oliver and Sandra Oliver.
10.2 Letter Agreement, dated September 30, 1996, by and among Key Bank and
UBS.
10.3 Irrevocable Power of Attorney, dated September 30, 1996, granted by
Key Bank in favor of Jonathan M. Spiller.
10.4 Escrow Agreement, dated September 30, 1996, by and among the Company,
DTC, Robert Oliver, Sandra Oliver, DTCoA and UBS.
10.5 Guaranty Agreement, dated August 26, 1996, by Robert Oliver and Sandra
Oliver to the Company.
10.6 Lock-Up Agreement, dated August 23, 1996, by DTCoA to the Company.
10.7 Authorized Distributor Agreement, dated September 30, 1996, by and
among DTC, XM Corporation, a Wyoming corporation, and Robert Oliver.
-28-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
ARMOR HOLDINGS, INC.
/s/ Jonathan M. Spiller
------------------------------------------
Jonathan M. Spiller
President and Chief Executive Officer
Dated: October 23, 1996
-29-