U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended: December 31, 1995
---------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
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Commission file number: 0-8328
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DYNAMIC MATERIALS CORPORATION
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(Name of small business issuer in its charter)
COLORADO 84-0608431
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
551 ASPEN RIDGE DRIVE, LAFAYETTE 80026
- -------------------------------- -----
(Address of principal executive office) (Zip Code)
Issuer's telephone number (303) 665-5700
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Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.05 PAR VALUE
(Title of Class)
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Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this Form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendments to this Form 10-KSB. [X]
State issuer's revenues for the most recent fiscal year $19,521,133.
----------
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock was
sold, or
the average bid and asked prices of such stock, as of
January 31, 1996 $7,512,000.
- ----------------
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
2,507,422 shares as of January 31, 1996.
- ---------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Part III, Items 9 through 12 will be incorporated by reference from
the Company's Definitive Proxy statement to be filed by April 29, 1996
pursuant to Regulation 14(a) related to the 1995 Annual Meeting of
Shareholders, scheduled to be held on April 26, 1996.
Transitional Small Business Disclosure format Yes No X
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ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT.
--------------------
(1) Dynamic Materials Corporation, formerly Explosive Fabricators,
Inc. (herein the "Company") was incorporated in the State of
Colorado in 1971.
(2) There has been no bankruptcy, receivership or similar
proceeding.
(3) There has been no material reclassification, merger,
consolidation, or purchase or sale of a significant amount of
assets not in the ordinary course of business during the last
three years.
(b) BUSINESS OF ISSUER. The Company was organized to engage in the
------------------
business of explosion metal working.
(1) The principal product produced by explosion metal working is a
metal plate composed of two or more materials bonded together by
an explosive process. Forms of explosion metal working include:
cladding, where two or more metals are explosively joined to each
--------
other; and forming, where metals are shaped, shock hardened, or
--------
altered using explosives as an energy source.
Clad metal is used in industrial applications where corrosion
resistance, or physical properties of the metals are significant.
Primary industrial markets include chemical processing and
petrochemicals. Forming is used primarily in aircraft and
aerospace applications. The Company has diversified its market
base to also include aerospace and electronic applications for
clad and formed metals.
The Company operates in only one geographic region, the United
States. Export sales during 1995 and 1994 did not exceed 20% of
annual Net Sales each year.
The Company's comparative backlog of unfilled customer purchase
orders is as follows:
Amounts in (000's)
------------------
JANUARY 31
----------
1996 1995 1994
---- ---- ----
$7,998 $5,106 $4,991
The January 31, 1996 backlog is expected to be completed entirely
during 1996. Of the total backlog approximately 94% is associated with
the Company's cladding technology, while less than 6% is associated
with explosion forming technology.
(2) The Company distributes its products principally in North
America primarily through its internal sales organization. The
Company also uses independent sales representatives in specific
industries or territories to complement and extend its internal
selling efforts.
There was no material change in the types of products, markets
or method of distributing the Company's products during 1995.
(3) There are currently no new product or services.
(4) The Company experiences price competition from numerous
competitive processes including: roll bonding, weld overlay, and
other metals welding technology. In addition, the Company
experiences direct from domestic and international competitors
using technology and processes substantially the same as used by
the Company. Direct domestic competition includes, among others,
two private companies and a department of E.I. Du Pont de
Nemours & Company, Inc. International competition is primarily
from private companies located in France and Japan. In addition,
the Company experiences competition in a majority of its products
which can be produced using different metalworking processes.
The Company competes on the basis of price, quality of its
products and prompt manufacture and delivery of its products.
(5) Raw materials such as steel, stainless steel, aluminum,
titanium, nickel, copper, Monel and Incoloy are available on a
competitive basis from numerous domestic sources.
(6) The Company's cladding technology is not dependent upon one or
a few major customers. However, approximately 4% (December 31,
1995) and 14% (December 31, 1994) respectively of the Company's
total Net Sales were with a single forming customer.
(7) The Company holds numerous United States patents related to the
business of explosion metal working and metallic products
produced by various explosive processes. The Company's current
patents expire between 1996 and 2011; however, expiration of any
single patent is not expected to have a material adverse effect
on the Company or its operations.
(8) The Company does not require governmental approval of its
principal products or services.
(9) The effect of existing or probable governmental regulations on
the issuer is not considered material.
(10) Company sponsored research and development expenses for the
last two years were $345,375 in 1995 and $578,676 in fiscal 1994.
In addition to the above amounts there were customer sponsored
research and development activities during the last two years in
amounts which were not material.
(11) The Company has not experienced and does not anticipate
significant capital commitment of earnings or competitive
impairment in complying with existing environmental laws or
regulations.
(12) The Company employed eighty-nine people as of January 31, 1996,
of which eighty-three are full-time employees. The majority of
the employment is in unskilled or semiskilled manufacturing and
is highly sensitive to changes in production volume and product
mix.
ITEM 2. DESCRIPTION OF PROPERTY
The Company acquired its principal manufacturing site at 1301
Courtesy Road, Louisville, Colorado, during 1981.
The Company also leases additional office space in Lafayette,
Colorado and manufacturing space. The Company believes that its
current facilities are adequate for its existing operations.
Substantially all of the Company's assets, including its
facility, are pledged to secure borrowing from a bank (see Note 3
to the financial statements).
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings to which the issuer is a party, or
to which any of its property is subject, are pending. The
Company is not aware of any proceedings being contemplated
against it by any governmental authority.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Shareholders on
July 21, 1995.
(b) The following Directors, representing the entire Board of
Directors, were elected at the Annual Meeting:
Dr. George W. Morgenthaler, Mr. Michael C. Hone, Mr. Dean K.
Allen, Mr. Edward A. Keible and Mr. Paul Lange.
(c) There were no other proposals presented for approval at the
Annual Meeting. The following vote tabulation was recorded
for the election of Directors:
Non-Voting
For Against Abstentions Broker
--- ------- ----------- ------
Dean K. Allen 1,182,742 161,746 -- --
Michael C. Hone 1,182,742 161,746 -- --
Edward A. Keible 1,182,442 162,046 -- --
Paul Lange 1,182,702 161,786 -- --
Dr. George W.
Morgenthaler 1,182,742 161,746 -- --
(d) None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Registrant's common stock is traded on the National
Association of Security Dealer's NASDAQ market system under
the symbol "BOOM". The following bid quotations have been
---
derived from monthly NASDAQ Statistical reports, reflect
inter-dealer prices without retail mark-up, mark-down or
commissions and may not represent actual transactions.
1995 HIGH LOW
---- ---
Quarter Ended:
December 31 $2 15/16 $2 3/4
September 30 2 3/8 2.00
June 30 2 1/4 1 3/4
March 31 2 3/8 2.00
1994 HIGH LOW
---- ---
Quarter Ended:
December 31 $1 7/8 $1 3/8
September 30 1 7/8 1 11/16
June 30 2 1/4 1 7/8
March 31 2 1/2 2 1/8
(b) At January 31, 1996, there were approximately 626 holders of
record of the issuer's common stock.
(c) (1) The issuer has not paid any dividends to date and has
no current intention of paying dividends during the next
year.
(2) Under the lending agreements executed with the issuer's
bank, the Company is not allowed to "Declare or pay any
dividends or make any distribution on any shares of stock of
any class....with a value of greater than $100,000.00".
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The term "liquidity", as used herein, is defined as the ability of the
Company to generate adequate amounts of cash to meet its needs for
cash. The interpretation is broad in that both internal as well as
external sources of liquidity over the short and long term are
considered. Capital resources represent those assets currently
available to the Company that may be used to satisfy both liquidity as
well as other requirements for funds, such as anticipated capital
expenditures (for property, plant and equipment). As noted in the
Statements of Cash Flows (see financial statements F-6 to F-7), Net
cash flows from operating activities was $66,243 in 1995 in comparison
to $504,499 in 1994. The Net cash flows from operating activities in
1995 were generated by Net Income and an increase in accounts payable,
offset by significant increases in accounts receivable and
inventories. Cash flows used in investing activities declined to more
typical levels, particularly when contrasted to the significant level
of capital spending in 1994. Cash flows from financing activities were
less in 1995 than in 1994 because the Company realized $400,000 in
proceeds of long-term debt in 1994 and the Company made a balloon
payment on long-term debt in 1995. The current ratio was 2.3 to 1.0
at December 31, 1995 compared to 2.9 to 1.0 at December 31, 1994.
Historically, and currently, the Company has secured the major portion
of its operational financing from three sources: (1) internally
generated funds; (2) an asset-based revolving line of credit and (3)
trade credit. At December 31, 1995 $600,000 was outstanding compared
to $100,000 at December 31, 1994 under the revolving line of credit.
The increase in outstanding debt was due to the increase in work-in-
process inventories on higher order backlog in 1995.
Trade accounts payable made up 66% and 70% of total current
liabilities in calendar 1995 and 1994, respectively. As of
December 31, 1995 and December 31, 1994 the Company had $1,400,000 and
$1,900,000, respectively, of unused borrowing availability under the
revolving line of credit. Borrowing availability is dependent upon
adequate amounts of collatteral to support any borrowings that may
occur. The line of credit is secured by qualifying trade receivables
and inventory. The line is renewable annually on April 30, subject to
bank review and approval.
The line of credit has been outstanding since 1989 and renewed each
year since 1990. If the line were not extended or similar financing
was not secured, such event could negatively affect the Company's
ability to meet its cash requirements. Long-term debt consists of:
installment notes payable to financial institutions in the original
principal amount of $407,952, and a remaining balance of $271,373 as
of December 31, 1995 (See Note 3 to the financial statements) such
notes mature in 1998 and 1999.
The nature of the Company's business is contract specific versus
standard products. Accordingly, failure to complete contracts on a
timely basis or failure to obtain future contracts at a profitable
rate could adversely affect the Company's ability to meet its cash
requirements through internal sources.
The amount of capital expenditures needed to support the cladding
technology closely approximated the annual exhaustion of assets as
represented by depreciation expense in 1995. 1995's capital spending
levels were much lower than the amounts expended in 1994, which were
previously noted as an unusual and non-recurring level of expenditure
for a specific asset replacement. In 1996 the Company expects spending
levels for property, plant and equipment to remain at a more typical
level of approximately $300,000-$500,000.
RESULTS OF OPERATIONS
The following table summarizes certain items included in the Company's
Statements of Operations for the year ended December 31, 1995 and
1994:
AS A PERCENTAGE OF REVENUES
---------------------------
1995 1994
---- ----
Revenues 100% 100%
Cost of Goods Sold 78.3% 72.9%
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Gross Margin 21.7% 27.1%
Research & Development 1.8% 3.8%
Selling Expenses 8.0% 8.2%
General & Administrative 6.3% 8.2%
Interest Expense .4% .3%
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Net Income 3.4% 5.1%
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1995 COMPARED TO 1994
Net Sales increased $4,193,645 or 27% in 1995 in comparison to 1994.
The increase is due to strong demand in the cladding market, along
with more effective selling efforts in 1995. The Gross Margin on Net
Sales increased by $78,999, or 2%. Cost of Products Sold in 1995
includes increased amounts expensed during the year for product
repairs as well as a write-down of a specific job's work-in-process
inventory balance to a realizable value at December 31, 1995.
Finally, during the year ended December 31, 1995 the Company realized
lower Net Sales of product produced which uses its forming technology.
Forming Sales typically carry higher manufacturing margins than
products produced by its cladding technology. In addition, the 1994
results include proceeds from the final settlement of terminated
explosion forming contracts which contributed approximately $373,000
to 1994's Gross Margin. If this non-recurring termination effect were
not included in 1994's results, 1995 results would have demonstrated a
12% increase over the adjusted 1994 Gross Margin amount. (See Note 7
to the financial statements).
Selling expenses increased by $313,224 or 25% over 1994 levels. The
increase occurred primarily due to the retention and relocation of a
new Vice President of Marketing and Sales in 1995, along with
increased outside sales personnel and certain incentive compensation
payments made in 1995 to Sales personnel.
General and Administrative expense decreased by $35,596 or 3% in 1995
due the elimination of certain relocation and severance payments made
in 1994.
Research and Development costs declined in 1995 by $233,301 or
approximately 40%. This significant decline was due to completion of
explosion forming projects in 1995, as well as the direction of more
engineering support being directed at ongoing production work.
ITEM 7. FINANCIAL STATEMENTS.
See pages F-1 to F-15.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There were no changes in or disagreements with Accountants as to
accounting or financial disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information regarding the Directors and Executive Officers of the
Company is incorporated by reference from the Company's definitive
proxy statement to be filed pursuant to Regulation 14(a) relating to
the Annual Meeting of Shareholders hereinafter referred to as the
Company's Definitive Proxy Statement.
ITEM 10. EXECUTIVE COMPENSATION.
Information regarding executive compensation is incorporated by
reference from the Company's Definitive Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information regarding security ownership of certain beneficial owners
and management is incorporated by reference from the Company's
Definitive Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions
is incorporated by reference from the Company's Definitive Proxy
Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 1. The following financial statements are submitted herewith in
Part II:
Report of Independent Public Accountants
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
Exhibits
3(a) Articles of Incorporation of the Company, as amended.(1)
3(b) Bylaws of the Company.(1)
4 Form of Common Stock Certificate.(3)
10(a) Revolving Line of Credit Agreement and Draw Term Note
Agreement between the Company and Colorado National
Bank (without exhibits).(1)
10(b) Agreement dated January 2, 1991, between the Company and
Colorado National Bank.(3)
10(c) Agreement between the Company and Okabena Partnership V-6
(without exhibits).(1)
10(e) Incentive Stock Option Plan.(2)
10(f) Non-qualified Stock Option Plan.(2)
10(g) 1992 Incentive Stock Option Plan (4)
10(h) 1994 Non-Employee Director Stock Option Plan (5)
10(I) 1995 Dynamic Materials Corporation Form of Indemnity
Agreement (6)
27 Financial Data Schedule
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1, Registration Number 33-35059, as
filed on July 25, 1990.
(2) Incorporated by reference from the Company's Registration
Statement on Form S-8, as filed on February 3, 1990.
(3) Incorporated by reference from the Company's filing on
Form 8, Amendment 4 dated May 30, 1991.
(4) Incorporated by reference from the Company's filing on
Form 10KSB dated January 14, 1994, and amended by the
Company's Proxy Statement dated October 10, 1994.
(5) Incorporated by reference from the Company's Proxy Statement
dated October 10, 1994.
(6) Incorporated by reference from the Company's Proxy Statement
dated July 21, 1995.
(b) The Company filed reports on Form 8-K as follows:
1. A Form 8-K was filed on June 23, 1995, announcing the
adoption of a form of Indemnity Agreement for Directors and Officers
of the Company.
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
(Registrant) DYNAMIC MATERIALS CORPORATION.
-----------------------------
By Paul Lange Date February 29, 1996
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President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Paul Lange February 29, 1996
------------------------------
President
Craig N. Evans February 29, 1996
------------------------------
Chief Financial and
Chief Accounting Officer
Paul Lange February 29, 1996
------------------------------
Director
Dean K. Allen February 29, 1996
------------------------------
Director
Edward A. Keible February 29, 1996
------------------------------
Director
Michael C. Hone February 29, 1996
------------------------------
Director
George W. Morgenthaler February 29, 1996
------------------------------
Director
DYNAMIC MATERIALS CORPORATION
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INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
----
Report of Independent Public Accountants F-1
Balance Sheets as of December 31, 1995 and 1994 F-2
Statements of Operations for the Years Ended
December 31, 1995 and 1994 F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 1995 and 1994 F-5
Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994 F-6
Notes to Financial Statements F-8
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Dynamic Materials Corporation:
We have audited the accompanying balance sheets of DYNAMIC MATERIALS
CORPORATION (a Colorado corporation) as of December 31, 1995 and 1994,
and the related statements of operations, stockholders' equity and
cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Dynamic
Materials Corporation as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for the years then ended
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado,
February 2, 1996.
Page 1 of 2
DYNAMIC MATERIALS CORPORATION
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BALANCE SHEETS
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AS OF DECEMBER 31, 1995 AND 1994
--------------------------------
ASSETS 1995 1994
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CURRENT ASSETS:
Cash and cash equivalents $ 487,573 $ 664,116
Accounts receivable, net of allowance for doubtful
accounts of $150,000 and $125,000 for December 31,
1995 and 1994, respectively 4,479,199 3,602,302
Inventories (Note 2) 2,583,126 1,581,388
Prepaid expenses and other (Note 6) 102,406 75,366
Deferred tax assets (Note 5) 161,400 159,300
------------ ------------
Total current assets 7,813,704 6,082,472
------------ ------------
PROPERTY, PLANT AND EQUIPMENT (Note 2) 4,072,932 3,730,898
Less- Accumulated depreciation (1,984,353) (1,665,163)
------------ ------------
Property, plant and equipment--net 2,088,579 2,065,735
------------ ------------
DEFERRED TAX ASSETS (Note 5) 40,400 156,700
------------ ------------
OTHER ASSETS (Notes 2 and 6) 97,985 68,672
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$10,040,668 $ 8,373,579
============ ============
The accompanying notes to financial statements are
an integral part of these balance sheets.
Page 2 of 2
DYNAMIC MATERIALS CORPORATION
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BALANCE SHEETS
--------------
AS OF DECEMBER 31, 1995 AND 1994
--------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------------------------------ ---------- ----------
CURRENT LIABILITIES:
Accounts payable $ 2,216,922 $ 1,449,609
Accrued expenses 446,204 354,441
Line of credit (Note 3) 600,000 100,000
Current maturities of long-term debt (Note 3) 86,913 179,979
----------- ------------
Total current liabilities 3,350,039 2,084,029
----------- ------------
LONG-TERM DEBT (Note 3) 184,460 464,950
----------- ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 4):
Convertible preferred stock, $.05 par value;
4,000,000 shares authorized; no issued and
outstanding shares -- --
Common stock, $.05 par value; 15,000,000 shares
authorized; 2,500,923 and 2,493,423 shares
issued and outstanding, respectively 125,047 124,672
Additional paid-in capital 5,877,059 5,867,059
Retained earnings (deficit) 504,063 (167,131)
----------- ------------
6,506,169 5,824,600
----------- ------------
$10,040,668 $ 8,373,579
=========== ============
The accompanying notes to financial statements are
an integral part of these balance sheets.
DYNAMIC MATERIALS CORPORATION
-----------------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------
1995 1994
---------- ----------
NET SALES (Note 8) $19,521,133 $15,327,488
COST OF PRODUCTS SOLD 15,281,973 11,167,327
------------ ------------
Gross margin 4,239,160 4,160,161
------------ ------------
COSTS AND EXPENSES:
General and administrative expenses 1,223,883 1,259,479
Selling expenses 1,564,382 1,251,158
Research and development costs 345,375 578,676
------------ ------------
3,133,640 3,089,313
------------ ------------
INCOME FROM OPERATIONS 1,105,520 1,070,848
OTHER INCOME (EXPENSE):
Other income 1,420 26,086
Interest expense (70,554) (47,658)
Interest income 25,953 26,447
------------ ------------
Income before income tax provision 1,062,339 1,075,723
INCOME TAX PROVISION (Note 5) (391,145) (293,785)
------------ ------------
NET INCOME $ 671,194 $ 781,938
============ ============
NET INCOME PER SHARE (Note 2) $.27 $.31
=== ===
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 2,496,487 2,491,626
========= =========
The accompanying notes to financial statements
are an integral part of these statements.
DYNAMIC MATERIALS CORPORATION
-----------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------
Common Stock Additional Retained
-------------------------- Paid-In Earnings
Shares Amount Capital (Deficit)
--------- --------- ------------ -----------
BALANCES, December 31, 1993 2,481,923 $123,972 $5,851,379 $(949,069)
Common stock issued for stock
option exercises 14,000 700 15,680 -
Net income - - - 781,938
--------- -------- ---------- ----------
BALANCES, December 31, 1994 2,495,923 124,672 5,867,059 (167,131)
Common stock issued for stock
option exercises 5,000 375 10,000 -
Net income - - - 671,194
--------- -------- ---------- ----------
BALANCES, December 31, 1995 2,500,923 $125,047 $5,877,059 $ 504,063
========= ======== ========== ==========
The accompanying notes to financial statements are
an integral part of these statements.
Page 1 of 2
DYNAMIC MATERIALS CORPORATION
-----------------------------
STATEMENTS OF CASH FLOW
-----------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 671,194 781,938
Adjustments to reconcile net income
to net cash from operating activities-
Depreciation 319,190 298,841
Amortization 8,258 8,480
Provision for deferred income taxes 114,200 176,048
Writedown on abandonment of equipment - 182,270
Decrease (increase) in-
Accounts receivable, net (876,897) (1,411,931)
Inventories (1,001,738) (501,240)
Prepaid expenses and other (27,040) 4,164
Other assets - 9,790
Increase (decrease) in-
Accounts payable 767,313 998,625
Accrued expenses 91,763 (42,486)
----------- -----------
Net cash flows from operating activities 66,243 504,499
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (342,034) (1,001,066)
Change in other noncurrent assets (45,021) 7,925
----------- -----------
Net cash flows used in investing activities (387,055) (993,141)
----------- -----------
The accompanying notes to financial statements
are an integral part of these statements.
Page 2 of 2
DYNAMIC MATERIALS CORPORATION
-----------------------------
STATEMENTS OF CASH FLOW
-----------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------
1995 1994
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt $ (373,556) $ (236,957)
Proceeds from long-term debt - 407,959
Payments on line of credit (1,001,556) (2,500,000)
Borrowings on line of credit 1,501,556 2,600,000
Net proceeds from issuance of common stock 10,375 16,380
Notes receivable--employees 7,450 47,207
----------- -----------
Net cash flows from financing activities 144,269 334,589
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (176,543) (154,053)
CASH AND CASH EQUIVALENTS, beginning of the period 664,116 818,169
----------- -----------
CASH AND CASH EQUIVALENTS, end of the period $ 487,573 $ 664,116
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 70,554 $ 47,658
============ ============
Income taxes $ 205,000 $ 116,100
============ ============
The accompanying notes to financial statements
are an integral part of these statements.
DYNAMIC MATERIALS CORPORATION
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995 AND 1994
--------------------------
(1) ORGANIZATION AND BUSINESS
-------------------------
Dynamic Materials Corporation (the "Company"), formerly Explosive
Fabricators, Inc., was incorporated in the state of Colorado in 1971,
for the purpose of explosive metal working. The Company is based in
the United States and has customers throughout North America, Western
Europe and the Far East. The Company uses two primary technologies--
cladding, in which two or more metals are metallurgically joined; and
forming, in which metals and clad metals are shaped, shock hardened or
altered by using explosives. A significant portion of the Company's
revenues and receivables are from cladding sales to the chemical
processing industry.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or
market. Cost elements included in inventory are material, labor and
factory overhead.
Inventories consist of the following at December 31, 1995 and 1994:
1995 1994
---------- ----------
Raw materials $ 261,024 $ 176,746
Work in process 2,096,802 1,256,204
Supplies 225,300 148,438
---------- ----------
$2,583,126 $1,581,388
========== ==========
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at cost. Additions,
improvements and betterments are capitalized when incurred.
Maintenance and repairs are charged to operations as the costs are
incurred. Depreciation is computed using the straight-line method
over the estimated useful life of the related asset as follows:
Building and improvements 3-20 years
Manufacturing equipment and tooling 3-15 years
Furniture, fixtures and computer equipment 3-10 years
Vehicles 3-5 years
Property, plant and equipment consists of the following at
December 31, 1995 and 1994:
1995 1994
---------- ----------
Land $ 145,708 $ 145,708
Building and improvements 1,399,814 1,325,319
Manufacturing equipment and tooling 2,040,755 1,873,256
Furniture, fixtures and computer equipment 447,298 359,440
Vehicles 20,363 23,789
Construction-in-progress 18,994 3,386
---------- ----------
$4,072,932 $3,730,898
========== ==========
Intangible Assets
-----------------
The Company holds numerous United States product and process patents
related to the business of explosion metal working and metallic
products produced by various explosive processes. The Company's
current patents expire between 1996 and 2010; however, expiration of
any single patent is not expected to have a material adverse effect on
the Company or its operations.
Patent costs are included in other assets in the accompanying balance
sheets and include primarily legal and filing fees associated with the
patent registration. These costs are amortized over the expected
useful life of the issued patent, up to 17 years.
Revenue Recognition
-------------------
The Company's contracts with its customers generally require the
delivery of several products per contract. The Company records
revenue from its contracts using the completed contract method upon
shipment of completed products to the customer. If, as a contract
proceeds toward completion, projected total cost on an individual
contract indicates a potential loss, the Company provides currently
for such anticipated loss.
Research and Development Costs
------------------------------
Research and development expenditures for the creation and application
of new and improved products and processes are expensed as incurred
and consist of labor, materials and related overhead expenses.
Net Income Per Share
--------------------
Net income per common share has been computed based upon the weighted
average number of shares of common stock and, if the aggregate
dilutive effect is greater than 3%, common stock equivalents
outstanding during each period. Common stock equivalents recognize
the potential dilutive effects of the future exercise of common stock
options (Note 4).
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Income Taxes
------------
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred
income tax assets and liabilities for the expected future income tax
consequences based on enacted tax laws of temporary differences
between the financial reporting and tax bases of assets and
liabilities. In addition, SFAS 109 requires recognition of deferred
tax assets for the expected future effects of all deductible temporary
differences, loss carryforwards and tax credit carryforwards.
Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more
likely than not based on current circumstances, are not expected to be
realized (see Note 5).
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
(3) LINE OF CREDIT AND LONG-TERM DEBT
---------------------------------
Line of Credit
--------------
At December 31, 1995, the Company had an outstanding balance of
$600,000 on its revolving line of credit which expires on June 1,
1996. The line of credit bears interest at prime (prime at
December 31, 1995, was 8.5%). Amounts which may be drawn on the line
of credit are limited to a maximum borrowing base, as defined, but may
not exceed $2,000,000.
Long-Term Debt
--------------
Long-term debt consists of the following at December 31, 1995 and
1994:
1995 1994
----------- -----------
Note payable to a bank, interest at prime plus 3/4%;
secured by a first deed of trust on the related real
property, paid in 1995 $ - $ 286,267
Note payable to a financial institution payable in
monthly installments of $3,104 including interest at
8.85% through June 30, 1998, secured by selected
Company assets 83,270 111,767
Note payable to a financial institution payable in
monthly installments of $5,786 including interest at
8.37% through January 31, 1999, secured by selected
Company assets 188,103 239,604
Note payable to a bank, interest at prime plus 1/2%;
payable in monthly installments of $7,292 plus
interest, paid in 1995 - 7,291
----------- ----------
271,373 644,929
Less- Current maturities (86,913) (179,979)
----------- ----------
$ 184,460 $ 464,950
=========== ==========
Principal repayments of long-term debt at December 31, 1995, are
summarized as follows:
Year ending December 31-
1996 $ 86,913
1997 94,637
1998 84,077
1999 5,746
--------
Total $271,373
========
The Company's loan agreements include various covenants and
restrictions, certain of which relate to the payment of dividends or
other distributions to stockholders, redemption of capital stock,
incurrence of additional indebtedness, mortgaging, pledging or
disposition of major assets and maintenance of specified financial
ratios.
(4) COMMON STOCK OPTIONS AND BENEFIT PLAN
-------------------------------------
The Company maintains both incentive and nonqualifying stock option
plans. Options are generally granted at fair market value at date of
grant which is calculated as the average of the bid and ask price of
the Company's common stock. Options are generally granted for a
period of four years and vest 25% annually.
Activity in the plans during each of the years ended December 31, 1995
and 1994, is as follows:
Number of Price Per
Shares Share
----------- -------------
Options outstanding, December 31, 1993 163,000 $1.17 - $3.63
Granted 111,000 2.75 - 3.12
Canceled (44,500) 1.17 - 2.75
Exercised (14,000) 1.17
Expired - -
-------- ---------------
Options outstanding, December 31, 1994 215,500 1.17 - 3.63
========
Granted 159,000 1.875 - 2.81
Canceled (19,500) 1.17 - 2.80
Exercised (5,000) 1.875 - 2.125
Expired - -
-------- ---------------
Options outstanding, December 31, 1995 350,000 $1.63 - 3.63
======== ===============
Options exercisable at December 31, 1995 (with
remainder becoming exercisable through 1998) 79,500 $1.63 - $3.63
======== ===============
As an incentive to accept employment, the Company offered a new
officer the right to purchase 10,000 shares of the Company's common
stock at market value and another 10,000 shares at par value. For the
common stock purchased at par value, the Company recorded compensation
expense in the accompanying statement of operations for the year ended
December 31, 1994 equal to the difference between the common stock par
value and its fair market value.
During November 1994, the Company's stockholders approved the
Nonemployee Director Stock Option Plan. There are 100,000 shares of
common stock authorized to be granted under the plan and all options
will be granted at 100% of the fair market value of the stock at the
date of grant. As of December 31, 1995, 25,000 options to purchase
common stock at $2.88 per share and 10,000 options to purchase common
stock at $2.81 per share had been granted. The options are
exercisable over a four-year vesting period.
401(k) PLAN
-----------
The Company offers a contributory 401(k) plan (the "Plan") to its
employees. The Company made matching contributions to the Plan at 50%
of the employees' contribution for the first 8 percent of the
employees' compensation for most of 1995. The Company previously
matched employee contributions at 25% of the employees' contribution
for the first 8%. Total Company contributions were approximately
$41,300 and $30,800 for the years ended December 31, 1995 and 1994,
respectively.
(5) INCOME TAXES
------------
The components of the provision for income taxes are as follows:
1995 1994
---------- ----------
Current $276,945 $117,737
Deferred 114,200 176,048
-------- --------
Income tax provision $391,145 $293,785
======== ========
The components of the net deferred income tax assets at December 31,
1995 and 1994 were as follows:
1995 1994
---------- ----------
Allowance for doubtful accounts $ 55,500 $ 46,300
Inventory 9,300 17,800
Vacation accrual 42,500 33,300
Repair reserve 37,000 55,500
Depreciation (28,600) (17,800)
Other 17,100 6,400
Tax credit carryforwards 69,000 229,500
Less- Valuation allowance - (55,000)
---------- ----------
Net deferred tax assets 201,800 316,000
Less- Current portion (161,400) (159,300)
---------- ----------
Net deferred tax assets--long-term $ 40,400 $ 156,700
========== =========
At December 31, 1995, the Company has research and development,
investment tax credit, job credit and general business credit
carryforwards totaling approximately $69,000 which expire from 1996
through 2008.
The Company had established a valuation allowance of $55,000 as of
December 31, 1994 for certain tax credit carryforwards which, based
upon circumstances known at that time, were not certain to be realized
due to their expiration dates of otherwise. As of December 31, 1995,
the Company has eliminated the valuation allowance because the
uncertainties surrounding such credit carryforwards have been removed.
A reconciliation of the Company's income tax provision computed by
applying the federal statutory income tax rate of 34% to income before
taxes is as follows:
1995 1994
---------- ----------
Federal income tax at
statutory rate $361,200 $365,750
State taxes, net of federal
tax effect 38,800 10,100
Nondeductible expenses 12,400 8,400
Other, net 33,745 (33,465)
Change in valuation allowance (55,000) (57,000)
--------- --------
Provision for income taxes $391,145 $293,785
========= =========
(6) EMPLOYEE RECEIVABLES
--------------------
The board of directors approved loans to certain of the Company's
officers. The loans bear interest at prime plus 3/4%, are payable
monthly and mature from June 1996 to April 1998. The outstanding
balances at December 31, 1995 and 1994 are $36,823 and $44,273,
respectively.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company leases certain office space, storage space, vehicles and
other equipment under various operating lease agreements. Future
minimum rental commitments under noncancelable operating leases are as
follows:
Year ending December 31-
1996 $182,185
1997 106,638
1998 30,454
1999 15,203
Total rental expense included in operations was approximately $227,800
and $258,700 in the years ended December 31, 1995 and 1994,
respectively.
In fiscal 1993, the Company received notice from a customer that
several contracts had been terminated for convenience of the customer.
Federal procurement regulations obligated the customer to compensate
the Company for certain costs incurred through the termination date.
During 1994, the Company reached a settlement with this customer which
caused a writedown on
abandonment of equipment of $182,270 and a net gain on settlement of
approximately $373,000 which are included in the Company's gross
margin for 1994.
In the normal course of business, the Company is a party to various
contractual disputes and claims. After considering the Company's
insurance coverage and evaluations by legal counsel regarding pending
actions, management is of the opinion that the outcome of such actions
will not have a material adverse effect on the financial position of
the Company.
(8) SIGNIFICANT CUSTOMER
--------------------
During the year ended December 31, 1994, one customer accounted for
approximately 14% of net sales. No single customer accounted for more
than 10% of net sales during the year ended December 31, 1995.
F-15
EXHIBIT INDEX
Exhibit
No. Description
- -------- ------------
27 Financial Data Schedule