U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1997
[ ] 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
---------------------- ---------------------
Commission file number: 0-8328
DYNAMIC MATERIALS CORPORATION
(Name of small business issuer in its charter)
COLORADO 84-0608431
(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, including Area Code (303) 665-5700
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.05 PAR VALUE
(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 / /
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,717,958 SHARES OF COMMON
STOCK AS OF OCTOBER 31, 1997.
ITEM 1. FINANCIAL STATEMENTS
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,228 $ 209,650
Accounts receivable, net of allowance for
doubtful accounts of $239,519 and $170,000,
respectively 5,738,020 6,176,589
Inventories (Note 3) 1,986,942 4,828,828
Prepaid expenses and other 620,239 150,951
Deferred tax asset 287,950 287,950
------------ ------------
Total current assets 8,649,379 11,653,968
PROPERTY, PLANT AND
EQUIPMENT 5,911,443 5,421,680
Less- Accumulated depreciation (2,862,537) (2,426,870)
------------ ------------
Property, plant and equipment--net 3,048,906 2,994,810
INTANGIBLE ASSETS, Net of accumulated amortization
of $277,885 and $188,344,
respectively 1,259,346 1,337,480
OTHER ASSETS 191,850 498,982
------------ ------------
TOTAL ASSETS $ 13,149,481 $ 16,485,240
============ ============
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
1
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ -- $ 743,471
Accounts payable 1,532,182 2,255,190
Accrued expenses 1,215,872 990,959
Current maturities of long-term debt 91,466 94,636
Current portion of capital lease 28,685 27,528
----------- -----------
Total current liabilities 2,868,205 4,111,784
LINE OF CREDIT -- 3,930,000
LONG-TERM DEBT 23,121 89,857
CAPITAL LEASE OBLIGATION 79,048 100,639
DEFERRED TAX LIABILITY 27,200 27,200
----------- -----------
Total liabilities 2,997,574 8,259,480
STOCKHOLDERS'EQUITY
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; 2,717,958 and 2,539,323 shares
issued and outstanding, respectively 135,877 126,967
Additional paid-in capital 6,282,827 5,971,076
Retained earnings 3,733,203 2,127,717
----------- -----------
10,151,907 8,225,760
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,149,481 $16,485,240
=========== ===========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
DYNAMIC MATERIALS CORPORATION
CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
NET SALES $ 7,803,059 $ 7,754,903 $25,462,599 $19,458,900
COST OF PRODUCTS SOLD 6,013,006 6,111,829 19,677,769 15,511,568
----------- ----------- ----------- -----------
Gross Profit 1,790,053 1,643,074 5,784,830 3,947,332
COSTS AND EXPENSES:
General and administrative
expenses 514,668 426,018 1,521,739 1,167,123
Selling expenses 490,212 383,021 1,538,389 988,792
Research and development costs 104,951 82,004 304,367 250,143
----------- ----------- ----------- -----------
1,109,831 891,043 3,364,495 2,406,058
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 680,222 752,031 2,420,335 1,541,274
Other income 257 124 23,763 9,098
Interest expense (15,135) (77,177) (105,419) (91,011)
Interest income 14,720 30,340 21,807 45,957
----------- ----------- ----------- -----------
Income before income tax
provision 680,064 705,318 2,360,486 1,505,318
INCOME TAX PROVISION 217,143 264,000 755,000 560,000
----------- ----------- ----------- -----------
NET INCOME $ 462,921 $ 441,318 $ 1,605,486 $ 945,318
=========== =========== =========== ===========
NET INCOME PER $ 0.16 $ 0.16 $ 0.56 $ 0.35
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 2,880,891 2,700,657 2,879,216 2,669,729
=========== =========== =========== ===========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
DYNAMIC MATERIALS CORPORATION
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,605,486 $945,318
Adjustments to reconcile net income to net cash from
operating activities-
Depreciation 435,667 263,068
Amortization 78,134 23,391
Decrease (increase) in-
Accounts receivable, net 438,569 576,662
Inventories 2,841,886 999,262
Prepaid expenses and other (469,288) 63,069
Increase (decrease) in-
Bank overdraft (743,471) --
Accounts payable (723,008) 515,520
Accrued expenses 224,913 449,698
---------- ----------
Net cash flows from operating activities 3,688,888 3,835,988
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (205,477) (270,741)
Purchase of Detaclad net assets (5,291,871)
Change in other non-current assets 22,846 (77,677)
---------- ----------
Net cash flows used in investing activities (182,631) (5,640,289)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit, net (3,930,000) 2,700,000
Payments on long-term debt (69,906) (58,494)
Payments on capital lease obligation (20,434) --
Net proceeds from issuance of common stock 320,661 71,448
---------- ----------
Net cash flows used in financing activities (3,699,679) 2,712,954
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (193,422) 908,653
CASH AND CASH EQUIVALENTS, beginning of period 209,650 487,573
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 16,228 $1,396,226
========== ==========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
DYNAMIC MATERIALS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The information included in the Condensed Financial Statements is unaudited, but
includes all adjustments which are, in the opinion of management, necessary for
a fair presentation of the interim periods presented. These Condensed Financial
Statements should be read in conjunction with the Company's 1996 Annual Report
filed on Form 10-KSB.
2. ACQUISITION OF DETACLAD(R) BUSINESS OF E. I. DUPONT DE NEMOURS AND COMPANY
On July 22, 1996, the Company acquired certain assets of the Detaclad Business
of E.I. DuPont de Nemours and Company (DuPont). Detaclad designs, manufactures
and distributes explosion bonded clad metal plates and also provides explosive
shock syntheses services to DuPont in connection with DuPont's production of
industrial diamonds. The total purchase price of $5,321,850 included $5,024,233
in cash payments to Dupont, $250,576 in acquisition related expenses and the
assumption of accrued liabilities in the amount of $47,041. Assets acquired
consisted principally of trade accounts receivable, inventories, machinery and
equipment, leasehold improvements and trade names used in the business, as well
as subleases of the facilities at which the Detaclad business is conducted. The
Detaclad acquisition was financed with Company cash and borrowings under a
revolving credit facility with KeyBank of Colorado.
The acquisition has been accounted for using the purchase method of accounting.
The purchase price was allocated to the assets acquired based on their
approximate fair market values at the purchase date. The results of operations
of Detaclad since the July 22, 1996 purchase date are included in the Company's
condensed financial statements.
The following unaudited pro forma results of operations of the Company for the
nine months ended September 30, 1996 assumes that the acquisition of Detaclad
had occurred on January 1, 1996. These pro forma results are not necessarily
indicative of the actual results of operations that would have been achieved nor
are they necessarily indicative of future results of operations.
Revenues $25,383,900
Net Income $ 1,024,318
Net Income Per Share $ .41
5
3. INVENTORIES
This caption on the Condensed Balance Sheets includes the following:
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
Raw Materials $ 437,229 $ 600,942
Work-in-Process 1,222,838 3,997,680
Supplies 326,875 230,206
---------- ----------
$1,986,942 $4,828,828
========== ==========
4. NET INCOME PER COMMON SHARE:
Net income per common share has been computed based upon the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period. Common stock equivalents recognize the potential dilutive effects
of the future exercise of common stock options.
Statement of Financial Accounting Standards No. 128 ("SFAS 128), "Earnings per
Share", supersedes APB Opinion 15 ("APB 15"), "Earnings per Share", and is
effective for interim and annual periods ending after December 15, 1997. While
early application of SFAS 128 is prohibited, footnote disclosure of pro forma
earnings per share ("EPS") under the new standard is permitted. SFAS 128
replaces primary EPS with basic EPS and fully diluted EPS with diluted EPS.
Basic EPS is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. Diluted EPS recognizes the
potential dilutive effects of the future exercise of common stock options
utilizing the same computations that the Company currently uses to compute
primary EPS under APB 15. Pro forma earnings per share for the three months and
nine months ended September 30, 1997 and 1996 under SFAS 128 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30,1996
-------------- -------------- --------------- -------------
Basic earnings per share $ .17 $ .17 $ .60 $ .38
Shares outstanding 2,714,371 2,527,000 2,669,434 2,516,796
Diluted earnings per $ .16 $ .16 $ .56 $ $ .35
Shares outstanding 2,880,891 2,700,657 2,879,216 2,669,729
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with the
condensed financial statements included elsewhere within this quarterly report.
Fluctuations in annual and quarterly operating results may occur as a result of
certain factors such as the size and timing of customer orders and competition.
Due to such fluctuations, historical results and percentage relationships are
not necessarily indicative of the results for any future period. Statements
which are not historical facts contained in this report are forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from projected results. Factors that could cause actual
results to differ materially include, but are not limited to, the following: the
ability to obtain new contracts at attractive prices; the size and timing of
customer orders; fluctuations in customer demand; competitive factors; the
timely completion of contracts; and general economic conditions, both
domestically and abroad. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. The Company further directs readers to the
factors discussed in the Company's Form 10-KSB for the year ended December 31,
1996 and Forms 10-QSB.
GENERAL
Dynamic Materials Corporation ("DMC" or the "Company"), formerly
Explosive Fabricators, Inc., was incorporated in Colorado in 1971. DMC is a
worldwide leader in the high energy metal working business. The high energy
metal working business includes the use of explosives to perform both
metallurgical bonding, or metal "cladding," and metal forming. The Company
performs metal cladding using its proprietary Dynaclad(TM) and Detaclad(R)
technologies and performs metal forming using its proprietary Dynaform(TM)
technology. The Company generates approximately 90% of its revenues from its
metal cladding business and approximately 10% of its revenues from its metal
forming business.
Metal Cladding. Clad metal products are used in manufacturing processes
or environments that involve highly corrosive chemicals, high temperatures
and/or high pressure conditions. For example, the Company fabricates clad metal
tube sheets for heat exchangers. Heat exchangers are used in a variety of high
temperature, high pressure, highly corrosive chemical processes, such as
processing crude oil in the petrochemical industry and processing chemicals used
in the manufacture of synthetic fibers. The Company believes that its clad metal
products are an economical, high-performance alternative to the use of solid
corrosion-resistant alloys.
Metal Forming. Formed metal products are made from single sheets of
metal that are formed into a single part in place of a welded assembly of
multiple components. For example, the Company fabricates structural and engine
components, such as torque box webs used in jet engine nacelles for the aircraft
industry. The Company believes that its formed metal products provide a number
of advantages over welded assemblies, including lower assembly and inspection
costs, improved reliability, reduced overall weight and increased overall
strength.
The Company is continually working to generate solutions to the materials
needs of customers in its target markets. Key elements of the Company's strategy
include continual improvement of its basic processes and product offerings, the
internal development of new cladding and forming products and the acquisition of
businesses that broaden or complement the Company's existing product lines. In
July 1996, the Company completed its first strategic acquisition when it
acquired the assets of the
7
Detaclad(R) Division ("Detaclad") of E.I. du Pont de Nemours and Company
("DuPont"), a complementary explosion cladding business with expertise in
cladding thin metals and heat exchanger components primarily for the chemical
processing, power generation and petrochemical industries. In addition, the
Company has recently completed production of titanium clad plates used in the
fabrication of metal autoclaves to replace autoclaves made of brick and lead for
two customers in the mining industry.
On July 22, 1996, the Company completed the acquisition of Detaclad for
a purchase price of $5,321,850, including $250,576 of acquisition-related
expenses and the assumption of $47,041 in liabilities. The Detaclad assets
represent an approximate 50% increase in the Company's total assets from
December 31, 1995. As operated by DuPont, Detaclad generated approximately
$11,200,000 in sales revenues in the year ended December 31, 1995. Accordingly,
the Company's results of operations subsequent to the acquisition will not be
directly comparable with the pre-acquisition results.
The Company has experienced, and expects to continue to experience,
quarterly fluctuations in operating results caused by various factors, including
the timing and size of orders by major customers, customer inventory levels,
shifts in product mix, the occurrence of acquisition-related costs and general
economic conditions. In addition, the Company typically does not obtain
long-term volume purchase contracts from its customers. Quarterly sales and
operating results therefore depend on the volume and timing of backlog as well
as bookings received during the quarter. A significant portion of the Company's
operating expenses is fixed, and planned expenditures are based primarily on
sales forecasts and product development programs. If sales do not meet the
Company's expectations in any given period, the adverse impact on operating
results may be magnified by the Company's inability to adjust operating expenses
sufficiently or quickly enough to compensate for such a shortfall. In addition,
the Company uses numerous suppliers of alloys, steels and other materials for
its operations. The Company typically bears a short-term risk of alloy, steel
and other component price increases, which could adversely affect the Company's
gross profit margins. Although the Company will work with customers and
suppliers to minimize the impact of any component shortages, component shortages
have had, and are expected to have from time to time, short-term adverse effects
on the Company's business. Results of operations in any period should not be
considered indicative of the results to be expected for any future period.
Fluctuations in operating results may also result in fluctuations in the price
of the Company's Common Stock.
8
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain income statement data:
PERCENTAGE OF NET SALES
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
1997 1996 1997 1996
----- ----- ----- -----
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Products 77.1% 78.8% 77.3% 79.7%
Manufactured ----- ----- ----- -----
Gross Margin 22.9% 21.2% 22.7% 20.3%
General & Administrative 6.6% 5.5% 6.0% 6.0%
Selling Expenses 6.3% 4.9% 6.0% 5.1%
R & D 1.3% 1.1% 1.2% 1.3%
Interest Expense 0.2% 1.0% 0.4% 0.5%
Income Tax Provision 2.8% 3.4% 3.0% 2.9%
Net Income 5.9% 5.7% 6.3% 4.9%
NET SALES. Net sales for the quarter ended September 30, 1997 increased 0.6% to
$7,803,059 from $7,754,903 in the third quarter of 1996. For the nine months
ended September 30, 1997, net sales increased 30.9% to $25,462,599 from
$19,458,900 in the comparable period of 1996. This increase was primarily
attributable to strong first quarter shipments against a large December 31, 1996
backlog of orders, including two large orders that generated approximately $3.2
million in sales during the first quarter of 1997, and the July 22, 1996
acquisition of Detaclad.
GROSS PROFIT. As a result of an improvement in the Company's gross margin rate,
gross profit for the quarter ended September 30, 1997 increased by 8.9% to
$1,790,053 from $1,643,074 in the third quarter of 1996. The gross profit margin
for the quarter ended September 30, 1997 was 22.9%, representing an 8% increase
from the gross profit margin of 21.2% for the third quarter of 1996. For the
nine months ended September 30, 1997, gross profit increased 46.6% to $5,784,830
from $3,947,332 in the comparable period of 1996. The gross profit margin for
the nine months ended September 30, 1997 was 22.7%, representing an 11.8%
increase from the gross profit margin of 20.3% for the first nine months of
1996. The increases in the gross margin rate for both the three and nine month
periods are principally due to proportionately higher sales of formed products
and industrial diamond services, both of which carry significantly higher
margins than sales of clad metal plates.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
quarter ended September 30, 1997 increased 20.8% to $514,668 from $426,018 in
the third quarter of 1996. For the nine months ended September 30, 1997, general
and administrative expenses increased 30.4% to $1,521,739 from $1,167,123 in the
comparable period of 1996. These increases reflect
9
higher expense levels in a number of categories, including compensation, legal
fees, travel and amortization of goodwill and intangibles. General and
administrative expenses are expected to remain at these higher 1997 levels to
support the Detaclad operations, increased sales activity and other strategic
business initiatives. As a result of these higher spending levels, general and
administrative expenses, as a percentage of net sales, increased from 5.5% in
the third quarter of 1996 to 6.6% for the quarter ended September 30, 1997. For
the nine months ended September 30, 1997 and 1996, general and administrative
expenses remained flat at 6.0% of net sales for both periods as the 30.9%
increase in year-to-date net sales was offset by increases in 1997 spending
levels.
SELLING EXPENSES. Selling expenses increased by 28.0% to $490,212 for the
quarter ended September 30, 1997 from $383,021 in the third quarter of 1996. For
the nine months ended September 30, 1997, selling expenses increased 55.6% to
$1,538,389 from $988,792 in the comparable period of 1996. These increases
reflect higher expense levels in a number of categories, including compensation
and benefits, advertising and promotion, reserves for bad debts and travel and
entertainment expenses. Selling expenses are expected to remain at these higher
1997 levels due to staffing increases during the last half of 1996 that are
attributable to the Detaclad acquisition, general business growth and expansion
of the Company's domestic and international marketing activities. As a result of
these higher spending levels, selling expenses, as a percentage of net sales,
increased from 4.9% in the third quarter of 1996 to 6.3% for the quarter ended
September 30, 1997, and from 5.1% for the nine months ended September 30, 1996
to 6.0% for the comparable period of 1997.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs decreased 28.0%
to $104,951 for the quarter ended September 30, 1997 from $82,004 in the third
quarter of 1996. For the nine months ended September 30, 1997, research and
development costs increased 21.7% to $304,367 from $250,143 in the comparable
period of 1996. These increases reflect increased contract labor and travel
expenses associated with current year new product and process development
programs.
INCOME FROM OPERATIONS. Income from operations decreased 9.5% to $680,222 for
the quarter ended September 30, 1997 from $752,031 in the third quarter of 1996.
This decrease is attributed to a $218,788 aggregate increase in operating
expense more than offsetting a $146, 979 increase in gross profit, which
resulted principally from an improvement in the gross margin rate to 22.9% for
the quarter ended September 30, 1997 from 21.2% in the third quarter of 1996.
For the nine months ended September 30, 1997, income from operations increased
57.0% to $2,420,335 from $1,541,274 in the comparable period of 1996. This
increase is a direct result of the 30.9% increase in net sales combined with an
improvement in the gross margin rate to 22.7% for the nine months ended
September 30, 1997 from 20.3% for the comparable period of 1996. This improved
gross margin rate is principally a result of favorable changes in product mix.
Income from operations as a percentage of net sales increased to 9.5% for nine
months ended September 30, 1997 from 7.9% for the comparable period of 1996.
INTEREST EXPENSE. Interest expense decreased to $15,135 for the quarter ended
September 30, 1997
10
from $77,177 in the third quarter of 1996. For the nine months ended September
30, 1997, interest expense increased to $105,419 from $91,011 in the comparable
period of 1996. The increase for the nine month period is due to borrowings
under the Company's revolving line of credit with KeyBank of Colorado during the
first half of 1997 that were required to finance the July 1996 Detaclad
acquisition and working capital requirements associated with two large orders
that accounted for a significant portion of December 31, 1996 and March 31, 1997
accounts receivable and inventory balances. Interest expense decreased
significantly in the third quarter of 1997 as line of credit borrowings, which
totaled $3,300,000 at September 30, 1996, $3,930,000 at December 31, 1996 and
$1,500,000 at March 31, 1997, were paid down to zero as of June 30, 1997 and
remained at zero throughout the third quarter of 1997.
INCOME TAX PROVISION. The Company's income tax provision decreased by 17.7% to
$217,143 for the quarter ended September 30, 1997 from $264,000 in the third
quarter of 1996. The income tax provision for the nine months ended September
30, 1997 increased 34.8% to $755,000 from $560,000 for the comparable period of
1996. For the three and nine months ended September 30, 1997, the effective tax
rate was 31.9% and 32.0%, respectively, as compared to 37.4% and 37.2%,
respectively, for the comparable 1996 periods. The lower 1997 effective tax
rates reflect the impact of tax deductions associated with the 1997 exercise of
non-qualified stock options.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has secured the major portion of its
operational financing from internally generated funds and an asset-backed
revolving credit facility. In anticipation of financing needs for the Detaclad
acquisition, the Company entered into a $7,500,000 secured credit facility with
KeyBank of Colorado in July 1996. At September 30, 1997, no borrowings were
outstanding under this facility. The credit facility has a seven-year term and
is secured by substantially all of the Company's assets, including its accounts
receivable, inventory and equipment. The maximum amount available under the line
of credit is subject to borrowing base restrictions that are a function of
defined balances in accounts receivable, inventory, real property and equipment.
As of September 30, 1997, borrowing availability under the line of credit was
approximately $6,450,000.
During the nine months ended September 30, 1997, the Company generated
$3,688,888 in cash flows from operating activities as compared to $3,835,988 for
the comparable period of 1996. The principal sources of cash flow from
operations for the nine months ended September 30, 1997 were net income of
$1,605,486, a decrease in inventories of $2,841,886 and a decrease in accounts
receivable of $438,569. These sources of operating cash flow were offset by a
$723,008 reduction in accounts payable and a $743,471 reduction in a bank
overdraft. The current ratio was 3.0 at September 30, 1997 as compared to 2.8 at
December 31, 1996. Investing activities for the nine months ended September 30,
1997 used $182,631 of net cash, including $205,477 to fund capital expenditures
(including expenditures on new computer software). Financing activities for the
nine months ended September 30, 1997 used $3,699,679 of net cash, including the
use of $3,930,000 in cash to reduce line of credit borrowings that was partially
offset by cash proceeds of $320,661
11
from the exercise of stock options.
The Company believes that its cash flow from operations and funds expected
to be available under its existing credit facility will be sufficient to fund
foreseeable working capital and capital expenditure requirements of its base
business operations. However, because the Company's business has been based on a
relatively small number of large specifically negotiated contracts, the failure
to perform existing contracts on a timely basis, and to receive payment for such
services in a timely manner, or to enter into future contracts at projected
volumes and profitability levels, could adversely affect the Company's ability
to meet its cash requirements exclusively through internal sources.
Consequently, any restriction on the availability of borrowing under the line of
credit could negatively affect the Company's ability to meet its future cash
requirements. The Company plans to grow both internally and through the
acquisition of complementary businesses. A significant acquisition may require
the Company to secure additional debt or equity financing. While the Company
believes it would be able to secure such additional financing at reasonable
terms, there is no assurance that this would be the case.
12
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A Special Meeting of the Company's Shareholders (the "Special Meeting")
was held on August 14, 1997. At the Special Meeting, the shareholders of the
Company approved the re-incorporation of the Company into the State of Delaware.
The Company had 2,711,458 shares of Common Stock outstanding as of July
7, 1997, the record date for the Special Meeting. At the Special Meeting,
holders of a total of 1,782,201 shares of Common Stock were present in person or
represented by proxy. The following sets forth information regarding the results
of the voting at the Special Meeting:
RE-INCORPORATION OF THE COMPANY INTO THE STATE OF DELAWARE
Votes in favor: 1,555,780
Votes against: 215,438
Abstentions: 3,661
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) Exhibits
2. Agreement and Plan of Merger, dated as of August , 1997, between the
Company and Dynamic Materials Corporation, a Colorado corporation ( a
predecessor of the Company).*
3(a). Certificate of Incorporation of the Company.*
3(b). Bylaws of the Company.*
4. Form of certificate representing shares of Common Stock of the
Company.
10(a). Form of Indemnity Agreement between the Company and each of its
directors and officers.
13
10(b). 1997 Equity Incentive Plan of the Company.*
10(c). Letter agreement between the Company and Richard Santa, dated as
of October 21, 1996.
10(d). Letter agreement between the Company and Mike Beam, dated as of
January 31, 1995.
11. Statement regarding computation of per share earnings.
27. Financial Data Schedule.
(b.) None
- -------------------
*Incorporated by reference in the Company's definitive proxy statement
filed July 14, 1997.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DYNAMIC MATERIALS CORPORATION
(Registrant)
Date: NOVEMBER 14, 1997 Richard A. Santa
---------------------------------
Richard A. Santa, Vice President of
Finance and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
16
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
2 Agreement and Plan of Merger, dated as of August , 1997, between the
Company and Dynamic Materials Corporation, a Colorado corporation ( a
predecessor of the Company).*
3(a) Certificate of Incorporation of the Company.*
3(b) Bylaws of the Company.*
4 Form of certificate representing shares of Common Stock of the
Company.
10(a) Form of Indemnity Agreement between the Company and each of its
directors and officers.
10(b) 1997 Equity Incentive Plan of the Company.*
10(c) Letter agreement between the Company and Richard Santa, dated as of
October 21, 1996.
10(d) Letter agreement between the Company and Mike Beam, dated as of
January 31, 1995.
11 Statement regarding computation of per share earnings.
27 Financial Data Schedule.
- -------------------
*Incorporated by reference in the Company's definitive proxy statement
filed July 14, 1997.
17