<PAGE>
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: JUNE 30, 1996
----------------------------------------------
[ ] 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. EmployerIdentification 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:
2,519,423 shares of common stock as of June 30,1996.
- ----------------------------------------------------
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,090,031 $ 487,573
Accounts Receivable (Less: allowance of $150,000) 3,255,054 4,479,199
Inventories (Note 2) 1,477,522 2,583,126
Deferred Tax Asset 120,000 161,400
Prepaid Expenses & Deposits 145,126 102,406
---------- ----------
Total Current Assets 7,087,733 7,813,704
Property, Plant & Equipment 4,192,103 4,072,932
Less: Accumulated Depreciation (2,156,746) (1,984,353)
---------- ----------
Property, Plant & Equipment, net 2,035,357 2,088,579
Other Assets:
Deferred Tax Asset 10,000 40,400
Other (Note 3) 46,399 97,985
---------- ----------
Total Assets $ 9,179,489 $10,040,668
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note Payable $ 0 $ 600,000
Accounts Payable 1,367,745 2,216,922
Accrued Expenses 521,295 446,204
Current Maturities of Long-Term Debt 90,676 86,913
---------- ----------
Total Current Liabilities 1,979,716 3,350,039
Long-Term Debt (Note 4) 138,354 184,460
Stockholder's Equity:
Preferred Stock, $.05 par value; Authorized 4,000,000 shares
No shares Issued and Outstanding 0 0
Common Stock, $.05 par value; Authorized 15,000,000 shares;
Issued and Outstanding 2,519,423 & 2,500,923 shares 126,272 125,047
Additional Paid-In-Capital 5,927,084 5,877,059
Retained Earnings 1,008,063 504,063
---------- -----------
7,061,419 6,506,169
---------- ----------
Total Liabilities and Stockholders' Equity $ 9,179,489 $10,040,668
========= ==========
</TABLE>
See Notes to the Condensed Financial Statements.
<PAGE>
DYNAMIC MATERIALS CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $5,708,423 $3,109,036 $11,703,997 $6,601,794
COST OF PRODUCTS MANUFACTURED 4,524,491 2,388,229 9,399,741 5,127,076
--------- ---------- ----------- ----------
Gross Margins 1,183,932 720,807 2,304,256 1,474,718
COSTS AND OTHER EXPENSES:
General and Administrative 391,472 258,159 741,105 549,347
Selling Expense 315,014 368,626 605,771 679,617
Research and Development 82,322 90,705 168,139 197,832
--------- ---------- ----------- ----------
INCOME FROM OPERATIONS 395,124 3,317 789,241 47,922
Interest (Income) Expense, Net (6,581) 8,415 (10,759) 24,910
--------- ---------- ----------- ----------
INCOME BEFORE PROVISION FOR TAXES 401,705 (5,098) 800,000 23,012
Provision for Income Taxes 148,000 0 296,000 9,000
--------- --------- ----------- ----------
NET INCOME $ 253,705 ($5,098) $ 504,000 $ 14,012
========= ======= ========= =========
PRIMARY AND FULLY DILUTED NET INCOME PER SHARE:
Net Income per share (Note 5) $0.10 ($0.00) $0.20 $0.01
==== ====== ==== ====
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary and Fully Diluted (Note 5) 2,508,000 2,495,000 2,506,000 2,494,000
========= ========= ========= =========
</TABLE>
See Notes to the Condensed Financial Statements.
<PAGE>
DYNAMIC MATERIALS CORPORATION
STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 504,000 $ 14,012
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH FROM OPERATING ACTIVITIES
Depreciation 172,393 131,730
Amortization 4,500 4,500
(Increase) decrease in Receivables 1,224,145 1,743,814
(Increase) decrease in Inventories 1,105,604 (676,627)
(Increase) decrease in Deferred Tax Asset & Prepaid expense (4,076) (6,041)
Increase (decrease) in Accounts payable (849,177) (132,756)
Increase (decrease) in Accrued expenses 78,854 (255,338)
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES 2,236,243 823,294
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
(Acquisition) of Fixed Assets (120,179) (115,714)
(Increase) Decrease in Other assets 77,486 (200)
--------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES (42,693) (115,914)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Repayment) Borrowings under Bank Line (600,000) (100,000)
Increase in Long-Term Debt 0 0
(Repayment) of Long-Term Debt (42,342) (92,302)
Issuance of Common Stock upon option exercise 51,250 0
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES (591,092) (192,302)
--------- --------
INCREASE IN CASH AND EQUIVALENTS 1,602,458 515,078
CASH AND EQUIVALENTS BEGINNING OF PERIOD 487,573 664,116
--------- --------
CASH AND EQUIVALENTS END OF PERIOD $2,090,031 $1,179,194
========= =========
</TABLE>
See Notes to the Condensed Financial Statements.
<PAGE>
DYNAMIC MATERIALS CORPORATION
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. The information included in the Condensed Financial Statement 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 1995 Annual Report filed on Form 10KSB.
2. INVENTORIES
This caption on the Condensed Balance Sheet includes the following:
June 30 December 31
------- -----------
1996 1995
---- ----
Raw Stock, net $328,800 $261,024
Work-In-Process 957,320 2,096,802
Supplies 191,402 225,300
------- -------
$1,477,522 $2,583,126
========= =========
3. OTHER NON-CURRENT ASSETS:
This caption on the Condensed Balance Sheet includes the following:
June 30 December 31
------- -----------
1996 1995
---- ----
Non-Current Receivable, net $18,334 $23,333
Other Deposits 18,858 60,968
Intangibles, net 10,000 40,400
------- -------
$47,192 $124,701
====== =======
4. LONG TERM DEBT AND CURRENT MATURITIES
This caption on the Condensed Balance Sheet includes the following:
June 30 December 31
------- -----------
1996 1995
---- ----
Concord Financial - Equipment, 8.375% $229,030 $271,373
Less: Current Portion (90,676) (86,913)
-------- --------
$138,354 $184,460
======= =======
5. NET INCOME PER COMMON SHARE:
Primary Earnings Per Common Share has been calculated based upon the
weighted average number of Common Shares outstanding during the
periods: 2,506,000 (1996) and 2,494,000 shares (1995).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Overview
- --------
The Company's results of operations for the three- and six-
month periods ended June 30, 1996 have been favorably impacted by
increased manufacturing and sales activity, principally for cladding
products, as compared with comparable periods in 1995. A portion of
these increases are shipments of orders received in prior periods
which have been reflected in previously reported inventory. Orders
continue to be received at higher levels than in the comparable 1995
periods. A significant portion of the Company's present and future
sales activity derives from increased sales to offshore customers
concentrated in the Pacific Rim. The Company expects that
approximately 35% of its sales reflect activity in this market, both
through direct sales and through intermediaries.
Subsequent to the second quarter, on July 22, 1996, the
Company completed the acquisition from E.I. DuPont de Nemours and
Company of the assets of the Detaclad operation, for a purchase price
of $4,978,469. This was financed through $3,728,469 of borrowings and
$1,250,000 from cash on hand. This acquisition expands the Company's
operations significantly, as the Detaclad assets represent
approximately a 50% increase in the Company's total assets as of
December 31, 1995 and, in the year ended December 31, 1995, the
Detaclad assets as operated by DuPont generated approximately
$11,000,000 in sales revenues. As a result, the Company's results
subsequent to the acquisition will not be directly comparable with
pre-acquisition results.
QUARTER ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995
The following table sets forth for the periods indicated the
percentage relationship to net sales of certain income statement data:
<PAGE>
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products manufactured 79.3% 76.8% 80.3% 77.7%
----- ----- ----- -----
Gross margin 20.7% 23.2% 19.7% 22.3%
General and administrative 6.9% 8.3% 6.3% 8.3%
Selling expense 5.5% 11.9% 5.3% 10.3%
Research and development 1.4% 2.9% 1.4% 3.0%
Interest (income) expense, net (.1%) .3% (.1%) .4%
Income tax provision 2.6% .0% 2.5% .1%
----- ----- ----- -----
Net income 4.4% (0.2%) 4.3% .2%
=== === === ===
</TABLE>
Net Sales. Net sales increased 84% to $5,708,400 in the
---------
quarter ended June 30, 1996 from $3,109,000 for the comparable quarter
in 1995. For the six months ended June 30, 1996, net sales increased
77%, to $11,703,900 from $6,601,800 for the comparable period in 1995.
These increases were due to higher levels of contract activity,
principally for cladding products and in the Pacific Rim countries,
and completion of manufacturing and shipment of products that had been
reflected in high inventory levels in prior periods. The backlog at
December 31, 1995 was $7,000,000, compared with backlog at June 30,
1996 of $8,500,000.
Gross Margin. For the three months ended June 30, 1996,
------------
gross margin expressed as a percentage of net sales, was 20.7%,
compared to 23.2% in the comparable period in 1995. For the
comparable six month periods, gross margin was 19.7% of net sales for
the first six months of 1996, compared with 22.3% of net sales in the
comparable 1995 period. The decrease in the percentage of net sales
represented by gross margin was due principally to lower levels of
sales of formed products in 1996, as formed products are sold at
higher margins than clad products. Pricing of the Company's clad
products increased slightly in the second quarter of 1996 compared
with the first quarter, increasing gross margins in the second
quarter.
General and Administrative. General and administrative
--------------------------
expenses increased 52% in the three months ended June 30, 1996 from
$258,200 to $391,500, primarily as a result of increased bonus
accrual, increased insurance expense for expanded coverage and
directors' and officers' liability insurance, increased travel and
entertainment expenses, increased consulting costs, a new investor
relations initiative, and a new operating lease for telephone
equipment. Certain of these increased costs, particularly travel and
consultant costs, were incurred in connection with the DuPont
<PAGE>
acquisition and will be non-recurring costs. Other increases will
remain at higher levels to support higher levels of sales activity.
General and administrative costs increased 35% to $741,100 in the six
months ended June 30, 1996 compared to $549,300 in the first six
months of 1995, principally reflecting higher bonus accrual, increased
insurance expense, a new investor relations initiative, and increased
compensation and consulting expenses. Despite the increases, general
and administrative expenses as a percentage of net sales decreased
from 8.3% to 6.9% for the three months ended June 30, 1995 and 1996,
respectively, and from 8.3% to 6.3% for the six months ended June 30,
1995 and 1996, respectively, as a result of the higher level of net
sales.
Selling Expense. Selling expense decreased by 15%, from
---------------
$368,600 in the three months ended June 30, 1995 to $315,000 in the
three months ended June 30, 1996. Similarly, selling expense
decreased by 11% in the comparable six-month periods, from $679,600 in
the six months ended June 30, 1995 to $605,800 in the comparable 1996
period. The decreases are due in part to reduced staffing levels in
1996 and the non-recurring recruiting and relocation expense in the
1995 period associated with the retention during that period of a new
Vice President of Marketing and Sales. Additionally, in the 1995
period, there was more significant international travel due to an
increased effort to establish the Company's presence in offshore
markets. The Company expects that selling expense levels may increase
somewhat in the latter half of 1996, as certain marketing activities
have been deferred due to the focus on the DuPont acquisition.
Selling expense as a percentage of net sales was 5.5% in the three
months ended June 30, 1996, compared with 11.9% in the year earlier
period, and 5.3% in the six months ended June 30, 1996, compared with
10.3% in the year earlier period, as a result of both lower selling
expenses and higher net sales in 1996.
Research and Development. Research and development expenses
------------------------
decreased 9% to $82,300 in the three months ended June 30, 1996, from
$90,700 in the year earlier period. Research and development expenses
declined 15% over the comparable six-month periods, from $197,800 for
the six months ended June 30, 1995 to $168,100 for the six months
ended June 30, 1996. This reduction in research and development was
based on completion of a specific research and development project in
1995 and a greater emphasis on production support in the 1996 period.
Interest. In the three- and six-month periods ended
--------
June 30, 1996, the Company had $6,600 and $10,800, respectively, of
interest income, compared with interest expense of $8,400 and $24,900,
respectively, in the comparable year earlier periods. This change is
due to the Company's improved cash position and investment of its cash
reserves and the reduced level of outstanding borrowings in 1996.
LIQUIDITY AND CAPITAL RESOURCES.
- -------------------------------
Historically, the Company has secured the major portion of
its operational financing from internally generated funds and an
asset-based revolving line of credit. At June 30, 1996, the Company
had approximately $2,100,000 of cash and cash equivalents, $138,300 of
long term debt (consisting of an installment note secured by
equipment) and $5,108,000 of working capital. At June 30, 1996, no
amounts were outstanding under the Company's revolving line of credit,
in comparison to $600,000 outstanding at December 31, 1995.
Subsequent to June 30, 1996, and in anticipation of financing needs
for the Detaclad acquisition, the Company entered into a new
$7,500,000 secured credit facility, and at August 1, 1996, $5,300,000
was outstanding under this facility, all of which was borrowed to
finance the Detaclad acquisition, including fees and expenses
associated with the acquisition. 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 which are a function of defined balances
in accounts
<PAGE>
receivable, inventory, real property and equipment. As of August 1,
1996, borrowing availability under the line of credit was
approximately $2,200,000 beyond actual borrowings as of that date.
During the six-month period ended June 30, 1996, cash flows
from operating activities increased $2,236,200 in comparison to an
increase of $823,294 during the six-month period ended June 30, 1995.
The significant increase in 1996 is due to the collection of accounts
receivable and reduction in inventories compared to the balances at
December 31, 1995, as well as the higher level of net income. The
current ratio was 3.6 at June 30, 1996 in comparison to 2.3 at
December 31, 1995. Cash flows used in investing activities were
$42,700 through June 30, 1996 compared with $115,900 during the same
period in 1995. Capital expenditures were $119,200, or approximately
3% higher in the 1996 period than in the comparable 1995 period.
The Company believes that its current cash flow from
operations and available borrowing capacity will be sufficient to fund
foreseeable working capital and capital expenditure needs through
1996. 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.
CAUTIONARY STATEMENT UNDER THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
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, among others: general economic conditions,
both domestically and abroad; the timely completion of contracts; the
ability to obtain new contracts at attractive prices; fluctuations in
customer demand, including as a result of a change in regulatory or
tax provisions in countries in which the Company's customers are
located; competitive factors; and the Company's ability to address
adequately the changing demands resulting from the Detaclad
acquisition. 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.
<PAGE>
Part II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
2.1 Purchase and Sale Agreement dated July 22, 1996 between
Dynamic Materials Corporation and E.I. DuPont de
Nemours and Company.*
10.1 Tolling/Services Agreement for Industrial Diamonds
dated July 22, 1996 between E.I. DuPont de Nemours and
Company and Dynamic Materials Corporation.*
10.2 Sublease dated July 22, 1996 between E.I. DuPont de
Nemours and Company and Dynamic Materials Corporation.*
10.3 Credit Facility and Security Agreement dated July 19,
1996 between Dynamic Materials Corporation and Key Bank
of Colorado.*
27 Financial Data Schedule
*Filed as Exhibits to the Company's Report on Form 8-K dated
August 6, 1996 and incorporated herein by reference.
(b) Reports on Form 8-K
A Report on Form 8-K was filed on August 6, 1996 reporting
the completion of the acquisition of the Detaclad assets
from E.I. DuPont de Nemours and Company.
Pursuant to the Form 8-K, certain audited financial
information will be provided regarding the acquired assets
as of December 31, 1994 and December 31, 1995. In addition,
unaudited information will be provided for the six-month
period ended June 30, 1996. All such financial information
will be filed within 60 days of August 6, 1996.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DYNAMIC MATERIALS CORPORATION
-----------------------------
(Registrant)
Date: August 14, 1996 Paul Lange
----------------------------------------
Paul Lange
President and Chief Executive Officer
Acting Principal Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE
COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED
JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,090,031
<SECURITIES> 0
<RECEIVABLES> 3,405,054
<ALLOWANCES> 150,000
<INVENTORY> 1,477,522
<CURRENT-ASSETS> 7,087,733
<PP&E> 4,192,103
<DEPRECIATION> 2,156,746
<TOTAL-ASSETS> 9,179,489
<CURRENT-LIABILITIES> 1,979,716
<BONDS> 0
<COMMON> 126,272
0
0
<OTHER-SE> 6,935,147
<TOTAL-LIABILITY-AND-EQUITY> 9,179,489
<SALES> 11,703,997
<TOTAL-REVENUES> 11,703,997
<CGS> 9,399,741
<TOTAL-COSTS> 10,746,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (10,759)
<INCOME-PRETAX> 800,000
<INCOME-TAX> 296,000
<INCOME-CONTINUING> 504,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 504,000
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
