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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED
June 30, 2005
Commission File No. 001-13112
DHB INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-3129361
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
400 POST AVENUE, SUITE 303, WESTBURY, NY 11590
(Address of principal executive offices)
Registrant's telephone number: (516) 997-1155
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,IF CHANGED SINCE LAST REPORT:
Not applicable
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes [ X ] No [ ]
As of August 5, 2005, there were 45,377,575 shares of Common Stock, $.001 par
value, outstanding.
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INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2005
(Unaudited) and December 31, 2004 3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended June 30,
2005 and 2004 4
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2005 and 2004 5
Notes to Unaudited Condensed Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
Item 4. Controls and Procedures 20-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits 22
Signatures 23
2
ITEM 1. FINANCIAL STATEMENTS
DHB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30,
2005 December 31,
----
ASSETS (UNAUDITED) 2004
----------- ----
Current assets
Cash and cash equivalents $62 $447
Accounts receivable, less allowance for doubtful accounts of
$762 and $702, respectively 37,640 47,560
Accounts receivable - related party 6,583
Inventories 101,353 85,973
Deferred income tax assets 615 483
Prepaid expenses and other current assets 1,771 1,220
------- -------
Total current assets 141,441 142,266
------- -------
Property and equipment, net 2,477 2,632
------- -------
Other assets
Deferred income tax assets 580 593
Deposits and other assets 1,122 366
------- -------
Total other assets 1,702 959
------- -------
Total assets $145,620 $145,857
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of term loan payable $8,000 $4,000
Accounts payable 10,891 8,014
Accrued expenses and other current liabilities 7,160 8,350
Income taxes payable 5,373 14,816
------- -------
Total current liabilities 31,424 35,180
------- -------
Long-term liabilities
Notes payable-bank 10,708 25,634
Term loan payable 9,000 6,500
Other liabilities 1,134 1,086
------- -------
Total liabilities 52,266 68,400
------- -------
Commitments and contingencies
Minority interest in consolidated subsidiary 555 431
Stockholders' equity
Convertible preferred stock, $0.001 par value, 5,000,000 shares 1 1
authorized, 500,000 shares of Series A, 12% convertible preferred
stock issued and outstanding; liquidation preference $3,000
Common stock, $0.001 par value, 100,000,000 shares 45 45
authorized, 45,337,575 and 45,282,536 issued and outstanding
Additional paid in capital 36,096 35,540
Retained earnings 56,657 41,440
------- -------
Total stockholders' equity 92,799 77,026
------- -------
Total liabilities and stockholders' equity $145,620 $145,857
======== ========
(See Notes to Condensed Consolidated Financial Statements)
3
DHB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2005 2004 2005 2004
------ ------ ------ ----
Net sales $88,196 $86,066 $173,661 $160,469
Cost of goods sold (includes related party purchases
of $2,535, $4,917, $11,874, and $8,219,
respectively) 64,166 62,186 126,244 115,824
------ ------ ------- -------
Gross profit 24,030 23,880 47,417 44,645
Selling, general and administrative expenses 11,388 10,890 22,204 20,762
------ ------ ------- -------
Income before other income (expense) 12,642 12,990 25,213 23,883
------ ------ ------- -------
Other income (expense)
Interest expense (645) (359) (1,189) (658)
Other income 10 4 27 14
------ ------ ------- -------
Total other income (expense) (635) (355) (1,162) (644)
------ ------ ------- -------
Income before income taxes and minority interest 12,007 12,635 24,051 23,239
Income taxes 4,259 4,936 8,530 9,122
------ ------ ------- -------
Income before minority interest of subsidiary 7,748 7,699 15,521 14,117
Minority interest of subsidiary (60) (39) (124) (98)
------ ------ ------- -------
Net income 7,688 7,660 15,397 14,019
Dividend - convertible preferred stock (90) (90) (180) (180)
------ ------ ------- -------
Income available to common stockholders $7,598 $7,570 $15,217 $13,839
====== ====== ======= =======
Earnings per common share:
Basic $0.17 $0.19 $0.34 $0.34
===== ===== ===== =====
Diluted $0.17 $0.17 $0.33 $0.31
===== ===== ===== =====
Weighted average shares outstanding:
Basic shares 45,300,796 40,808,345 45,297,388 40,776,064
Effect of convertible preferred stock 500,000 500,000 500,000 500,000
Warrants 220,705 4,430,932 269,315 4,164,590
------- --------- ------- ---------
Diluted shares 46,021,501 45,739,277 46,066,703 45,440,654
========== ========== ========== ==========
(See Notes to Condensed Consolidated Financial Statements)
4
DHB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands, except share and per share data)
For the Six Months Ended
June 30,
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $15,397 $14,019
Adjustments to reconcile net income to net cash and cash
equivalents provided by (used in) operating activities:
Depreciation and amortization 412 427
Amortization of deferred financing costs 12 74
Provision for doubtful accounts 60 84
Minority interest of subsidiary 124 98
Stock issued for services 369 --
Deferred income tax (benefit) expense (119) (34)
Changes in operating assets and liabilities
Accounts receivable 16,443 (25,164)
Inventories (15,380) (19,589)
Prepaid expenses and other current assets (551) (108)
Deposits and other assets (768) (28)
Accounts payable 2,877 3,207
Income taxes payable (9,443) 4,183
Accrued expenses and other current liabilities (1,190) 3,196
Other liabilities 48 210
-------- --------
Net cash provided by (used in) operating activities 8,291 (19,425)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (257) (1,633)
-------- --------
Net cash used in investing activities (257) (1,633)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on preferred stock (180) (180)
Payments on notes payable - bank (157,364) (117,370)
Proceeds of notes payable - bank 142,438 125,692
Proceeds of term loan 8,500 12,500
Issuance costs of long-term debt -- (83)
Payments on long-term debt (2,000) --
Proceeds upon the exercise of warrants 187 160
-------- --------
Net cash provided by financing activities (8,419) 20,719
-------- --------
Net increase (decrease) in cash and cash equivalents (385) (339)
Cash and cash equivalents at beginning of the period 447 441
-------- --------
Cash and cash equivalents at end of the period $ 62 $102
======== ========
(See Notes to Condensed Consolidated Financial Statements)
5
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of DHB
Industries, Inc. and subsidiaries (collectively "DHB" or the "Company") as of
June 30, 2005 and for the three months and six months ended June 30, 2005 and
2004 have been prepared in accordance with accounting principles generally
accepted in the United States of America ("US GAAP"). The unaudited financial
statements include all adjustments, consisting only of normal and recurring
adjustments, which, in the opinion of management, were necessary for a fair
presentation of financial condition, results of operations and cash flows for
such periods presented. However, these results of operations are not necessarily
indicative of the results for any other interim period or for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with US GAAP have been omitted in accordance
with published rules and regulations of the Securities and Exchange Commission
(the "SEC"). These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Form 10-K and amendments thereto for the year ended
December 31, 2004 filed with the SEC on March 17, 2005.
NOTE 2. STOCK BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations ("APB
No. 25"), and has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of FASB Statement No. 123" ("SFAS No.
148"). Under APB No. 25, compensation expense is only recognized when the market
value of the underlying stock at the date of grant exceeds the amount an
employee must pay to acquire the stock. Accordingly, no compensation expense has
been recognized in the Condensed Consolidated Financial Statements in connection
with employee stock warrant grants.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options and warrants which have no vesting restrictions and
are fully transferable. In addition, the Black-Scholes option valuation model
requires the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock warrants have
characteristics significantly different from those of traded warrants and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock warrants.
The weighted-average warrant fair values and assumptions used to estimate these
values are as follows:
6
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 2. STOCK BASED COMPENSATION - (Continued)
Warrants Issued During
2005 2004
---- ----
Risk-free interest rate 3.60% 3.12%
Expected volatility of common stock 79.03% 93.96%
Dividend yield 0.00% 0.00%
Expected option term 4.44 years 4.3 years
The Company's net income and earnings per share would have been reduced to the
pro forma amounts shown below if compensation cost had been determined based on
the fair value at the grant dates in accordance with SFAS No. 123 and 148,
"Accounting for Stock-Based Compensation."
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
---- ---- ---- ----
Net income $7,688 $7,660 $15,397 $14,019
Deduct: compensation determined under fair value based method for
all awards, net of related tax effect 454 1,392 461 1,608
------ ------ ------- ------
Net income pro forma 7,234 6,268 14,936 12,411
Less dividend - preferred stock 90 90 180 180
------ ------ ------- ------
Income available to common stockholders, pro forma $7,144 $6,178 $14,756 $12,231
------ ------ ------- ------
Basic earnings per common share
As reported $0.17 $0.19 $0.34 $0.34
Pro forma $0.16 $0.15 $0.33 $0.30
Diluted earnings per common share
As reported $0.17 $0.17 $0.33 $0.31
Pro forma $0.16 $0.14 $0.32 $0.27
Pro forma compensation expense may not be indicative of pro forma expense in
future years. For purposes of estimating the fair value of each warrant on the
date of grant, the Company utilized the Black-Scholes option-valuation model.
7
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 3. STOCK WARRANTS
Warrants
On May 24, 2005 the Board of Directors awarded three key employees a total of
750,000 warrants exercisable at $7.66 per share, vesting 210,000 warrants per
annum commencing May 24, 2006, which expire May 24, 2009. In addition on June 2,
2005, the Board of Directors issued a key executive 600,000 warrants with an
exercise price of $7.69 expiring June 2, 2010, and vesting 100,000 warrants on
September 2, 2005 and 100,000 warrants on every anniversary date commencing June
2, 2006. During the six months ended June 30, 2004, the six members of the
Company's Board of Directors were issued 50,000 warrants each, exercisable at
$5.88 per share for five years. During the six month period ended June 30, 2005
and 2004 employees exercised warrants to purchase 30,000 and 80,000 shares,
respectively of the Company's unregistered common stock at an average price of
$6.26 and $2.00 per share, respectively.
Subsequent to June 30, 2005, options to purchase 5,250,000 common shares were
issued to the CEO and Chairman, pursuant to the terms of his 2000 employment
agreement, with an exercise price of $1.00 per share vesting 1,500,000
immediately and 750,000 on each anniversary. The intrinsic value of the warrants
that vested immediately was approximately $11,295,000 which will be included as
a non-cash compensation expense during the third quarter ended September 30,
2005.
In addition, on July 29, 2005, the shareholders of the Company approved its 2005
Omnibus Stock Option Plan ("the 2005 Plan"). Pursuant to the 2005 Plan, our
officers, directors, employees and/or consultants and/or those of our
subsidiaries would be able to receive incentive stock options, non-qualified
stock options, restricted stock awards, deferred stock awards, bonus stock,
stock appreciation rights (SARs) dividend equivalents, and/or other stock-based
awards with respect to up to an aggregate of 2,500,000 shares of the Common
Stock. In each fiscal year during any part of which the 2005 Plan is in effect,
no participant may be granted: (i) options or stock appreciation rights with
respect to more than 1,000,000 shares or (ii) restricted stock performance
awards and/or other stock-based awards with respect to more than 1,000,000
shares. In addition, the maximum dollar value payable to any one participant
with respect to any performance period with respect to any performance awards is
$1,000,000 multiplied by the number of full years in the performance period
During the three and six months ended June 30, 2005 and 2004, all outstanding
warrants were included in the computation of diluted earnings per share.
During the six months ended June 30, 2005, the Company issued 25,040
unregistered shares of its common stock in settlement of a lawsuit with a former
consultant. The value of this non-cash settlement was approximately $369,000 and
is included in selling, general and administrative expenses during the quarter
ended March 31, 2005. No unregistered shares were issued during the six months
ended June 30, 2004 other than the stock warrant issuances described above.
8
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION
For the Six Months
Ended June 30,
Cash paid for: 2005 2004
---- ----
Interest $1,189 $644
Taxes 18,053 5,883
Non-cash financing and investing activities:
Revolving credit loan refinanced to long-term debt $12,500 $12,500
NOTE 5. INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method and are summarized as follows:
June 30, December 31,
2005 2004
------ ----
Raw materials and supplies $33,987 $31,695
-
Work in process 22,776 18,815
Finished goods 44,590 35,463
------ ------
$101,353 $85,973
======== =======
NOTE 6. LONG-TERM DEBT
On March 15, 2005, the Company amended its bank credit agreement (the "Credit
Agreement"), which increased the total borrowing limits from $45,000 to $55,000.
Pursuant to the Credit Agreement, the Company may borrow, on a revolving basis,
up to $37,000 on 85% of eligible accounts receivable (the "Credit Facility"),
and the Company borrowed a term loan in the principal amount of $18,000
(repaying the $12.5 million dollar term loan), amortizing at the rate of $2,000
per quarter commencing July 2005. This agreement will expire on October 1, 2007.
Previously, on March 15, 2004, the Company had amended its bank credit agreement
to increase the total borrowing limits from $35,000 to $45,000 and the Company
borrowed a term loan in the principal amount of $12,500, amortizing at the rate
of $1,000 per quarter commencing July 2004. Borrowings under the Credit
Agreement bear interest, at the Company's option, at the bank's prime rate
(6.25% at June 30, 2005) or LIBOR plus 1.75% per annum on the Credit Facility,
and at the bank's prime rate or LIBOR plus 2.25% on the term loan. At June 30,
2005, the Company had a LIBOR loan outstanding on the credit facility at a rate
of 5.66%. The borrowings under the Credit Agreement are collateralized by a
first security interest in substantially all of the assets of the Company.
9
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 7. SEGMENT INFORMATION
The Company operates in two principal segments: ballistic-resistant equipment,
and protective athletic and sports products. Net sales, income before other
income (expense), depreciation and amortization expense, interest expense,
income taxes, and identifiable assets for each of the Company's segments are as
follows:
For The Three Months For The Six Months
Ended June 30, Ended June 30,
NET SALES 2005 2004 2005 2004
- --------- ---- ---- ---- ----
Ballistic-resistant equipment $85,746 $84,375 $169,052 $156,938
Protective athletic & sports products 2,450 1,691 4,609 3,531
------- ------- -------- --------
Consolidated net sales $88,196 $86,066 $173,661 $160,469
======= ======= ======== ========
INCOME BEFORE OTHER INCOME (EXPENSE)
Ballistic-resistant equipment $14,819 $15,874 $30,441 $29,239
Protective athletic & sports products 220 303 537 620
Corporate and other (1) (2,397) (3,187) (5,765) (5,976)
------- ------- ------- -------
Consolidated income before other income (expense) $12,642 $12,990 $25,213 $23,883
======= ======= ======= =======
DEPRECIATION AND AMORTIZATION EXPENSE
Ballistic-resistant equipment $143 $141 $282 $281
Protective athletic & sports products 7 30 14 61
Corporate and other 59 51 116 85
---- ---- ---- ----
Consolidated depreciation and amortization expense $209 $222 $412 $427
==== ==== ==== ====
INTEREST EXPENSE
Ballistic-resistant equipment $ 644 $ 359 $ 1,187 $ 657
Protective athletic & sports products -- -- -- --
Corporate and other (1) 1 -- 2 1
---- ---- ------ ----
Consolidated interest expense $645 $359 $1,189 $658
==== ==== ====== ====
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
Ballistic-resistant equipment $10,198 $7,770 21,090 17,888
Protective athletic & sports products 220 303 537 613
Corporate and other (1) 1,589 4,562 2,424 4,738
----- ----- ----- -----
Consolidated income before income tax expense
$12,007 $12,635 $24,051 $23,239
======= ======= ======= =======
INCOME TAXES
Ballistic-resistant equipment $ 626 $ 594 $ 1,296 $ 1,209
Protective athletic & sports products -- -- -- --
Corporate and other (1) 3,633 4,342 7,234 7,913
----- ----- ----- -----
Consolidated income tax expense $4,259 $4,936 $8,530 $9,122
====== ====== ====== ======
10
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 7. SEGMENT INFORMATION - Continued
June 30, 2005 December 31, 2004
------------- -----------------
IDENTIFIABLE ASSETS
Ballistic-resistant equipment $138,779 $138,370
Protective athletic & sports products 3,950 5,018
------- --------
142,729 143,388
Corporate and other (2) 2,891 2,469
------- --------
Consolidated total assets $145,620 $145,857
======== ========
(1) Corporate and other expenses include corporate general and administrative
expenses.
(2) Corporate and other assets are principally deferred income tax assets and
property and equipment.
NOTE 8. CONTINGENCIES
On January 3, 2005, a class action lawsuit was filed against us in the Circuit
Court of the Seventeenth Judicial Circuit in Broward County, Florida by a police
organization and individual police officers, alleging concerns regarding the
effectiveness and durability of body armor with high concentrations of Zylon in
the Company's bullet-resistant soft body armor (vests). In February 2005, we
reached a preliminary settlement with respect to the class action lawsuit filed,
subject to final court approval. The Company does not expect this settlement to
have a material adverse effect on its financial position and has set up a
reserve in accrued expenses for the approximate cost of the settlement.
The Company is currently the subject of an investigation by the Securities and
Exchange Commission, with respect to certain related party transactions and
executive compensation matters regarding the Company and affiliates of Mr. David
H. Brooks, the Company's Chief Executive Officer and Chairman. The Company and
Mr. Brooks are cooperating with the Securities and Exchange Commission in this
investigation. In addition, the Audit Committee periodically monitors the
status, terms and performance of related party transactions to assess the
benefits to the Company and the related party's compliance with its contractual
obligations.
The Company is involved in other litigation, none of which it considers to be
material or believes would, if adversely determined, have a material adverse
effect on its financial condition or operations.
NOTE 9. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during each reporting period. Actual results could differ from those estimates.
11
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 10. RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2003, the Financial Accounting Standards Board issued FASB
Interpretation Number 46-R ("FIN 46-R") "Consolidation of Variable Interest
Entities." FIN 46-R, which modifies certain provisions and effective dates of
FIN 46, sets forth criteria to be used in determining whether an investment in a
variable interest entity should be consolidated. These provisions are based on
the general premise that if a company controls another entity through interests
other than voting interests, that company should consolidate the controlled
entity. The Company believes that currently, it does not have any material
arrangements that meet the definition of a variable interest entity, which would
require consolidation.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment
of ARB No. 43, Chapter 4" (SFAS No. 151). SFAS No. 151 requires all companies to
recognize a current-period charge for abnormal amounts of idle facility expense,
freight, handling costs and wasted materials. This statement also requires that
the allocation of fixed production overhead to the costs of conversion be based
on the normal capacity of the production facilities. SFAS No. 151 will be
effective for fiscal years beginning after June 15, 2005. The Company does not
expect the adoption of this statement to have a material effect on its
consolidated financial statements.
In December 2004, the FASB issued SFAS No.123(R), "Share-Based Payment" (SFAS
No. 123(R). This statement replaces SFAS No. 123 and supersedes APB 25. SFAS 123
(R) requires all stock-based compensation to be recognized as an expense in the
financial statements and that such compensation be measured according to the
grant-date fair value of stock options. SFAS 123 (R) will be effective for
annual periods beginning after June 15, 2005. While the Company currently
provides the pro forma disclosures required by SFAS No. 148 on a quarterly basis
(see "Note 1 Stock Based Compensation"), and it is currently evaluating the
impact this statement will have on its consolidated financial statements, the
impact to the financial statements could be material in light of the recent
wards of stock warrants and options to employees and the applicable vesting
schedules. (See Note 2)
In December 2004, the FASB issued SFAS No. 153, "Exchanges on Nonmonetary Assets
- - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions"
(SFAS 153) SFAS eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for fiscal periods beginning after June 15,
2005. The Company does not expect the adoption of this statement to have a
material effect on its consolidated financial statements.
12
DHB INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 10. RECENTLY ISSUED ACCOUNTING STANDARDS - (Continued)
In March 2005, the FASB issued Interpretation No. 47 ("FIN 47), "Accounting for
Conditional Asset Retirement Obligations", an interpretation of FASB Statement
No. 143, "Accounting for Asset Retirement Obligations." The interpretation
clarifies that the term conditional asset retirement obligation refers to a
legal obligation to perform an asset retirement activity in which the timing and
(or) method of settlement are conditional on a future event that may or may not
be within the control of the entity. An entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably estimated. FIN 47 also clarifies
when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. The effective date of this
interpretation is no later than the end of fiscal years ending after December
15, 2005. The Company is currently investigating the effect, if any, that FIN 47
would have on the Company's financial position, cash flows and results of
operations.
In May 2005, the FASB issued SFAS No. 154, "ACCOUNTING FOR CHANGES AND ERROR
CORRECTIONS, A REPLACEMENT OF APB OPINION NO. 20 AND FASB STATEMENT NO. 3" SFAS
154 applies to all voluntary changes in accounting principle and requires
retrospective application to prior periods' financial statements of changes in
accounting principle. This statement also requires that a change in
depreciation, amortization, or depletion method for long-lived, nonfinancial
assets be accounted for as a change in accounting estimate effected by a change
in accounting principle. SFAS 154 carries forward without change the guidance
contained in Opinion No. 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting estimate. This
statement is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. The Company does not expect the
adoption of this standard to have a material impact on its financial condition,
results of operations, or liquidity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
We are a manufacturer and provider of bullet and projectile-resistant garments,
including fragmentation protective vests, and related accessories. Our products
are used domestically and internationally by military, law enforcement, security
and corrections personnel, as well as other governmental agencies. We also
manufacture and distribute protective athletic apparel and equipment, including
a wide variety of knee, ankle, elbow, wrist and back supports and braces that
assist serious athletes, weekend sports enthusiasts and general consumers in
their respective sports and everyday activities.
13
We are a holding company and we conduct our business through subsidiaries in two
divisions, the DHB Armor Group and the DHB Sports Group. The Armor Group
represented approximately 98%, 97% and 96% of our consolidated revenues during
2004, 2003 and 2002, respectively. The balance of the consolidated revenues is
attributable to the Sports Group. The Sports Group represented approximately 3%
and 2% of our consolidated revenues during the six months ended June 30, 2005
and 2004, respectively. Our products are sold both nationally and
internationally. 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 decrease in government spending or any change in
emphasis in defense and law enforcement programs would have a material effect on
the Armor Group's business. The Sports Group manufactures and markets a variety
of sports medicine, protective gear, and health support products under its own
labels, private labels and house brands for major retailers.
We derive substantially all of our revenues from sales of our products. As
indicated in the financial information included in this report, we have
experienced substantial increases in our revenues in the past several years,
which we attribute primarily to demand from the U.S. military and federal, state
and local law enforcement for the products of the Armor Group. Our ability to
maintain recent revenue levels will be highly dependent on continued demand for
our body armor and projectile-resistant clothing. Although we do not foresee an
immediate material reduction in such demand, we have no assurance that
government agencies will not refocus their expenditures based on changed
circumstances or otherwise, that we will be able to diversify into alternate
markets or alternate products, or that we will be able to increase our market
share through acquisitions of other businesses.
Due to our growth, we have outgrown our small business status under government
procurement regulations. Although the loss of our small business status makes us
ineligible for certain set-asides under government contracting regulations, we
believe that our current size permits us to manage larger orders and credibly
bid on major procurement contracts under which small businesses would be our
subcontractors.
To maintain our ability to deliver quality products in a timely manner, in April
2004, we moved into a new, expanded production facility in Pompano Beach,
Florida. Our current strategic focus is on quality and delivery, which we
believe are the key elements in obtaining additional and repeat orders under our
existing procurement contracts with the U.S. military and other governmental
agencies.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2005, COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2004
For the three months ended June 30, 2005 consolidated net sales were
approximately $88.2 million, an increase of 2.4% over consolidated net sales of
approximately $86.1 million for the three months ended June 30, 2004. The Armor
Group's net sales increased nearly 2% from $84.4 million for the three months
ended June 30, 2005 to approximately $85.7 million for the three months ended
June 30, 2004, due primarily to increased shipments to the U.S. Military. The
14
Sports Group's net sales for the three months ended June 30, 2005 increased
47.0% to approximately $2.5 million, as compared to $1.7 million for the three
months ended June 30, 2004. The primary reason for this increase is a new
subcontracting contract for the Sports Group to produce elbow pads for another
company. Gross profit for the quarter ended June 30, 2005 was approximately
$24.03 million (27.2% of net sales), as compared to approximately $23.9 million
(27.7% of net sales) for the quarter ended June 30, 2004.
The Company's selling, general and administrative expenses were approximately
$11.4 million, or 12.9% of net sales for the three months ended June 30, 2005,
versus approximately $10.9 million, or 12.7% of net sales for the three months
ended June 30, 2004. Selling, general and administrative expenses will increase
in the third quarter by approximately $11.3 million, as a result of the non-cash
compensation expense associated with the warrants issued during this period.
Driven primarily by the slight decrease in gross profit, operating income
decreased slightly to approximately $12.6 million (14.3% of net sales) for the
second quarter of 2005 versus approximately $13.0 million (15.1% of net sales)
for the second quarter of 2004.
Interest expense for the three months ended June 30, 2005 increased 79.7% to
approximately $645,000, compared to approximately $359,000 for the three months
ended June 30, 2004. This increase is primarily the result of increased
borrowing under the Company's credit facility to fund the Company's operations
and continued growth.
Income before income taxes and minority interest of subsidiary was approximately
$12.0 million for the three months ended June 30, 2005, compared to income
before taxes of approximately $12.6 million for the three months ended June 30,
2004. Income taxes for the second quarter of 2005 were approximately $4.3
million while income taxes for the second quarter of 2004 were approximately
$4.9 million. The effective tax rate for the second quarter of 2005 was 34.5% as
compared to 39.0% during the second quarter of 2004.
On December 19, 2003, DHB's subsidiary Point Blank Body Armor, Inc. ("Point
Blank") issued to Hightower Capital Management, LLC ("Hightower") shares of
common stock of Point Blank representing approximately .65% of the outstanding
capital stock of Point Blank, in exchange for inventory. The minority interest's
share of the consolidated subsidiary's income was approximately $60,000 and
$39,000 for the three months ended June 30, 2005 and 2004, respectively.
After the preferred stock dividends of approximately $90,000 per quarter, income
available to common stockholders was approximately $7.6 million for each of the
three month periods ended June 30, 2005 and 2004, or $0.17 per diluted share.
The weighted average shares outstanding on a diluted basis for the three months
ended June 30, 2005 were 46,021,501, as compared to 45,739,277 for the three
months ended June 30, 2004.
SIX MONTHS ENDED JUNE 30, 2005, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2004
For the first half of 2005, consolidated net sales were approximately $173.7
million, an increase of 8.2% over consolidated net sales of approximately $160.5
million for the first half of 2004. The Armor Group's net sales increased nearly
7.8% from $156.9 million for the six months ended June 30, 2004 to approximately
$169.1 million for the six months ended June 30, 2005, due primarily increased
shipments to the U.S. Military. The Sports Group's net sales for the first half
15
of 2005 increased 31.4% to approximately $4.6 million, as compared to
approximately $3.5 million for the first half of 2004. The primary reason for
this increase is a new subcontracting contract for the Sports Group to produce
elbow pads for another company. Consolidated gross profit percentage declined
slightly to 27.3% for the first half of 2005 as compared to approximately 27.8%
for the first half of 2004.
The Company's selling, general and administrative expenses decreased slightly as
a percentage of net sales. For the six months ended June 30, 2005, selling,
general and administrative expenses were approximately $22.2 million (12.8% of
net sales), versus approximately $20.8 million (12.9% of net sales) for the six
months ended June 30, 2004. Selling, general and administrative expenses will
increase in the third quarter by approximately $11.3 million, as a result of the
non-cash compensation expense associated with the warrants issued during this
period. Driven primarily by the slight decline in gross profit margins, income
before other income (expense) decreased as a percent of sales to approximately
$25.2 million (14.5% of net sales) for the six months ended June 30, 2005 versus
approximately $23.9 million (14.9% of net sales) for the six months ended June
30, 2004.
Interest expense for the six months ended June 30, 2005 increased 80.7% to
approximately $1.2 million (1.0% of net sales), compared to approximately
$658,000 (0.5% of net sales) for the six months ended June 30, 2004. This
increase is primarily the result of increased borrowings under the Company's
credit facility.
Income before income taxes was approximately $24.1 million for the six months
ended June 30, 2005, compared to income before taxes of approximately $23.2
million for the six months ended June 30, 2004. Income taxes for the six months
ended June 30, 2005 were approximately $8.5 million while income taxes for the
six months ended June 30, 2004 were approximately $9.1 million. The effective
tax rate for the first six months of 2005 was 35.5% as compared to 39.3% for the
first six months of 2004.
On December 19, 2003, DHB's subsidiary Point Blank Body Armor, Inc. ("Point
Blank") issued to Hightower Capital Management, LLC ("Hightower") shares of
common stock of Point Blank representing approximately .65% of the outstanding
capital stock of Point Blank, in exchange for inventory. The minority interest's
share of the consolidated subsidiary's income was approximately $124,000 and
$98,000 for the six months ended June 30, 2005 and 2004, respectively. The total
minority interest included in the balance sheet as of June 30, 2005 was
approximately $555,000 as compared to approximately $431,000 as of December 31,
2004.
After the preferred stock dividends of approximately $180,000 for each of the
six-month periods, income available to common stockholders was approximately
$15.2 million for the six months ended June 30, 2005, or $0.33 per diluted
share, as compared with income available to common stockholders of approximately
$13.8 million, or $0.30 per diluted share, for the six months ended June 30,
2004. The weighted average shares outstanding on a diluted basis for the six
months ended June 30, 2005 were 46,066,703, as compared to 45,440,654 for the
six months ended June 30, 2004.
16
LIQUIDITY AND CAPITAL RESOURCES
We expect that our primary working capital requirements over the next twelve
months will be to assist our subsidiaries in financing their working capital
requirements. Our operating subsidiaries sell the majority of their products on
30 to 90-day terms. We need working capital to finance the receivables,
manufacturing process and inventory. Working capital at June 30, 2005 was $110.0
million as compared to working capital of $107.1 million at December 31, 2004.
In addition to our increase in working capital during 2005, there was positive
cash of $8.291 million provided from operations for the six months ended June
30, 2005 as compared to cash used in operations for $19.425 for the six months
of June 30, 2004. The primary factor for the improvement in cash provided from
operations is the decrease in accounts receivable, as the accounts receivable
days outstanding improved to 39 days at June 30, 2005 as compared to 58 days at
December 31, 2004.
The underlying drivers of operating cash flows are the inflows and outflows of
funds. Our cash inflows are principally cash collections from customers.
Historically as a result of our growth, we have experienced increases in our
accounts receivable, which have caused our cash inflows from operations to lag
behind our net sales. However, during the six months ended June 30, 2005, our
cash collections from customers of approximately $188.6 million exceeded our net
sales of approximately $173.7 million. As a comparison, for the six months ended
June 30, 2004, our cash collections of approximately $138.0 lagged our net sales
of $160.5 million. Our cash outflows are principally manufacturing costs plus
the buildup of inventory to accommodate future growth and to secure certain raw
materials. As a result of our growth, our cash outflows related to manufacturing
cost plus increased inventory have outpaced our cost of goods sold. Our cash
outflows for manufacturing costs plus inventory buildup were $163.5 million and
$142.3 million for the three months ended June 30, 2005 and 2004, respectively,
compared to cost of goods sold of approximately $126.2 million and $115.8
million for such periods, respectively.
On March 15, 2005, we amended our bank credit agreement, to increase the total
borrowing limit from $45 million to $55 million. Our credit agreement includes a
credit facility under which we may borrow, on a revolving basis, up to $37
million on 85% of eligible accounts receivable. The credit agreement also
includes a term loan under which we borrowed the principal amount of $18 million
which we used to repay our $12.5 million term loan and which is amortized at the
rate of $2 million per quarter commencing July 2005. On March 15, 2004, we
amended our bank credit agreement to increase the total borrowing limit from $35
million to $45 million and we borrowed a term loan in the principal amount of
$12.5 million, which was amortized at the rate of $1 million per quarter
commencing July 2004. Borrowings under the Credit Agreement bear interest, at
our option, at the bank's prime rate (6.25% at June 30, 2005) or LIBOR plus
1.75% per annum on the credit facility, and LIBOR plus 2.25% on the term loan.
At June 30, 2005, we had a LIBOR loan outstanding on our revolving credit
facility with a rate of 5.66%. The borrowings under the credit agreement are
collateralized by a first security interest in substantially all of our assets.
Our credit facility includes both affirmative and negative covenants customary
for a financing of this nature. Among other provisions, our credit facility
requires us to maintain a (1) minimum tangible net worth, (2) fixed charge
coverage ratio, and (3) earnings before interest, taxes, depreciation and
amortization. Our credit facility has certain restrictive covenants that limit
our ability to pay dividends to our common stockholders or repurchase treasury
shares and which limit the total amount of our capital expenditures to $2
17
million during any year. As described below, we do not anticipate that our
capital expenditures will reach this $2 million limit. These restrictive
covenants require us to obtain prior approval from the bank before paying common
stock dividends or repurchasing shares. The credit facility has a 1% prepayment
penalty through October 1, 2005. We believe that these restrictive covenants do
not have a material impact on our liquidity and capital resources.
Our capital expenditures during the six months ended June 30, 2005 decreased
substantially to $257,000 as compared to $1,890,000 for the six months ended
June 30, 2004. During the six months ended June 30, 2004, we purchased
additional machinery, equipment, furniture and fixtures and leasehold
improvements to equip our new warehouse and administrative facility in Florida
for our Point Blank subsidiary and a new location for our corporate
headquarters. During the remainder of 2005, we currently anticipate spending
approximately $300,000 in capital expenditures to construct a new state of the
art ballistic testing range at Point Blank's Pompano Beach facility in addition
to our normal capital expenditures of approximately $800,000, for total
anticipated capital expenditures of approximately $1.1 million.
We believe that our existing credit line, together with funds generated from
operations, will be adequate to sustain our operations (including projected
capital expenditures) for the next 12 months. Historically, we have been
successful in obtaining increases in our revolving credit facility, as required,
in order to finance the increased working capital needs brought on by the
expansion of our business. However, we have no assurance that we will be able to
obtain further such increases if needed, and we may be required to explore other
potential sources of financing (including the issuance of equity securities and,
subject to the consent of our lender, other debt financing) if we continue to
experience escalating demand for our products.
CASH CONTRACTUAL OBLIGATIONS
The following table presents the Company's estimated cash requirements for
contractual obligations outstanding as of June 30, 2005:
PAYMENTS DUE BY PERIOD
($ THOUSANDS)
Less Than 1-3 Years 4-5 Years More Than 5
CONTRACTUAL OBLIGATIONS 1 Year Years Total
--------- --------- --------- ----------- --------
Long-Term Debt $5,000 $8,000 $14,707 $-- $27,707
Employment Contracts 2,100 6,167 1,929 10,196
Consulting Agreements 105 -- -- -- 105
Operating Leases 2,036 5,753 3,005 1,880 12,674
------ ------- ------- ------ --------
Total Contractual Cash
Obligations $9,241 $19,920 $19,641 $1,880 $50,682
====== ======= ======= ====== =======
EFFECT OF INFLATION AND CHANGING PRICES
The Company did not experience any measurable increases in raw material prices
during the six months ended June 30, 2005.
18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements regarding
future events and our future results that are based on our current expectations,
estimates, forecasts and projections about the industries in which we operate
and the beliefs and assumptions of our management. Words such as "expects,"
"anticipates," "targets," "goals," "projects," "intends," "plans," "believes,"
"seeks," "estimates," variations of such words, and similar expressions are
intended to identify such forward-looking statements. These forward-looking
statements are only predictions that speak as of the date hereof and are subject
to risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual results may differ materially and adversely from those
expressed in any forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in our Annual Report on Form10-K/A for the year ended December 31, 2004 and in
other reports that we have filed with the Securities and Exchange Commission.
You are cautioned not to place undue reliance on these forward-looking
statements that speak only as of the date hereof. We undertake no obligation to
revise or update publicly any forward-looking statements to reflect any change
in the expectations of our management with regard thereto or any change in
events, conditions, or circumstances on which any such statements are based.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not issue or invest in financial instruments or their derivatives for
trading or speculative purposes. Our market risk is limited to fluctuations in
interest rates as it pertains to our borrowings under our $55 million credit
facility. We can borrow at either the prime rate of interest or LIBOR plus
1.75%. Any increase in these reference rates could adversely affect our interest
expense. The change in the interest rate for 2005 was immaterial. The extent of
market rate risk associated with fluctuations in interest rates is not
quantifiable or predictable because of the volatility of future interest rates
and business financing requirements. However, given the small percentage change
in the past, we do not currently expect any changes in the interest rate to have
a material effect on our operating results. If interest rates increased 1%, then
the interest expense would increase approximately $407,000, annually.
Aggregate maturities of our long-term debt are as follows:
For the years ending June 30:
2005 $5,000,000
2006 8,000,000
2007 14,707,000
----------
$27,707,000
===========
The Company estimates that the fair value of its long-term debt approximates its
carrying value.
Our international transactions are predominately denominated in U.S.
dollars, mitigating any market risk resulting from foreign currency exchange
fluctuations. We do not have any material sales, purchases, assets or
liabilities denominated in currencies other than the U.S. Dollar, and as such,
we are not subject to material foreign currency exchange rate risk.
19
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We conducted an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by
this report. The disclosure controls and procedures evaluation was conducted
under the supervision and with the participation of management, including our
Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Disclosure
controls and procedures are controls and procedures that are designed to ensure
that information required to be disclosed in our reports filed under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. Disclosure controls and procedures are also designed to ensure that
such information required to be disclosed in our reports filed under the
Exchange Act is accumulated and communicated to our management, including the
CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.
The evaluation of our disclosure controls and procedures included a review of
the controls' objectives and design, our implementation of the controls and the
effect of the controls on the information generated for use in this report. This
type of evaluation is performed on a quarterly basis so that the conclusions of
management, including the CEO and CFO, concerning the effectiveness of the
disclosure controls and procedures can be reported in our periodic reports on
Form 10-Q and Form 10-K. The overall goals of our evaluation activities are to
monitor our disclosure controls and procedures, and to modify them as necessary.
Our intent is to maintain our disclosure controls and procedures as dynamic
systems that change as conditions warrant.
Based upon the disclosure controls and procedures evaluation, our CEO and CFO
have concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms and that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to our management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
As mentioned in our filing on Form 8-K dated April 14, 2005, as of December 31,
2004, there existed certain significant deficiencies in our systems of inventory
valuation rendering such systems inadequate to accurately capture cost of
materials and labor components of certain work in progress and finished goods
inventory. During the six months ended June 30, 2005, we have worked to
strengthen our internal controls relating to the matters described above and
such efforts include: instituting additional controls, enforcing existing
policies and providing oversight with respect to insuring that we accurately
capture the cost of materials and labor components of certain work in process
and finished good inventory, hiring an additional inventory manager, and
continuing to interview candidates with the intention of hiring additional
personnel to provide additional support in implementing and improving our
system. Our management, including the CEO and the CFO, believes the results of
20
the corrective actions that we have initiated will be effective in addressing
the deficiency in internal controls described above. The attestation report of
our former auditors also identified what that firm considered to be two
additional weaknesses in internal controls: (1) failure of the Company to
complete consultation with the auditors prior to filing Form 10-K for the year
ended December 31, 2004; and (2) a need to enhance and strengthen the Audit
Committee to improve the Committee's effectiveness. Although the Company does
not believe that our former auditors had a proper basis for its conclusions, the
Company intends to explore opportunities to improve the process of preparing its
filings with the Securities and Exchange Commission and the effectiveness of its
Audit Committee.
Except as described above, there have not been any changes in our internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act during the six months ended June 30, 2005 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 3, 2005, a class action lawsuit was filed against us in the Circuit
Court of the Seventeenth Judicial Circuit in Broward County, Florida by a police
organization and individual police officers, alleging concerns regarding the
effectiveness and durability of body armor with high concentrations of Zylon in
the Company's bullet-resistant soft body armor (vests). In February 2005, we
reached a preliminary settlement with respect to the class action lawsuit filed,
subject to final court approval. We do not expect this settlement to have a
material adverse effect on our financial position.
We are currently the subject of an investigation by the Securities and Exchange
Commission with respect to certain related party transactions and executive
compensation matters regarding the Company and affiliates of Mr. David H. Brooks
(our Chief Executive Officer and Chairman). The Company and Mr. Brooks are
cooperating with the Securities and Exchange Commission in this investigation.
In addition, the Audit Committee periodically monitors the status and
performance of related party transactions to assess the benefits to the Company
and the related party's compliance with its contractual obligations.
We are involved in other litigation, none of which we consider to be material to
our business or believe would, if adversely determined, have a material adverse
effect on our financial condition or operations.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER REPURCHASES OF EQUITY
SECURITIES
During the six month period ended June 30, 2005 and 2004 employees exercised
warrants to purchase 30,000 and 80,000 shares, respectively of the Company's
unregistered common stock at an average price of $6.26 and $2.00 per share,
respectively.
21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the DHB Industries, Inc. Annual Stockholders' Meeting on May 6, 2005, our
stockholders elected each of the director nominees, ratified the selection of
our independent auditors, and did not approve our 2005 Omnibus Equity Incentive
plan.
Proposal 1. To elect six directors to hold office during the
year following the Annual Meeting and until their successors
are elected and qualified.
Number of Voting Shares
-----------------------
Voted For Withheld
--------- --------
David Brooks 34,971,075 9,091,892
Gary Nadelman 40,481,770 3,581,197
Jerome Krantz 40,373,283 3,689,684
Cary Chasin 40,525,193 3,537,774
Dawn Schlegel 36,281,423 7,781,544
Barry Berkman 41,482,945 2,580,022
Larry Ellis 42,103,775 1,959,192
Number of Shares
----------------
Voted For Voted Against Abstain Broker Non-Votes
--------- ------------- ------- ----------------
Proposal 2. To ratify the appointment of
Rachlin Cohen & Holtz as independent auditors
for the Company for 2005. 42,772,916 1,121,596 168,411 168,455
Proposal 3. To consider and vote upon the
Company's proposed 2005 Omnibus Equity 9,518,333 10,765,063 140,144 23,779,571
Incentive Plan.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
Dated August 3, 2005 DHB INDUSTRIES, INC.
(Registrant)
Signature Capacity Date
--------- -------- ----
Chief Executive Officer August 3, 2005
/s/ DAVID H. BROOKS and Chairman of the Board
-------------------
Chief Financial Officer, Director and August 3, 2005
/s/ DAWN M. SCHLEGEL Principal Accounting Officer
- --------------------
August 3, 2005
/s/ JEROME KRANTZ Director
-----------------
August 3, 2005
/s/ GARY NADELMAN Director
-----------------
23