Posted on Thursday, March 17, 2011
It’s amazing how one company’s finances can get so warped just by overvaluing obsolete military inventory and a few other accounting sleights-of-hand.
But that’s the picture federal authorities are painting about Pompano Beach-based Point Blank Solutions (Pink Sheets: PBSOQ), formerly DHB Industries.
A new federal court filing by the U.S. Securities and Exchange Commission charges the company with securities violations, seeking bars against further violations in the future.
The SEC says the company started overvaluing inventory in 2003. Two years later, the books were carrying inventory that was overvalued by $33 million.
According to the SEC, the company failed to report that its inventory had become obsolete according to evolving U.S. military standards:
“In 2004, approximately $12.5 million of hard armor plates, a key component of DHB’s vests, became obsolete when the U.S. Army changed its specifications for the plates,” the SEC stated. “Since the U.S. military was DHB’s main customer, this meant the company could not use those armor plates in marketable vests. An additional $4.5 million of inventory became obsolete due to other specification changes, including discontinuation of certain vest colors and fabrics.”
The SEC also alleges that the company understated “cost of goods sold” and reclassified those expenses as “research and development,” which appeared on its income statement. To cover for this, the company reported giving away tens of thousands of “sample” bulletproof vests, the SEC stated.
News of Point Blank’s “massive accounting fraud” has so far centered on CEO David H. Brooks and his September conviction for stealing millions of dollars from the company.
Other officers helped him fund his lavish lifestyle, which included luxury cars, thoroughbred racehorses and plastic surgery.
South Florida Business Journal - by Paul Brinkmann