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
For the fiscal year ended December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______ to________
Commission File No. 01-13112
DHB INDUSTRIES INC.
(Name of issuer in its charter)
DELAWARE 11-3129361
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
555 WESTBURY AVENUE, CARLE PLACE, NEW YORK 11514
(Address of principal executive offices)
Issuer's telephone number: (516) 997-1155
Securities registered under Section 12(b) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE
(Title of Class)
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the issuer (1) has 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 [ ]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not 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 [ ].
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 18 2002: $129,013,921.
Number of shares outstanding of the issuer's common equity, as of March 18, 2002
(Exclusive of securities convertible into common equity): 31,515,247
DOCUMENTS INCORPORATED BY REFERENCE: None
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ITEM1. BUSINESS
GENERAL.
DHB Industries, Inc., a Delaware corporation organized in 1992, is a
holding company that has two divisions: DHB Armor Group and DHB Sports Group.
DHB Armor Group consists of Protective Apparel Corporation of America ("PACA"),
Point Blank Body Armor Inc. ("Point Blank"), and Point Blank International S.A.
("PB Int'l"). 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, which
consists of NDL Products, Inc. ("NDL") manufactures and distributes protective
athletic apparel and equipment, such as elbow, breast, hip, groin, knee, shin
and ankle supports and braces, as well as a line of therapy products.
The Company's executive offices are located at 555 Westbury Avenue,
Carle Place, New York 11514. Its telephone number is 516-997-1155. The Company's
website is www.DHBT.com. It has manufacturing facilities in Florida, Tennessee
and Belgium.
DHB reincorporated in Delaware in 1995 and changed its name to DHB
Industries from DHB Capital Group Inc. in July 2001. Its shares began trading on
the American Stock Exchange on February 1, 2002 under the symbol DHB.
DHB ARMOR GROUP.
The DHB Armor Group principally manufactures two 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 other ballistic
fabrics, covered and fully enclosed in an outer carrier.
Concealable vests are contoured to closely fit the user's body shape.
Vests are manufactured in standard and custom-fitted male and female sizes.
Vests are fastened using Velcro(TM), webbing, elastic and/or buckles.
Concealable vests may be supplemented for additional protection with an armor
plate, which consists of either metal or certain composite materials, to
provide additional trauma protection.
In late 2000, the National Institute of Justice ("NIJ"), which operates
under the auspices of the U.S. Department of Justice, introduced a new voluntary
ballistic standard, NIJ STD 0101.04. This was the first update of the standard
for certifying performance of vests since 1987. Since the introduction of the
new standard, the Armor Group has certified more than 75 ballistic products,
including the LEGACY Series, that exceeds the requirements of the new standard.
The LEGACY Series has reduced weight and thickness from earlier models, with
increased ballistic resistance. All levels of protection in the "LEGACY" line
are believed by the Company to be the lightest and thinnest certified to the NIJ
Standard. The Company believes the LEGACY line provides law enforcement officers
with the highest level of ballistic protection and comfort in all NIJ threat
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levels available in the body armor industry today.
The Armor Group has also upgraded its other law enforcement product lines to
meet the new NIJ 04 Regulation. During 2001, the Armor Group introduced the
PEGASUS Series of armor. This series features three levels of performance,
(Flash, Thunder and Lightning), with the Lightning Series showcasing 100% Zylon
construction, making it one of the highest performing, lightest weight, and
technologically advanced designs on the market.
DHB Armor's Corrections Division markets protective apparel that is
certified to NIJ Standard 0115.00, a new certification initiative from NIJ, as
well as NIJ Stab Level 1-3 standards. In total, the Armor Group has certified
more than thirty new stab/ballistic resistant panels that are used independently
or in tandem to provide previously unavailable soft armor protection against
both stab and ballistic threats. DHB Armor Group's full line of correctional
vests for stab protection, marketed principally under the BLOCK 10 label, is
derived from extensive research and the realization that corrections officers
have specific needs unique to law enforcement. The Armor Group's Correction's
Division provides complete solutions for the specialized needs of correction
officials, including, for example, a cell extraction suit, providing both upper
and lower torso stab/slash protection.
The Armor Groups "Interceptor," contract with the U.S. Department of
Defense is an integral and expanding Company program. The Interceptor program is
designed as a continually upgradeable modular, soft body armor system. The Outer
Tactical Vest consists of a base vest, collar assembly, throat protector and
groin protector. The Interceptor Outer Tactical Vest has been in use by the US
Marines for several years and by the U.S. Army since 2000. In the second quarter
of 2001 the Armor Group initiated an engineering change proposal upgrading the
ballistic system, reducing weight and increasing flexibility. The U.S. Marine
Corps approved the upgrade during third quarter 2001 and the first deliveries of
the upgraded unit were made in late fourth quarter. Various U.S. military
entities, including the U.S. Air Force SFS, have made the Interceptor required
protective equipment. Orders received to date for the Interceptor now total more
than $140 million. The Company estimates that all deliveries, including future
delivers, makes the Interceptor's contract value in excess of $350 million. In
2001, the Company quadrupled its manufacturing capacity to meet anticipated
delivery requirements. The Armor Group's research and development team continues
to seek additional options for increasing the performance, reducing the weight,
and maximizing the protective capabilities of the Interceptor vest.
In addition to the Interceptor, the Armor Group manufactures a number
of other protective armor systems for military uses. Recognizing that the single
most important factor in individuals not wearing body armor is excessive body
heat build-up, the Armor Group recently introduced its Armor Ice(TM) system. The
Armor Ice(TM) is an active cooling system proven to work under armor utilizing a
licensed patented open-cell foam technology that incorporates microencapsulated
phase change materials into the structure of the foam. The Company licenses the
patented Comfortemp(TM) technology from Frisby Technology. In 2001, the Armor
Group began extending the use of the Armor Ice(TM) technology to tactical,
correctional, and military armor products.
In 2001, the Company introduced its side-opening tactical vest, the
"Storm", and increased promotion of the "Spider" (Stealth Protection Integrated
Design Equipment Resource), a front-opening tactical vest. 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 and fragmentation. They are designed to provide
additional protection against high power rifle fire.
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The Armor Group's extensive lines of body-armor products also include
tactical police jackets, military field jackets, executive vests, K-9
protection, fragmentation and close-quarter-battle systems. Fragmentation armor
is designed to U.S. government military specification and offer full torso
protection against materials and velocities associated with the fragmentation of
explosive devices such as grenades, mortars, artillery shells and ballistic
projectiles. In general, concealable vests sold to law enforcement agencies and
distributors are designed to resist bullets from handguns. Fragmentation gear
utilizes a variety of designs, materials and patterns differing from
bullet-resistant vests. The Armor Group also manufactures a variety of
accessories for use with its body armor products.
RAW MATERIALS AND MANUFACTURING. The Armor Group manufactures all of
its respective bullet, fragmentation and projectile-resistant devices. The
primary raw material used by the Armor Group in the manufacturing of the
ballistic-resistant products is Kevlar(TM) a patented product of E.I. Du Pont de
Nemours & Company. Approximately one-quarter of all ballistic-resistant
components are manufactured utilizing patented products of Honeywell. The Armor
Group continues to be one of the largest consumers and manufacturers of ZylonTM
based armor, which is utilized in many of the company's vests. ZylonTM enable
the Armor Group to supply lighter, more flexible, higher performance body armor.
The Armor Group purchases cloth woven from these materials from 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-,
fragmentation-, or stab-resistant garment). Each of the patented materials used
by the Armor Group differ in their pliability, strength and cost. Research and
Development efforts ensure that the materials are combined to suit particular
applications. In the opinion of management, the Armor Group enjoys a good
relationship with its suppliers. However, if supplies from Dupont, Honeywell, or
Toyobo of their patented fibers were, for any reason, disrupted, the Armor Group
would be required to utilize other materials, and the specifications of some of
the Armor Group's products would have to be modified. Until the Armor Group
selected an alternative material 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 manufacturing
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 internal employee research
and development team has combined 75 years of ballistic research and development
experience, including 24 years of experience in an NIJ certification
environment. Many of its research and development personnel previously held
positions of responsibility within the industry. The Armor Group maintains a
state-of-the-art ballistic laboratory test facility similar to the NIJ Certified
Test Facilities.
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In addition to upgrades of existing products, the Armor Group's research and
development team are developing systems to integrate water flotation
capabilities into its tactical units, front-opening, tactical style correctional
armor and other futuristic designs.
PATENTS AND TRADEMARKS. The Company holds numerous patents and
trademarks registered in the United States for various products. A number of
these patents are of considerable value and believed to be critical to its
business. No challenges to its patents and trademarks have arisen and the
Company has no reason to believe that any such challenge will arise in the
future. The Company has numerous patents pending for unique, futuristic
protective armor designs and integrated technologies.
CUSTOMERS. The Armor Group's products are sold domestically to United
States law enforcement agencies, corrections facilities and the U.S. Military;
and internationally to governments and distributors. Sales to the United States
Armed Forces directly or as a subcontractor accounted for 62%, 57%, and 19%, of
the Armor Group's revenues for the years ended December 31, 2001, 2000, 1999,
respectively. Sales directly and indirectly to domestic state and local law
enforcement agencies, security and intelligence agencies, and federal and state
correctional facilities, accounted for 22%, 30%, and 55%, respectively, of the
Armor Group's revenues in each of the years ended December 31, 2001, 2000, and
1999.
Certain sales by the Armor Group to federal agencies are made pursuant
to standard purchasing contracts issued by the General Services Administration
of the Federal Government, commonly referred to as a "GSA Schedule". GSA
Schedule contracts accounted for approximately 14%, 12%, and 19%, respectively,
of the Armor Group's sales for the year ended December 31, 2001, 2000, and 1999.
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 expire July 31, 2006.
With the exception of the U.S. Government, no other customer accounted
for 10% or more of the Company's revenues in 2001.
MARKETING AND DISTRIBUTION. The Armor Group employs twelve customer
support representatives and eight regional sales managers. In addition, the
Armor Group has twenty-six independent sales representatives who are paid solely
on a commission basis. These personnel are responsible for marketing the Armor
Group's products to law enforcement agencies in the United States. Sales to such
law enforcement agencies are made primarily through the independent sales
representatives. 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
fragmentation garments and accessories manufactured and sold by the Armor Group
are not currently the subject of government regulations. However, law
enforcement agencies and the military specify certain standards of performance.
As previously noted, NIJ has issued a revised voluntary ballistic standard
(NIJ0101.04) for bullet-resistant vests in several categories. In addition, the
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NIJ has established a voluntary standard for testing stab-resistant armor. The
Armor Group regularly submits its vests to independent laboratories for testing
under these standards and all of its products have, at the time of manufacture,
met or exceeded such standards in their respective categories.
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
a series of ballistic or fragmentation projectiles of increasing velocities
until 50% of the projectiles penetrate the armor. The tested item is then given
a V-50 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 International perform similar tests
internally.
COMPETITION. The ballistic-resistant garment business is highly
competitive and fragmented. The number of United States manufacturers is
estimated to be approximately twenty. Management is not aware of published
reports concerning the market, and most companies are privately held.
Nevertheless, the Company believes that the Armor Group is the largest
manufacturer of ballistic-resistant garments in the United States. In the
future, the Company may face other and unknown competitors, some of whom may
have substantially greater financial, marketing and other resources than those
possessed by the Company.
The Armor Group believes that the principal elements of competition in
the sale of ballistic-resistant garments are innovative design, price and
quality. The Company believes that the Armor Group enjoys a favorable reputation
in the industry with over twenty years of supplying federal, state and municipal
governments and agencies.
BACKLOG. As of December 31, 2001, the Armor Group had a backlog of
approximately $61 million as compared to approximately $42 million as of
December 31, 2000. Backlog at any one date is not a reliable indicator of future
sales.
In addition to its backlog, from time to time the Armor Group receives
contract awards for municipal orders that may be extended over a period of time.
The actual dollar amount of products to be delivered pursuant to these and
similar contracts cannot be accurately predicted and is generally excluded from
reported backlog.
POTENTIAL PRODUCT LIABILITY. The products manufactured or distributed
by the Armor Group are used as protective devices in situations that could
result in serious injuries or death, including injuries that may result from the
failure of such products. The Armor Group maintains product liability insurance
for PACA and Point Blank in the amount of $21,000,000 each per occurrence, and
$22,000,000 in the aggregate, less a deductible of $100,000 for each company. PB
International maintains product liability insurance in the amount of $2,000,000
for each occurrence, with a $5,000 deductible. 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 Point Blank, PACA, and PB
International 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. The
inability to
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obtain product liability coverage may prohibit Point Blank, PACA, or PB
International in the future from bidding for orders from certain governmental
customers. Currently many governmental agencies require such insurance 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.
EMPLOYEES. As of December 31 2001, the Armor Group's employed
approximately four hundred sixty employees. There was one officer of the Armor
Group, eleven persons employed in supervisory capacities, 376 employed in
manufacturing, shipping and warehousing, twenty-seven in customer service and
sales, six technical/research development personnel and thirty-nine office
personnel. In the opinion of management, the Armor Group maintains a good
relationship with its employees.
DHB SPORTS GROUP
NDL sells a collection of sports medicine, protective gear, health supports and
magnetic therapy products. The Sport Group's primary products consists of
protective athletic apparel and equipment, such as elbow, heart, hip, groin,
knee shin and ankle support braces. The Sports Group also markets magnetic
therapy products, but sales of these products have declined on an industry-wide
basis over the prior two years.
Currently, the Sports Group manufactures and markets products under the
brands NDL(TM), FLEX-AID(TM), and other brands, as well as under private label
programs for both mass merchandisers and several wholesalers. The Sports Group
markets its product to a variety of distribution points with an emphasis on
major retailers, such as mass merchandisers, chain drug stores, food chains,
independent sporting goods and pharmacy retailers. Two customers, Wal-Mart and
Target, accounted for 61 % and 54% of the Sports Group revenue for the years
ended December 31, 2001 and 2000, respectively
The Sports Group also have more than 50 independent sales
representatives who are responsible for sales throughout the United States and
internationally. The Sports Group sales manager oversees the performance of the
independent sales representatives and provide customer support, when needed. A
portion of the Sports Group sales, including certain house accounts, are made
directly by Company personnel. The Sports Group has in-house sales support and
state of the art electronic data entry order and invoicing capabilities.
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).
As of December 31, 2001, there were approximately 30 employees of the Sports
Group, including 21 employed in manufacturing, shipping and warehousing. In the
opinion of management, the Sports Group's relationship with its employees is
good.
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SEGMENT INFORMATION
As described in detail above, the Company operates in two principal segments:
Ballistic-resistant equipment and Protective athletic/sports products. The
Company disposed of its Electronics Group in March 2000, and closed its hard
armor company, LAP in October 1999. These two divestitures are accounted for as
discontinued operations. Financial information on the Company's business
segments was as follows:
NET SALES 2001 2000 1999
- --------- ------------ ----------- -----------
Ballistic-resistant equipment $ 94,558,410 $64,720,773 $30,358,537
Electronic components/LAP -- 401,299 8,441,393
Protective athletic & sports products 4,520,172 5,296,799 6,236,438
------------ ----------- -----------
99,078,582 70,418,871 45,036,368
Less inter-segment sales (1,062,900) -- (2,381,099)
Less discontinued operations (3) -- (401,299) (7,514,541)
------------ ----------- -----------
Consolidated Net Sales $98,015,682 $70,017,572 $35,140,728
=========== =========== ===========
INCOME FROM OPERATIONS
Ballistic-resistant equipment $14,999,114 $10,591,126 $ (9,629,504)
Electronic components -- (517,288) (1,835,137)
Protective athletic & sports products 93,819 (166,114) (2,390,834)
Corporate and Other (1) (2,343,435) (2,225,757) (2,824,826)
------------ ----------- -----------
Sub-total 12,749,498 7,681,967 (16,680,301)
Income (Loss) from discontinued
operations (3) -- . 517,288 (6,809,082)
------------ ----------- -----------
Consolidated Operating Income $12,749,498 $8,199,255 $ ( 9,871,219)
============ =========== ==============
IDENTIFIABLE ASSETS (2)
Ballistic-resistant equipment $36,426,397 $22,383,129 $14,283,739
Electronic components --- --- 6,177,019
Protective athletic & sports products 2,767,905 3,517,194 3,335,253
------------ ----------- -----------
39,194,302 25,900,323 23,796,011
Corporate and Other 1,701,814 2,155,948 400,038
------------ ----------- -----------
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Consolidated Net Assets 40,896,116 28,056,271 24,196,049
Discontinued operations (3) (4,825,532)
Assets held for sale -- -- 3,928,980
------------ ----------- -----------
Adjusted Net Assets $40,896,116 $28,056,271 $23,299,497
=========== =========== ===========
Foreign sales accounted for 2%, 2% and 17% of the total revenues
for the years ended December 31, 2001, 2000 and 1999, respectively.
Foreign identifiable assets accounted for 1%, 1%, and 13% of the total
assets at December 31, 2001, 2000 and 1999, respectively.
(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 Electronics Group sold on
March 10, 2000, as well as the loss from the shutdown of the LAP
plant in 1999.
ITEM 2. PROPERTIES
CORPORATE HEADQUARTERS. The Company's corporate headquarters are
in a 3,750 square foot leased office located at 555 Westbury Avenue, Carle
Place, NY 11514. The lease expires in December 31, 2002, with an option to
extend for an additional two years.
PACA. The Company leases a 60,060 square foot manufacturing facility
with administrative offices at 149 Mine Lane Jacsboro, Tennessee, for its
subsidiary, PACA. The lease expires April 15, 2006.
NDL/POINT BLANK FACILITY. Point Blank 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. NDL
Products occupies a portion of the space in the Oakland Park facility. The lease
expires on December 31, 2010. Management believes that the terms of the lease
are no less favorable to the Company than terms available from an unrelated
third 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 from an
unrelated third party. This warehouse is located at 1201 NE 38th Street Oakland
Park, Florida. The Company has entered into negotiations to extend this lease.
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 expiring in March
2003 with options to renew for an additional six years.
ITEM 3. PENDING LITIGATION
The Company has filed a lawsuit in Nassau County Supreme Court against
its insurance carrier as well as the insurance agent, for negligence and breach
of fiduciary duties as a result of the damages the Company incurred during
Hurricane Irene in October 1999. The Company claims damages of $9.4 million. The
Company is vigorously pursuing this action.
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Robert Bruno, the former Vice-president and General Counsel of DHB
Capital Group Inc., has initiated arbitration against the Company seeking two
years ($306,250) unearned compensation under a three-year employment. In July
2001, the arbitrators awarded Bruno the full amount sought, less offsets plus
legal fees. The Company is seeking vacation of the Award, on multiple grounds.
The Company intends to aggressively defend its position, but has adequately
reserved against the Award.
On or about June 21, 2001, American Body Armor and Equipment Inc. commenced an
action against the Companies subsidiary, PACA, in the United States District
Court of the Middle District of Florida. The Plaintiff claims patent
infringement and is seeking and damages. PACA believes the claimed patent is
invalid and that its product does not infringe. The Company intends to
vigorously defend this action.
The Company is involved in other 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: None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company began trading on the American Stock
Exchange on February 1, 2002 under the symbol DHB. Previously, the Company was
trading on the OTC Bulletin Board under the symbol DHBT. The following table
shows the high and low bid prices of the Company's Common Stock for each quarter
in the two-year period ended December 31, 2001.
Low High
2000 1st Quarter .75 1.75
2nd Quarter .96 1.75
3rd Quarter 1.06 1.81
4th Quarter 1.50 2.50
2001 1st Quarter 1.69 3.09
2nd Quarter 1.95 2.79
3rd Quarter 1.95 3.00
4th Quarter 3.00 6.03
The Company pays no cash dividends and presently retains all of its
earnings and anticipates that its future earnings will be retained to finance
the expansion of its business. Any determination to pay cash dividends in the
future will be at the discretion of the Board of Directors after taking into
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account various factors, including financial condition, results of operations,
current and anticipated cash needs, and restrictions, if any, under the
Company's credit agreements.
The number of holders of record of the Company's Common Stock on March
18, 2002 was 130. However, the number of holders of record includes brokers and
other depositories for the accounts of others. The Company estimates that there
are approximately 1,400 beneficial owners of Common Stock.
RECENT SALES/ISSUANCE OF UNREGISTERED SECURITIES
In 2001 the Company issued 111,000 shares of Common Stock for services
to attorneys, consultants and other service providers. The aggregate value of
the services rendered for these issuances totaled $355,230. The Company relied
on the exemption to registration provided by Section 4(2) of the Securities Act
of 1933, as amended.
In September 2001, the Company sold 225,000 shares of common stock in a
private placement to companies (accredited investors) affiliated with Morton
Cohen, a director of the Company for proceeds of $506,250.
In December 2001, a private investor exercised a warrant for 150,000
shares of unregistered common stock for $3.00 per share for a total of $450,000.
ITEM 6. SELECTED FINANCIAL INFORMATION
The selected consolidated financial data set forth below for the year
ended December 31, 2001, 2000, 1999, 1998, and 1997, 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 Form 10-K.
INCOME STATEMENT DATA 2001 2000 1999 1998 1997
- --------------------- ---- ---- ---- ---- ----
Net Sales $98,015,682 $70,017,572 $35,140,728 $33,073,418 $33,271,607
Cost of Sales 71,639,394 49,358,476 27,566,278 20,441,663 22,153,925
---------- ---------- ---------- ---------- ----------
Gross Profit 26,376,288 20,659,096 7,574,450 12,631,755 11,117,682
Selling, General and
Administrative 13,626,790 12,459,841 17,445,669 9,778,336 9,641,655
---------- ---------- ---------- --------- ---------
expenses
Operating income 12,749,498 8,199,255 (9,871,219) 2,853,419 1,476,027
(loss)
Interest expense (2,483,795) (2,743,132) (2,908,495) (1,095,553) (339,754)
Other income (expense) 42,199 340,655 (9,560,523) 21,957 801,126
---------- ---------- ---------- --------- ---------
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Income (loss) before
discontinued operations 10,307,902 5,796,778 (22,340,237) 1,779,823 1,937,399
Discontinued operations --- 340,572 (9,714,291) (1,628,371) --
---------- ---------- ---------- --------- ---------
Income (loss) before
Income taxes 10,307,902 6,137,350 (32,054,528) 151,452 1,937,399
Income taxes 174,886 129,999 67,385 21,650 396,509
---------- ---------- ---------- --------- ---------
Net income (loss) $10,133,016 $6,007,351 $(32,121,913) $129,802 $1,540,890
=========== ========== ============= ======== ==========
Earnings per share
Basic $0.32 $0.18 $(1.24) $0.005 $0.06
Diluted $0.28 $0.17 $(1.09) $0.005 $0.05
BALANCE SHEET DATA 2001 2000 1999 1998 1997
- ------------------ ---- ---- ---- ---- ----
Working capital $20,796,294 $7,496,588 $2,047,312 $21,634,389 $13,621,014
Total Assets 40,896,116 28,056,271 23,299,497 41,363,810 27,674,629
Short-term debt 16,735,630 16,949,494 5,152,815 4,334,607 2,740,192
Long-term debt 19,304,914 16,061,825 16,280,051 11,915,116 1,411,258
Stockholders' equity deficit 5,005,572 (4,955,048) (10,186,322) 18,172,267 17,741,619
ITEM7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the Company's financial condition and results
of operations should be read in conjunction with the financial statements,
including the notes thereto, contained elsewhere in this document.
GENERAL
The Company is a holding company, which currently conducts business
through its wholly owned subsidiaries organized in two divisions, the DHB Armor
Group and DHB Sports Group. The Company's products are sold both nationally and
internationally. The Armor Group's sales are directed primarily to law
enforcement agencies and military services. Sales to the U.S. military comprise
the largest portion of the Armor Group's business, followed by sales to federal,
state and local law enforcement agencies, including correctional facilities.
Accordingly, any substantial increase or reduction in governmental spending or
change in emphasis in defense and law enforcement programs could have a material
effect on the Armor Group's business. The Sports Group manufactures and markets
a variety of sports medicine, protective gear, health supports and magnetic
therapy products under its own labels, private labels and house brands for major
retailers.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Consolidated net sales for the Company were $98,015,682 million for
12
the year ended December 31, 2001, a 40% increase over the 2000 annual net sales
of $70,017,572 million. This increase is primarily attributable to the increased
volumes from the Military, and, to a lesser extent, domestic law enforcement
customers. The gross margin decreased 2.5% to 26.9% primarily as a result of the
plant shutdown and relocation of the PACA facility during the first quarter of
2001. However, operating margins expanded to 13% of revenues or $12,749,498
million for the year ended December 31, 2001 as compared to 11.7% of revenues or
$8,199,255 million for the year ended December 31, 2000. This increase is a
result of the manufacturing operating efficiencies resulting from higher sales
volumes, volume discounts from our vendors, and management control of expenses.
The Company's selling general and administrative expenses for the year
ended December 31, 2001 as a percentage of revenues improved to 14% as compared
to 18% of 2000 revenues.
Interest expense for the year 2001 decreased by approximately $259,000
to $2.48 million as a result of lower interest rates under the Company's credit
facility with LaSalle Business Credit. Other income declined by $300,000, as the
2000 figure included gain on the sale of the previous corporate headquarters.
The effective tax rate for 2001 and 2000 was nominal due to the
utilization of net operating loss carryforwards. The Company generated an
estimated loss carryfoward of $26 million as of 2000, of which $10.1 million was
utilized in 2001 and the balance of approximately $15 Million is available in
subsequent years to offset taxable income in those years through 2019.
As a result of the foregoing, net income reached a record $10,133,016
for the year 2001 as compared to $6,007,351 for the year 2000, a 69% increase.
Earnings per share for the year ended December 31, 2001 were $0.28 per share
with 36,775,909 fully diluted shares versus $0.18 per share on 34,086,963 fully
diluted shares for 2000.
YEAR ENDED DECEMBER 31, 2000 AS COMPARED TO YEAR ENDED DECEMBER 31,
1999. Consolidated net sales for the Company nearly doubled for the year ended
December 31, 2000 to $70,017,572 as compared to $35,140,728 for the year ended
December 31, 1999. This increase was attributable to the increase volumes from
the Military as well as domestic law enforcement customers. Gross profit
increased to $20,659,096 or 29% as compared to $7,574,450 or 21.5% This increase
is a result of the manufacturing operating efficiencies resulting from higher
sales volumes, volume discounts from our vendors as a result of the increases in
our purchasing volumes, and management control of expenses.
Selling, general and administrative expenses decreased to $12,459,841
as compared to $17,445,669 in 1999. The decrease was primarily attributable to a
sharp decline in 2000 in advertising, legal and other professional fees. The
Company was involved in several significant lawsuits in the prior year, which
were concluded in 1999 or early 2000.
Other income (Expense) in 2000 totaled ($2,402,477) as compared to
($12,469,018). Included in the 1999 figures was a $9.38 million loss
attributable to damages caused by Hurricane Irene and a write down of investment
in subsidiaries and equity investments, and $118,136 loss on marketable
securities. Interest expense declined $165,000 to $2,743,132 in 2000, reflecting
a decrease in the amount of borrowed indebtedness. Also included in other income
13
for 2000 was a gain on the sale of the previous corporate headquarters of
$235,694.
Discontinued operations contributed $340,555 to income in 2000, as a
result of the $858,000 gain on the sale of the Electronics Group, compared to a
loss in 1999 of $9,714,291 attributable both to operations of the discontinued
business and the write-down of the investment in the closed operations.
The effective tax rate for 2000 was nominal due to the utilization of
net operating loss carryforwards.
As a result of the foregoing, net income increased to $6,007,351 or
$0.18 per share for 2000 reversing a net loss of $32,121,913 for 1999, or
($1.09) per share.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's primary capital requirements over the next twelve months
are to assist the subsidiaries in financing their working capital requirements.
Its operating subsidiaries sell the majority of their products on 60 - 90 day
terms. Working capital is needed to finance the receivables, manufacturing
process and inventory. Working capital at December 31, 2001 was $20,796,294
compared to working capital of $7,496,588 at the end of 2000. This increase
reflects primarily a $3.1 million and $10.2 million increase in receivables and
inventory with current liabilities decreasing approximately $200,000. The
Company used in its operations approximately $2.9 million from operating
activities to fund the increases in accounts receivable as well as inventory.
The Company increased its inventory level both to support increased sales
volumes and to stockpile raw materials required for production beginning in
March 2002. The "additional" inventory at December 31, 2001 was approximately $9
million dollars. The Company expects this material to be used in production from
March through July 2002. By adding the extra inventory buildup of $9 million
dollars of raw materials back to the cash used by operating activities the
actual number used by operations would be cash generated of a positive $6.1
million.
In September 2001, the Company entered into an agreement with LaSalle
Business Credit, Inc. (an ABN AMRO Bank, N.V. affiliate) whereby LaSalle
Business Credit provided an $18.8 million credit facility to DHB Industries. The
$18.8 million facility is comprised of a $15.5 million asset based revolving
credit loan, $1.8 million term loan drawn down at closing and a $1.5 million
capital expenditure line, which has not been utilized. Interest is either at the
prime rate or LIBOR plus 2 1/2. A portion of these funds was used to partially
refinance higher interest debt. The remaining funds have been, and will be used,
to meet increased demands for capital generated during a period of rapid growth,
which has accelerated in response our growing markets.
During 2001, the Company repurchased and retired 678,063 shares in the
open market for an aggregate price of approximately $1,738,000. Previously, the
Board has authorized the repurchase of up to 4 million shares of the Company's
common stock in the open market. To date, the Company has repurchased 2,735,605
shares for a total cost of $8,099,004 which leaves a balance of 1,264,395 shares
available for repurchase.
14
The Company's capital expenditures for 2001 were $553,673, an increase
of approximately $124,000 from 2000 capital expenditures of $429,319. This
increase is a result of the addition of certain production equipment to increase
capacity.
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, including, but not limited to: general business
and economic conditions, the maintenance of the Company's military supply
contacts, the level of governmental expenditures on law enforcement equipment,
continued supplies of materials from critical vendors, and the continued
availability of insurance for the Company's products. 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. Readers are cautioned not to
place undue reliance on these forward-looking statements that speak only as of
the date hereof. The Company undertakes no obligation to publish revised
forward-looking statements to reflect the occurrence of unanticipated events or
circumstances after the date hereof.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE RISK: The Company's exposure to market risk for interest
rate changes relates primarily to its variable rate borrowings under the credit
facility.
FOREIGN CURRENCY EXCHANGE RISK: The Company transacts business in
various foreign countries. Its primary foreign currency cash flows are in
Eastern 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 AND SUPPLEMENTAL DATA:
SEE INDEX TO CONSOLIDATED FINANCIAL STATEMENTS APPEARING IN THE CONSOLIDATED
FINANCIAL STATEMENT ANNEXED HERETO.
15
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
FISCAL 2001 QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
Net Sales $20,174,944 $23,513,811 $24,009,436 $30,317,491
Cost of sales 15,223,433 17,308,556 17,280,550 21,826,855
----------- ----------- ----------- -----------
Gross profit 4,951,511 6,205,255 6,728,886 8,490,636
Selling, general and admin expense 3,333,258 3,090,487 3,281,775 3,921,270
----------- ----------- ----------- -----------
Operating income 1,618,253 3,114,768 3,447,111 4,569,366
Other income (expense) (589,685) (678,006) (626,594) (547,311)
----------- ----------- ----------- -----------
Income before income taxes 1,028,568 2,436,762 2,820,517 4,022,055
Income taxes 5,901 134,199 27,473 7,313
----- ------- ------ -----
Net income $ 1,022,667 $ 2,302,563 $ 2,793,044 $ 4,014,742
=========== =========== =========== ===========
Earnings per share
Basic $0.03 $0.07 $0.09 $0.13
===== ===== ===== =====
Diluted $0.03 $0.07 $0.08 $0.11
===== ===== ===== =====
Weighted average shares outstanding
Basic shares 31,230,898 31,316,940 31,411,180 31,168,088
========== ========== ========== ==========
Diluted shares 36,760,623 35,923,088 35,666,896 36,567,864
========== ========== ========== ==========
FIRST SECOND THIRD FOURTH
FISCAL 2000 QUARTER QUARTER QUARTER QUARTER
- ----------- ------- ------- ------- -------
Net Sales $13,575,648 $16,128,373 $18,591,351 $21,722,200
Cost of sales 9,594,341 11,516,371 13,033,727 15,214,037
--------- ---------- ---------- ----------
Gross profit 3,981,307 4,612,002 5,557,624 6,508,163
Selling, general and admin expenses 2,886,689 2,814,800 3,062,033 3,696,319
--------- --------- --------- ---------
Operating income 1,094,618 1,797,202 2,495,591 2,811,844
Other income (expense) (785,034) (762,998) (391,451) (462,994)
--------- -------- --------- ---------
Income before discontinued operations
309,584 1,034,204 2,104,140 2,348,850
Discontinued operations 340,572 -- -- --
------- --- -------- --- -------- --- --
Income before income taxes 650,156 1,034,204 2,104,140 2,348,850
Income taxes 27,773 22,878 93,408 (14,060)
------ ------ ------ --------
Net income $622,383 $1,011,326 $2,010,732 $ 2,362,910
======== ========== ========== ===========
Earnings per share
Basic 0.019 0.032 0.065 0.074
===== ===== ===== =====
Diluted 0.019 0.032 0.064 0.068
===== ===== ===== =====
Weighted average shares outstanding
Basic shares 32,332,181 32,343,941 32,237,463 31,964,196
========== ========== ========== ==========
Diluted shares 32,332,181 32,343,941 32,751,423 34,969,533
========== ========== ========== ==========
16
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
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)
Selling, general and admin expenses 1,941,518 2,605,673 3,023,836 9,874,642
--------- --------- --------- ---------
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)
Discontinued operations (333,871) (612,597) (619,765) (8,148,058)
--------- -------- --------- -----------
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
========== ========== ========== ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE: NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Directors serve for a term of one year following their election at
the Annual Meeting of Stockholders, and until their successors have been elected
and qualified. The officers serve at the discretion of the Board of Directors.
Set forth below is certain information regarding the Company's current directors
and officers:
DAVID H. BROOKS, age 47, has served as the Chairman or Co-Chairman of
the Company since its inception in 1992. Mr. Brooks has served as the Chief
Executive Officer of the Company since July 2000, having previously served in
that capacity prior to September 1998. Mr. Brooks also serves as Chairman of the
Board, President and a Director of Brooks Industries of L.I., Inc., a privately
held venture capital firm.
MORTON A. COHEN, age 66, has been a director of the Company since 1996.
Mr. Cohen has been Chairman, President and Chief Executive Officer of Clarion
Capital Corp., a private, small business investment company for more than five
years. He is also a director of Cohesant Technologies Inc. and Zemex
Corporation. He presently serves as the Chairman of the Company's audit and
compensation committees.
17
SANDRA HATFIELD, age 48, has been Chief Operating Officer of the
Company since December 2000. From October 1996 until December 2000, she served
as President of Point Blank. For more than five years prior thereto she was the
Vice President of Production at PACA.
JEROME KRANTZ, age 46, has been a director of the Company since July
2000. He has over twenty years experience in the insurance and financial
industry. Mr. Krantz is a chartered life underwriter and a chartered financial
consultant. In addition he is a registered investment advisor. He currently
serves on the audit and compensation committees.
DAWN M. SCHLEGEL, age 32, is the Chief Financial Officer of the
Company. She has also served as Treasurer and Secretary of the Company since
September 1999, and was elected a Director as of July 2000. She has functioned
in various positions within the Company's operations and finances since 1996.
Prior to joining the Company, Mrs. Schlegel worked for Israeloff, Trattner & Co.
CPA's P.C., a certified public accounting firm, for more than five years.
GARY NADLEMAN, age 49, has been a director of the Company since
July 2001. He has over twenty years experience in the apparel industry. Mr.
Nadleman is a private investor and the President of Synari, Inc., a manufacturer
of women's sportswear and other apparel.
ITEM 11. 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, 2001, 2000, and 1999,
exceeded $100,000:
Name and Principal Annual
Position Year Salary(1)
David Brooks,(2) 2001 $525,000
Chairman and CEO 2000 413,542
1999 143,750
Sandra Hatfield 2001 $163,497
Chief Operating Officer 2000 152,098
1999 149,196
Dawn Schlegel 2001 $103,718
Chief Financial Officer 2000 100,000
1999 65,000
---------------------------------- -------------- ---------------
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.
EMPLOYMENT AGREEMENTS. In July 2000, Mr. Brooks and the Company
entered into a new five-year employment agreement. Pursuant to the agreement Mr.
18
Brooks receives an annual salary of $500,000 through July 2001, with annual
increases of $50,000 thereafter. Under the Agreement, Mr. Brooks' received
3,750,000 warrants exercisable at $1.00 and vesting 20% immediately and in 20%
annual increments thereafter. These warrants expire in July 2010.
STOCK WARRANTS. During 2001, the then current four Board Members were
awarded 25,000 warrants exercisable at $2.00 for five years for serving as board
members. Mrs. Schlegel was awarded 100,000 warrants exercisable at $2.00 per
share, which expire in January 2006. In December 2000 in conjunction with
becoming the Chief Operating Officer, Sandra Hatfield was awarded 400,000
warrants vesting 100,000 per year exercisable at $2.00 per share which expire in
December 2006. During the year, no additional stock options, warrants or similar
securities, rights or interests were granted to any of the executive officers of
the Company listed in the Summary Compensation Table above. No options, warrants
or similar securities, rights or interests were exercised by any such executive
officers in 2001.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes of ownership of Common Stock and other equity securities of the
Company. To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 2001, all
Section 16(a) filing requirements applicable to its officers, directors and
greater-than-ten-percent beneficial owners were complied with, with the
exception of the following, the warrant reports of the grants to Mr. Brooks, Mr.
Krantz and Mrs. Schlegel, late form 3S for Mr. Nadelman and Mrs. Hatfield and a
late filing of a purchase by Mr. Cohen
The following table summarizes option/warrant grants (excluding director grants)
of the named officers' stock option activity during 2001.
WARRANTS GRANTED IN LAST FISCAL YEAR
NUMBER OF POTENTIAL GAIN AT ASSUMED ANNUAL
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS/SARS APPRECIATION FOR OPTION TERM(1):
OPTIONS / GRANTED TO EXERCISE OR
SAR'S EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(2) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ------- ----------- --------- ---- -- ---
David Brooks 25,000 5% $2.00 7/1/10 $132,250 $169,500
Sandra Hatfield 0 0%
Dawn Schlegel 25,000 5% $2.00 5/31/06 132,250 169,500
100,000 20% $2.00 12/31/06 529,000 678,000
1 - These amounts assume hypothetical appreciation rates of 5% and 10% over the
term of the option, as required by the SEC, and are not intended to forecast the
appreciation of the stock price. No gain to the name officers will occur unless
the price of DHB's common shares exceeds the options' exercise price.
2 - The Company has no SARS.
19
AGGREGATED WARRANT OPTION / WARRANT VALUES
The following table sets forth information regarding the number and
value of unexercised warrants/options held by each of the Named Executive
Officers at December 31, 2001. The table does not include warrants provided to
Mr. Brooks in capacities other than as a director or officer of the Company.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE MONEY
OPTIONS / SAR AT FY-END OPTIONS / SAR AT FY-END
----------------------- -----------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
David H. Brooks 5,300,000 2,250,000 $21,167,500 $11,137,500
Dawn Schlegel 130,000 -0- 513,500 -0-
Sandra Hatfield 100,000 300,000 395,000 1,185,000
COMPENSATION OF COMMITTEE REPORT
The Compensation Committee is responsible for developing the Company's
executive compensation policies and determining the compensation paid to the
Company's Chief Executive Officer and its other executive officers.
The Compensation Committee discharged its repsonsibility throughout the
year through informal, personal meetings and other communications. In 2000, a
new employment agreement with the Chief Executive Officer was executed. The
Committee determined that no changes to the agreement were required in 2001.
The Committee is reviewing the current compensation packages of its
officers, including the lack of a bonus plan. The Committee's goal is to create
a system that appropriately aligns the interest of executive officers with those
of the Company's shareholders in increasing shareholder value. The Committee
expects to make recommendations to the Board with respect to such a system later
this year.
Morton Cohen, Chairman
Jerome Krantz
Gary Nadelman
ITEM 12. 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 18 2002, 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.
NUMBER OF SHARES PERCENT OWNED(1)
NAME BENEFICIALLY OWNED(2) * - LESS THAN ONE (1%)
- ---- ------------------
David Brooks(3), 22,075,6003 53%
Morton Cohen 1,636,5004 4%
Jerome Krantz 79,0005 *
Sandra Hatfield 125,0006 *
Dawn Schlegel 155,5007 *
Gary Nadelman 169,0008 *
All officers and Directors as a group
(6 people) 24,240,6009 58%(9)
1. Based upon 31,515,427 shares outstanding as of March 18, 2002. In
calculating the percentage owned by any individual, officer, or
director, the number of currently exercisable warrants and options have
20
been included in calculation of percentage owned. Currently exercisable
options or warrants are those, which are exercisable within 60 days
after March 18, 2002.
2. Includes currently exercisable options or warrants are those, which
are exercisable within 60 days after the date of this form 10-K.
3. Consists of 7,500,600 common shares owned and 500,000 shares issueable
upon conversion of preferred stock owned by Mr. Brooks and 4,500,000
owned by his wife as custodian for his minor children as well as
9,575,000 shares acquirable under currently exercisable warrants as
described below. Mrs. Brooks may acquire 3,750,000 shares at $1.33 per
share and 500,000 shares at $3.50 per share upon the exercise of her
currently exercisable warrants for. Mr. Brooks may acquire 3,750,000
shares at $2.33 per share, 25,000 shares at $3.25 per share, 25,000
shares at $2.00 per share, 25,000 shares at $7.11 per share and
1,500,000 shares at $1.00 per share upon exercise of his currently
exercisable warrants. As the only person with more than 5% ownership of
the Company, Mr. Brooks address is 555 Westbury Avenue, Carle Place NY
11514.
4. Includes 931,500 shares owned by various private equity funds managed
by Mr. Cohen and 125,000 shares purchasable upon exercise of
outstanding options at prices ranging from $2.00 to $7.11.
5. Includes 50,000 shares, which may be acquired upon exercise of a
currently exercisable warrants at prices between $2.00 and $7.11.
6. Includes 125,000, which may be acquired under currently exercisable
warrants at prices between $2.00 and $7.11.
7. Includes 155,000, which may be acquired under currently exercisable
warrants at prices between $2.00 and $7.11.
8. Includes 50,000 shares, which may be acquired upon exercise of a
currently exercisable warrants at prices between $2.00 and $7.11.
9. Includes 10,030,000 currently exercisable warrants of common stock held
by directors and officers
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has funded certain of its acquisitions and operations
through the use of term loans from Mr. David H. Brooks, Chairman of the Board of
the Company, and Mrs. Terry Brooks, his wife. The balance of the shareholder
loans at December 31, 2001 is $10,000,000. These shareholders loans mature in
November 2004 and bear interest at 12% per annum.
Point Blank 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 Terry Brooks, wife of Mr. David H. Brooks, and beneficially owned
by Mr. and Mrs. Brooks' minor children. Annual aggregate base rental was
$607,353 in 2001 and expires in December 31, 2010. Management believes that the
terms of the lease are at the current market price that would be obtained from
an unrelated party.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8K
21
A. (1) FINANCIAL STATEMENTS
(2) FINANCIAL STATEMENT SCHEDULES
(3) EXHIBITS. THE EXHIBITS FILED HEREWITH ARE SET FORTH ON THE
INDEX TO EXHIBITS FILED AS PART OF THIS REPORT.
B. FORM 8-K: NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED
DECEMBER 31, 2001.
22
DHB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS INDEX
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-1
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-2
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999 F-5
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2001, 2000 and 1999 F-6
Notes to the Consolidated Financial Statements F-7 - F-18
Schedule II Valuation and Qualifying Accounts F-19
23
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
DHB Industries Inc.
We have audited the accompanying consolidated balance sheets of DHB Industries
Inc. and Subsidiaries as of December 31, 2001 and 2000 and the related
consolidated statements of operations, stockholders' equity (deficit) and other
comprehensive income and cash flows for each of the three-years in the period
ended December 31, 2001. Our audits also included the financial statement
schedule. 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
Industries Inc. and Subsidiaries as of December 31, 2001 and 2000 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2001 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Paritz and Company P.A.
Hackensack, New Jersey
March 5, 2002
F-1
DHB INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
ASSETS 2001 2000
------ ---- ----
CURRENT ASSETS
Cash and cash equivalents $145,384 $ 566,887
Marketable securities -- 368,996
Accounts receivable, less allowance for doubtful
accounts of $792,451 and $653,384 11,252,577 8,121,188
Inventories 24,582,313 14,297,059
Prepaid expenses and other current assets 1,401,650 1,091,952
--------- ---------
Total Current Assets 37,381,924 24,446,082
---------- ----------
PROPERTY AND EQUIPMENT 2,017,012 1,940,326
--------- ---------
OTHER ASSETS
Investments in non-marketable securities 941,750 941,750
Deferred tax assets 259,300 429,300
Deposits and other assets 296,130 298,813
------- -------
Total Other Assets 1,497,180 1,669,863
--------- ---------
TOTAL ASSETS $40,896,116 $28,056,271
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $13,298,185 $11,257,987
Accrued expenses and other current liabilities 2,515,127 5,547,759
Current maturities of long term debt 772,318 143,748
------- -------
Total Current Liabilities 16,585,630 16,949,494
---------- ----------
LONG TERM LIABILITIES
Notes payable-bank 8,442,414 --
Long term debt, net of current maturities 862,500 15,356
Note payable - stockholder 10,000,000 16,046,469
---------- ----------
Total Long Term Debt 19,304,914 16,061,825
---------- ----------
Total Liabilities 35,890,544 33,011,319
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY) 5,005,572 (4,955,048)
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $40,896,116 $28,056,271
=========== ===========
See accompanying notes to financial statements.
F-2
DHB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
2001 2000 1999
---- ---- ----
Net sales $98,015,682 $70,017,572 $35,140,728
Cost of goods sold 71,639,394 49,358,476 27,566,278
---------- ---------- ----------
Gross profit 26,376,288 20,659,096 7,574,450
Selling, general & administrative expenses 13,626,790 12,459,841 17,445,669
---------- ---------- ----------
Income (loss) before other income (expense) 12,749,498 8,199,255 (9,871,219)
---------- --------- -----------
Other income (expense)
Interest expense, net of interest income (2,483,795) (2,743,132) (2,908,495)
Hurricane loss -- -- (7,740,231)
Settlement of employment contract -- -- (270,000)
Loss on holding of equity investments -- -- (688,000)
Write down of investment in subsidiary -- -- (1,000,000)
Realized gain (loss) marketable securities (71,030) (26,676) (16,050)
Unrealized gain (loss) on marketable securities - (102,086)
Other income 113,229 367,331 255,844
------- ------- -------
Total other income (expense) (2,441,596) (2,402,477) (12,469,018)
----------- ----------- ------------
Income (loss) from continuing operations before income taxes 10,307,902 5,796,778 (22,340,237)
Income taxes 174,886 129,999 67,385
------- ------- ------
Income (loss) from continuing operations 10,133,016 5,666,779 (22,407,622)
Discontinued operations
Loss from discontinued operations -- (517,288) (4,238,800)
Gain (loss) on disposal of discontinued operations -- 857,860 (5,475,491)
--------- -----------
Total discontinued operations -- 340,572 (9,714,291)
-------- ------- -----------
Net income (loss) $10,133,016 $6,007,351 $(32,121,913)
=========== ========== =============
Earnings (loss) per common share (Note 8)
Continuing operations $0.28 $ 0.18 $ (0.86)
Discontinued operations 0.00 0.00 (0.38)
---- ---- ------
Net earnings (loss) per common share $0.28 $0.18 $(1.24)
===== ===== =======
See accompanying notes to financial statements.
F-3
DHB INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
COMMON ACCUMULATED
NUMBER OF ADDITIONAL STOCK OTHER RETAINED
COMMON PAR PAID-IN SUBSCRIPTION COMPREHENSIVE EARNINGS
SHARES VALUE CAPITAL RECEIVABLE INCOME (DEFICIT) TOTAL
---------- -------- ------------ --------- -------- ----------- -------------
Balance December 31, 1998 25,447,440 $ 25,447 $ 21,215,849 0 $ 31,869 $(3,100,898) $18,172,267
Net loss (32,121,913) (32,121,913)
Effect of foreign currency translation (19,461) (19,461)
--------
Total comprehensive income (32,141,374)
Sale of common stock 6,645,700 6,646 4,241,609 (700,025) 3,548,299
Stock issued for services 273,214 273 390,777 390,981
Exercise of warrants 40,977 41 83,709 83,750
Purchase of treasury stock (75,150) (75) (240,170) - - - (240,245)
-------- ---- --------- --------- --------- --------- ---------
Balance December 31, 1999 32,332,181 $32,332 $25,691,774 $ (700,025) $12,408 $(35,222,811) $(10,186,322)
Net income 6,007,351 6,007,351
Effect of foreign currency translation (35,959) (35,959)
Effect of valuation allowance marketable
securities (283,211) (283,211)
--------- ---------
Total comprehensive income 5,688,181
Sale of common stock (8,900) 700,025 691,125
Stock issued for services 22,607 22 35,828 35,850
Stock issued in settlement of a lawsuit 16,727 17 22,983 23,000
Purchase of treasury stock (697,538) (697) (1,206,184) - - - (1,206,882)
--------- ----- ----------- --------- --------- --------- -----------
Balance December 31, 2000 31,673,977 $ 31,674 $ 24,535,501 $ -- $ (306,762) $(29,215,460) $(4,955,048)
Net income 10,133,016 10,133,016
Effect of foreign currency translation (29,179) (29,179)
Effect of valuation allowance marketable
securities 283,211 283,211
-------
Total comprehensive income 10,387,048
Sale of common stock 225,000 225 506,025 506,250
Stock issued for services 111,000 111 355,119 355,230
Stock issued - exercise of a warrant 150,000 150 449,850 450,000
Purchase of treasury stock (678,063) (678) (1,737,231) - - - (1,737,909)
--------- ----- ----------- --------- --------- ------------- ----------
Balance December 31, 2001 31,481,914 $ 31,482 $ 24,109,264 $ -- $ (52,730) $(19,082,444) $5,005,572
========== ====== ========== ======== ======== ============= ==========
See accompanying notes to financial statements.
F-4
DHB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES 2001 2000 1999
---- ---- ----
Net Income (loss) $10,133,017 $6,007,351 $(32,121,913)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 478,070 324,161 592,213
Valuation allowances/reserves 283,211 (283,211) 4,017,806
Stock issued for services 355,230 35,850 200,981
Stock issued in settlement of a lawsuit -- 23,000 190,000
Unrealized gain on transfers from non-marketable securities -- 58,250 --
Deferred income taxes 170,000 14,700 (110,000)
Changes in assets and liabilities
Accounts receivable (3,131,389) (2,912,823) 2,705,402
Marketable securities 368,996 (368,996) 529,328
Inventories (10,285,254) (5,251,206) 9,017,763
Assets held for sale -- -- 23,717
Prepaid expenses and other current assets (309,698) (495,511) 1,335,850
Deposits and other assets 1,600 41,195 217,601
Accounts payable 2,040,198 1,762,324 4,366,516
Accrued expenses and other current liabilities (3,032,632) 2,990,469 744,616
----------- ---------- ----------
Net cash provided (used) by operating activities (2,928,651) 1,945,553 (8,290,120)
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (payments for purchase) of assets of subsidiary, net
of cash acquired -- 3,933,980 --
Sale of property and equipment -- 422,241 --
Payments made for property and equipment (553,673) (429,319) (311,043)
--------- --------- ---------
Net cash provided (used) by investing activities (553,673) 3,926,902 (311,043)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayments) of note payable- bank 8,442,414 (5,000,000) 825,000
Proceeds of note payable- shareholder (6,046,469) - 4,518,865
Proceeds from the issuance of long term debt 1,800,000 - -
Principal payments on long-term debt (324,286) (227,293) (160,722)
Proceeds from the exercise of warrants - common stock 450,000 - 83,750
Foreign currency translation (29,179) (35,959) (19,461)
Purchase of treasury stock (1,737,909) (1,206,882) (240,245)
Net proceeds from sale of common stock 506,250 691,125 3,548,300
------- --------- ---------
Net cash provided (used) by financing activities 3,060,821 (5,779,009) 8,555,487
--------- ------------ ---------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS (421,503) 93,446 (45,676)
CASH AND CASH EQUIVALENTS - BEGINNING 566,887 473,441 519,117
------- -------- -------
CASH AND CASH EQUIVALENTS - END $145,384 $566,887 $473,441
======== ========= ========
See accompanying notes to financial statements.
F-5
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts
of DHB Industries Inc. and its subsidiaries ("DHB"), all of which
are wholly owned. DHB has two major divisions, DHB Armor Group and
DHB Sports Group.
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
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. 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 held for investment and, accordingly,
unrealized gains and losses are reflected in the equity section of
the balance sheet.
F-6
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Non-marketable securities are valued at historical cost.
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 incurred approximately $2.3 million, $1.3
million, and $825,000, of research and development costs in 2001,
2000, and 1999 respectively.
Advertising expenses
The cost of advertising is expensed as incurred. The
Company incurred approximately $742,000, $728,000, and $1,062,000of
advertising costs in 2001, 2000, and 1999 respectively.
Earnings per share
The Company adopted SFAS No. 128, "Earnings Per Share"
which simplifies the computation of earnings per share and required
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. 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)
The Company adopted the provision of statement No. 130,
Reporting comprehensive income that 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.
F-7
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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: 2001 2000 1999
---- ---- ----
Interest 2,364,455 124,757 355,160
Taxes 12,817 29,131 63,933
On March 10, 2000, the Company sold LEC and DHB KK for a cash
payment of approximately $4.234 million.
Note 3 MARKETABLE SECURITIES/NON-MARKETABLE SECURITIES
The following is a comparison of the cost and market value
of marketable securities included in current assets:
2001 2000 1999
---- ---- ----
Cost $0 $652,207 $0
Unrealized loss -- (283,211) --
-- --------- --
Market Value $0 $368,996 $0
== ======== ==
Long Term Investments
The fair values of some investments are estimated based on
quoted market prices for those or similar investments. For other
investments for which there are no quoted market prices, a
reasonable estimate of fair value could not be made without
incurring excessive costs. Additional information pertinent to the
value of an unquoted investment is provided below.
Note 3 MARKETABLE SECURITIES/NON-MARKETABLE SECURITIES -(Continued)
It was not practicable to estimate the fair value of an
investment of the issued common stock of an untraded company; that
investment is carried at its original cost of $941,750 in the
statement of financial position. At year-end, the total assets
reported by the untraded company were $2,220,494 and the common
stockholders' equity was $1,264,999, revenues for the year ended
December 31, 2001 were $7,914,249 with a net loss of $(3,108,989).
F-9
Note 4 INVENTORIES
Inventories consist of the following:
2001 2000 1999
---- ---- ----
Finished goods $5,041,516 $2,225,136 $3,376,747
Work in process 6,917,229 5,365,685 1,889,701
Raw materials and supplies 12,623,568 6,706,238 5,001,428
---------- --------- ---------
Sub-total 24,582,313 14,297,059 10,267,876
Discontinued Operations - - - - (1,222,023)
----------- ----------- -----------
$24,582,313 $14,297,059 $ 9,045,853
=========== =========== ===========
Note 5 PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment and the
estimated lives used in the computation of depreciation is as
follows:
ESTIMATED
2001 2000 USEFUL LIFE
---- ---- -----------
Buildings -- -- 39 years
Machinery and equipment 1,990,884 1,767,158 5-30 years
Furniture, fixtures and
Computer equipment 1,073,910 1,173,909 5-7 years
Transportation equipment 601,596 391,016 3-5 years
Leasehold improvements 715,673 751,062 5-31.5 years
------- -------
4,382,062 4,083,145
Less accumulated depreciation and
amortization 2,365,051 2,142,812
--------- ---------
$2,017,012 $1,940,326
========== ==========
Note 6 NOTES PAYABLE STOCKHOLDER
These notes bear interest at 12% per annum and are due, as extended,
in November 2004. See Note 17, subsequent events
F-9
Note 7 LONG-TERM DEBT
2001 2000
---- ----
Note payable bank (a)(c) $8,442,414 $ --
========== ====
Long-term debt consists of the following:
Term Loan - payable in 24 monthly installments of $62,500 $1,612,500
plus interest and 11 installments of $8,333 plus interest(b),(c)
Other 22,318 159,104
------ -------
1,634,818 159,104
Less current portion 772,318 143,748
------- -------
Total long term debt $ 862,500 $ 15,356
========= ========
a - Pursuant to a Loan and Security Agreement dated September 24, 2001 ("the
agreement"), which expires September 2004, the Company may borrow up to the
lesser of $15,500,00 or eighty five percent of its eligible accounts receivable
plus the lesser of $10,000,000 or certain percentages of eligible inventory, as
defined Borrowings under this agreement bear interest, at the Company's option,
at the bank's prime rate or LIBOR; plus 2 1/2 % per annum.
The Company has classified the entire outstanding balance under this part
of the agreement as long-term since the Company projects that these borrowings
will not go below this amount during the year ending December 31, 2002.
b - These borrowings bear interest, at the Company's option, at the bank's prime
rate plus 1/2% or LIBOR plus 3%. In addition to the principal repayments
referred to above, commencing with the year ended December 31, 2002, the Company
must make mandatory prepayments based upon its excess cash flow as defined.
c -- The borrowings are collateralized by a first security interest in
substantially all assets of the Company. The agreement, among other things,
requires the Company to maintain a minimum (i) tangible net worth, as defined,
(ii) fixed charge coverage ratio and (iii) earnings before interest, taxes,
depreciation and amortization. The agreement further limits the amount of
capital expenditures the Company may incur in any fiscal year.
d - The agreement also provides that the lender will make capital expenditure
loans to the company of up to 75% of the net invoice cost, as defined, of
certain equipment up to a maximum loan of $1,500,000. Zero had been borrowed
under this portion of the loan as of December 31, 2001.
Long-term debt matures as follows:
2002 $772,318
2003 750,000
2004 112,500
2005 -
----------
Total $1,634,818
==========
F-10
Note 8 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, 2001 and 2000. On December 1, 2000 the
Board of Directors announced the directive to the Company to
purchase up to two million shares of its common stock in the open
market, from time to time, at its discretion. As of December 31,
2001, the Company still has authorization to purchase an additional
1,264,395 shares.
Earnings Per share
Earnings per common share calculations are based on the
weighted average number of common shares outstanding during each
period: 31,455,406 , 32,219,376, and 25,866,880 for the years ended
December 31, 2001, 2000, and 1999, 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: 36,775,910, 34,086,963, and 25,866,880 for the years ended
December 31, 2001, 2000 and 1999, respectively.
INCOME (LOSS) SHARES PER SHARE
Basic EPS (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
Income From continuing operations-2001 $10,133,016 31,455,406 $ 0.32
------------------ ------------------- -----------------
Diluted EPS $10,133,016 36,775,910 $ 0.28
=========== ========== ======
Basic EPS
Income From continuing operations-2000 $ 5,796,778 32,219,376 $ 0.18
------------------ ------------------- -----------------
Diluted EPS $ 5,796,778 34,086,963 $ 0.17
=========== ========== ======
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)
============= ========== ========
Stock option plan
The Company adopted a 1995 Stock Option 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.
Stock warrants
During 2001, the four Board Members were each awarded 25,
000 warrants exercisable at $2.00 for five years. Also during 2001,
the Board of Directors awarded a key employee 100,000 warrants
exercisable at $1.70, which expire in January 2006.
All of the above mentioned warrants were granted in the
year ended December 31, 2001 and there were no options exercised or
canceled during the same period.
The per share weighted average fair value of stock
warrants granted during the fiscal year ended December 31, 2001 was
$2.00. The fair value of these warrants was determined at the date
of grant using the Black-Scholes warrant pricing model with the
following assumptions;
Risk-free interest rate 4.92%
Expected volatility of common stock 100.67%
Dividend yield 0.00%
Expected option term 5.14 years
The Company applies APB 25 in accounting for its stock
plans and, accordingly, no compensation costs have been recognized
in the Company's financial statements for warrants granted. If,
under SFAS 123, the Company determined compensation costs based on
the fair value at the grant date for its stock warrants, net
earnings and earnings per share for the year ended December 31, 2001
would have been reduced to the pro forma amounts as follows:
Net Earnings
As reported $10,133,016
Pro forma 7,907,651
Basic Earnings Per Share
As reported $0.32
Pro forma 0.25
Diluted Earnings Per Share
As reported $0.28
Pro forma 0.21
The following table summarizes information regarding stock
warrants outstanding at December 31, 2001:
Weighted
Average Weighted Number of Weighted
Number of Remaining Average Shares Average
Exercise Price Warrants Contractual Exercise Exercisable Exercise Price
Range Outstanding Life Price Price
-------------------- ----------------- ---------------- ------------ ---------------- -----------------
0 to $1.00 3,750,000 8.51 $1.00 1,500,000 $1.00
$1.01 to $1.50 3,883,000 2.92 $1.33 3,872,000 $1.33
$1.51 to $2.00 913,000 4.52 $2.00 525,333 $2.00
$2.01 to $2.50 3,795,000 4.25 $2.33 3,765,000 $2.33
$2.51 to $3.00 364,600 0.91 $3.00 359,000 $3.00
$3.01 to above 600,000 2.78 $3.49 600,000 $3.49
In 2000, the board of directors awarded two key employees warrants
which vest over four to five years and are exercisable at $2.00
per share. Pursuant to employment agreements (See Note 14), the
Company has 3,750,000 stock warrants outstanding exercisable at
$2.33 per share and expiring in 2006 and 3,750,000 stock warrants
at $1.00 and vesting 20% immediately and in 20% annual increments
thereafter and expire in July 2010.
F-11
Note 9 DISCONTINUED OPERATIONS.
In October 1999, the Company announced its strategic decision to
discontinue the operations of its LAP and the Electronics Group (LEC
and DHB KK). LAP operations where shut down in October 1999 while
the Electronics Group was sold on March 10, 2000 for a sales price
of $4.234 million, less the outstanding long-term debt. 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. The components of net assets of
the discontinued operations included in the balance sheet as of
December 31, 1999 are as follows:
1999
----
Current assets (mainly trade receivables and inventory) $1,865,454
Accounts payable and accrued expenses 896,552
-------
Net current assets $968,902
--------
Property, plant and equipment, net $2,866,471
Other non-current assets 93,607
------
Net Long-term assets $2,960,078
----------
The condensed statements of operations relating to the discontinued
operations are presented below:
2000 1999
Net sales $401,299 $7,514,541
Cost and expenses (918,587) 11,753,341
--------- -----------
Loss before income taxes (517,288) (4,238,800)
Gain (loss) on disposal 857,860 (5,475,491)
--------- -----------
Net Income (loss) $340,572 $(9,714,291)
========= ===========
Note 10 RELATED PARTY TRANSACTIONS
A summary of related party transactions for the years ended December
31, 2001, 2000 and 1999 is as follows:
2001 2000 1999
---- ---- ----
Interest, rental, professional and other
expenses paid or accrued to DHB's majority
stockholder 2,962,198 3,528,995 5,064,765
The Company leases a warehouse and manufacturing facility from a
partnership indirectly owned by the majority stockholder of DHB
pursuant to a lease expiring December 31, 2010 at a annual rental
of approximately $607,000.
F-12
Note 11 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 75% , 64%, and 35% for the years ended
December 31, 2001, 2000 and 1999, 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 12 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.
Note 13 SEGMENT INFORMATION:
As described in detail above, the Company operates in two principal
segments: Ballistic-resistant equipment and Protective
athletic/sports product. The Company disposed of the Electronics
Group in March 2000, and closed its hard armor company, LAP in
October 1999. These two divestitures are accounted for as
discontinued operations. Financial information on the Company's
business segments was as follows:
F-13
NET SALES 2001 2000 1999
- --------- ------------ ----------- ------------
Ballistic-resistant equipment $ 94,558,410 $64,720,773 $30,358,537
Electronic components/LAP -- 401,299 8,441,393
Protective athletic & sports product 4,520,172 5,296,799 6,236,438
--------- --------- ---------
99,078,582 70,418,871 45,036,368
Less inter-segment sales (1,062,900) -- (2,381,099)
Less discontinued operations (3) -- (401,299) (7,514,541)
----------- ----------- -----------
Consolidated Net Sales $98,015,682 $70,017,572 $35,140,728
=========== =========== ===========
INCOME FROM OPERATIONS
Ballistic-resistant equipment $14,999,114 $10,591,126 $(9,629,504)
Electronic components -- (517,288) (1,835,137)
Protective athletic & sports product 93,819 (166,114) (2,390,834)
Corporate and Other (1) (2,343,435) (2,225,757) (2,824,826)
----------- ----------- -----------
Sub-total 12,749,498 7,681,967 (16,680,301)
Income (Loss) from discontinued operations(3) -- 517,288 (6,809,082)
------------ ----------- -------------
Consolidated Operating Income $12,749,498 $8,199,255 $( 9,871,219)
============ =========== =============
IDENTIFIABLE ASSETS (2)
Ballistic-resistant equipment $36,426,397 $22,383,129 $14,283,739
Electronic components --- --- 6,177,019
Protective athletic & sports product 2,767,905 3,517,194 3,335,253
--------- --------- ---------
39,194,302 25,900,323 23,796,011
Corporate and Other 1,701,814 2,155,948 400,038
--------- --------- -------
Consolidated Net Assets 40,896,116 28,056,271 24,196,049
Discontinued operations (3) (4,825,532)
Assets held for sale -- -- 3,928,980
------------ ----------- ------------
Adjusted Net Assets $40,896,116 $28,056,271 $23,299,497
=========== =========== ===========
Foreign sales accounted for 2%, 2% and 17%, of the total revenues
for the years ended December 31, 2001, 2000 and 1999, respectively.
Foreign identifiable assets accounted for 1%, 1%, and 13% of the
total assets at December 31, 2001, 2000 and 1999, respectively.
(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 Electronics Group sold on
March 10, 2000, as well as the loss from the shutdown of the
LAP plant in 1999.
Note 14 COMMITMENTS AND CONTINGENCIES
Leases
The company has non-cancelable operating leases, which
expire through 2010. These leases generally require the Company to
pay certain costs, such as real estate taxes.
Future minimum lease commitments (excluding renewal
options) under non-cancelable leases are approximately:
Years Ending
2002 $ 862,145
2003 739,157
2004 739,157
2005 739,157
2006 649,063
Thereafter 2,476,128
---------
$6,204,807
=========
F-14
Rent and real estate tax expense on operating leases for
the years ended December 31, 2001, 2000 and 1999 aggregated
approximately $1,106,035, $1,417,000 and $1,417,000, respectively.
Employment agreements
The Company is committed under an employment agreement
with its majority stockholder, which expires in July 2006 and
provides for an annual salary of $500,000 and annual increases of
$50,000 thereafter. In addition, the contract provides for 3,750,000
stock warrants at $1.00, which vest 20% immediately and in 20%
annual increments thereafter. The warrants expire in July 2010.
Litigation
The Company has filed a lawsuit against its insurance
carrier, as well as, the insurance agent, for negligence and breach
of fiduciary duties as a result of the damages incurred during
Hurricane Irene in October 1999.
In June 2001, the Company was served a lawsuit regarding
patent infringement. The Company filed an answer and believes the
patent is invalid and does not infringe.
The former Vice President and General Counsel won an
arbitration proceeding against the company for two years unearned
compensation plus legal fees. The Company is seeking a vacation of
the award.
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 15 INCOME TAXES
Components of income taxes are as follows:
2001 2000 1999
---- ---- ----
Federal
Current $ 0 $ 0 $ 0
Deferred 0 0 0
-------------------------- -------------
Total federal 0 0 0
State
Current 174,886 129,999 67,385
Deferred 0 0 0
-------------------------- -------------
174,886 129,999 67,385
Total state $174,886 $ 129,999 $67,385
======== ========= =======
A reconciliation of the statutory federal income tax rates to the
Company's effective tax rate for the years ended December 31 is as
follows:
2001 2000 1999
---- ---- ----
Statutory U.S. income tax rate 34% 34% -34%
Decrease resulting from:
Utilization of net operating loss carryforwards -34% -34%
Increase resulting from:
State and local income taxes, net of federal benefits 1.67% 2.10%
Non-availability of net operating loss carryforwards 0% 0% 34%
-- -- ---
Effective tax rate 2.10% 2.10% 0%
===== ===== ==
F-15
The significant components of deferred tax assets and liabilities as of December
31, were as follows:
2001 2000 1999
---- ---- ----
Net operating loss carryforwards $ 5,440,000 $8,840,000 $10,920,000
Accounts receivable reserve 270,000 222,000 85,000
Write down of marketable securities 95,000 520,000 212,000
Write down of non-marketable securities 448,000 448,000 234,000
Write down of investment in 520,000 520,000 340,000
------- ------- -------
6,773,000 10,550,000 11,791,000
Less valuation allowance 6,513,700 10,120,700 11,347,000
---------- ---------- ----------
Net deferred tax asset $ 259,300 $ 429,300 $ 444,000
========= ========= =========
Note 16 SUBSEQUENT EVENTS
On January 14, 2002, David H. Brooks, the principal stockholder of the company
exchanged $3 million of the approximately $10 million of indebtedness due him
for 500,000 shares of the newly authorized Series A Convertible Preferred Stock.
The Preferred Stock has a dividend rate of $.72 per share per annum, an amount
equal to the exchanged amount that would have been paid as interest on the
exchanged indebtedness. Shares of the Preferred Stock are convertible, on a
one-to-one basis, at the option of the holder, into shares of Common Stock. The
shares of Preferred Stock are redeemable at the option of the Company on
December 15, 2002 and on each December 15th thereafter.
F-16
DHB INDUSTRIES INC. AND SUBSIDIARIES
SCHEDULE II TO THE FINANCIAL STATEMENTS
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2001, 2000 AND 1999
Allowances deducted from related balance sheet accounts:
INVESTMENT IN NET WRITE DOWN OF
NON-MARKETABLE INVESTMENT IN
ACCOUNTS SECURITIES SUBSIDIARIES
---------- ------------
RECEIVABLE INVENTORY
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
Deductions/writeoffs - - - -
-------- ------- --------- ---------
Balance at December 31, 1999 $757,741 $ 624,898 $ 1,316,750 $1,529,579
Additions charged to
costs and expenses 36,000 ----- ----- -----
Deductions/writeoffs 140,357 - - -
-------- ------- --------- ---------
Balance at December 31, 2000 $653,384 $ 624,898 $ 1,316,750 $1,529,579
Additions charged to
costs and expenses 139,067 ----- ----- -----
Deductions/writeoffs - - - -
-------- ------- --------- ---------
Balance at December 31, 2001 $792,451 $ 624,898 $ 1,316,750 $1,529,579
======== ========= =========== ==========
F-17
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 28th day of
March 2002.
DHB Industries Inc.
/s/ DAVID BROOKS
----------------
David H. Brooks
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
/s/ DAVID H. BROOKS
- ------------------- Chairman of the Board, March 28, 2002
David H. Brooks and Director
/s/ DAWN SCHLEGEL
- ----------------- Treasurer March 28, 2002
Dawn Schlegel Principal Financial Officer
Principal Accounting Officer
/s/ MORTON COHEN
- ---------------- Director March 28, 2002
Morton Cohen
F-18
Item 13 (a) Exhibits.
EXHIBIT DESCRIPTION
3.1 Certificate of Incorporation of DHB Capital Group Inc., a Delaware corporation (hereinafter,
"DHB".) 1
3.2 Certificate of Amendment to Certificate of Incorporation of DHB filed December 31, 1996 2
3.3 Certificate of Amendment to Certificate of Incorporated filed July 24, 2001
3.4 By-laws of DHB 1
4.3 Form of Warrant Agreement with respect to all Outstanding Warrant together 3
10.1 Employment Agreement dated July 1, 2000 between DHB and David Brooks
10.2 Promissory Note between the Company and David Brooks dated November 6, 2000 1
10.3 1995 Stock Option Plan 4
10.6 Sale agreement date March 10, 2000 with DHB and DMC2 Electronic Components - incorporated by
reference in the Company's filing of Form 8-K 6
10.7 Lease agreement dated January 1, 2001 between Point Blank Body Armor and VAE Enterprises.
10.8 Lease agreement dated April 15, 2001 between DHB Capital Group and A&B Holdings, Inc.
25 List of Subsidiaries
<FN>
Notes to Exhibit Table:
1 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.
2 Incorporated by reference to Post-Effective Amendment No.#2 to Registration Statement 33-59764, on
Form SB-2, File # filed on Jan 31, 1997.
3 Incorporated by reference to the Company's Annual report for December 31, 2000.
4 Incorporated by reference to Registration Statement on Form S-8 filed on or about October 1, 1995.
5 Incorporated by reference to the Current Report on Form 8-K dated March 23, 2000.
</FN>
F-19
Exhibit 21: List of Subsidiaries
STATE DATE
CORPORATION NAME % OWNED OF INC. INCORPORATED
DHB Armor Group Inc. 100 % DE 08/14/95
DHB Sports Group Inc. 100 % DE 05/02/97
NDL Products Inc. 100 % FL 12/16/94
Point Blank Body Armor Inc. 100 % DE 09/06/95
Protective Apparel Corporation of America 100 % NY 05/02/75
- --------
F-20