<PAGE> 1
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, 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: 2,713,248 shares of common
stock as of July 31, 1997.
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,071,402 $ 209,650
Accounts receivable, net of allowance for doubtful
accounts of $220,250 and $170,000, respectively 4,507,386 6,176,589
Inventories (Note 3) 1,669,976 4,828,828
Prepaid expenses and other 284,027 150,951
Deferred tax asset 287,950 287,950
------------ ------------
Total current assets 7,820,741 11,653,968
PROPERTY, PLANT AND EQUIPMENT 5,876,580 5,421,680
Less- Accumulated depreciation (2,702,928) (2,426,870)
------------ ------------
Property, plant and equipment--net 3,173,652 2,994,810
INTANGIBLE ASSETS, Net of accumulated amortization
of $247,899 and $188,344, respectively 1,287,068 1,337,480
OTHER ASSETS 201,007 498,982
------------ ------------
TOTAL ASSETS $ 12,482,468 $ 16,485,240
============ ============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
1
<PAGE> 3
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ -- $ 743,471
Accounts payable 1,670,295 2,255,190
Accrued expenses 859,541 990,959
Current maturities of long-term debt 98,732 94,636
Current portion of capital lease 28,685 27,528
----------- -----------
Total current liabilities 2,657,253 4,111,784
LINE OF CREDIT -- 3,930,000
LONG-TERM DEBT 39,655 89,857
CAPITAL LEASE OBLIGATION 85,999 100,639
DEFERRED TAX LIABILITY 27,200 27,200
----------- -----------
Total liabilities 2,810,107 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; 2,711,458 and 2,539,323 shares
issued and outstanding, respectively 135,527 126,967
Additional paid-in capital 6,266,552 5,971,076
Retained earnings 3,270,282 2,127,717
----------- -----------
9,672,361 8,225,760
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,482,468 $16,485,240
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
<PAGE> 4
DYNAMIC MATERIALS CORPORATION
CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 7,877,630 $ 5,708,423 $ 17,659,541 $ 11,703,997
COST OF PRODUCTS SOLD 6,003,171 4,524,491 13,692,888 9,399,741
------------ ------------ ------------ ------------
Gross Profit 1,874,459 1,183,932 3,966,653 2,304,256
COSTS AND EXPENSES:
General and administrative expenses 502,970 391,472 1,007,070 741,105
Selling expenses 524,591 315,014 1,048,177 605,771
Research and development costs 68,030 82,322 171,292 168,139
------------ ------------ ------------ ------------
1,095,591 788,808 2,226,539 1,515,015
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 778,868 395,124 1,740,114 789,241
Other income 1,612 1,343 23,506 8,974
Interest expense (24,921) (5,316) (90,285) (13,832)
Interest income 4,607 10,554 7,087 15,617
------------ ------------ ------------ ------------
Income before income tax
provision 760,166 401,705 1,680,422 800,000
INCOME TAX PROVISION 242,857 148,000 537,857 296,000
------------ ------------ ------------ ------------
NET INCOME $ 517,309 $ 253,705 $ 1,142,565 $ 504,000
============ ============ ============ ============
NET INCOME PER SHARE $ 0.18 $ 0.09 $ 0.40 $ 0.19
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 2,855,949 2,695,703 2,878,143 2,704,061
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE> 5
DYNAMIC MATERIALS CORPORATION
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,142,565 $ 504,000
Adjustments to reconcile net income to net cash from
operating activities-
Depreciation 276,058 172,393
Amortization 50,412 4,500
Decrease (increase) in-
Accounts receivable, net 1,669,203 1,224,145
Inventories 3,158,852 1,105,604
Prepaid expenses and other (133,076) (4,076)
Increase (decrease) in-
Bank overdraft (743,471) --
Accounts payable (584,895) (849,177)
Accrued expenses (131,418) 78,854
----------- -----------
Net cash flows from operating activities 4,704,230 2,236,243
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (170,614) (120,179)
Change in other noncurrent assets 13,689 77,486
----------- -----------
Net cash flows used in investing activities (156,925) (42,693)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit, net (3,930,000) (600,000)
Payments on long-term debt (46,106) (42,342)
Payments on capital lease obligation (13,483) --
Net proceeds from issuance of common stock 304,036 51,250
----------- -----------
Net cash flows used in financing activities (3,685,553) (591,092)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 861,752 1,602,458
CASH AND CASH EQUIVALENTS, beginning of period 209,650 487,573
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,071,402 $ 2,090,031
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
<PAGE> 6
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
six months ended June 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.
<TABLE>
<S> <C>
Revenues $ 17,629,000
Net Income $ 583,000
Net Income Per Share $ .22
</TABLE>
5
<PAGE> 7
3. INVENTORIES
This caption on the Condensed Balance Sheets includes the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Raw Materials $ 443,081 $ 600,942
Work-in-Process 920,103 3,997,680
Supplies 306,792 230,206
---------- ----------
$1,669,976 $4,828,828
========== ==========
</TABLE>
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. Net income per share for the six
months ended June 30, 1996 has been restated to correct an error in the
computation of common stock equivalents outstanding. The effect of this change
was to reduce net income per share by $.01 for the six months ended June 30,
1996.
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
six months ended June 30, 1997 and 1996 under SFAS 128 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30,1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic earnings per share $ .19 $ .10 $ .43 $ .20
Shares outstanding 2,692,436 2,508,000 2,646,592 2,506,000
Diluted earnings per share $ .18 $ .09 $ .40 $ .19
Shares outstanding 2,855,949 2,695,703 2,878,143 2,704,061
</TABLE>
6
<PAGE> 8
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.
7
<PAGE> 9
In July 1996, the Company completed its first strategic acquisition when it
acquired the assets of the 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
<PAGE> 10
QUARTER ENDED JUNE 30, 1997 COMPARED TO JUNE 30, 1996
The following table sets forth for the periods indicated the
percentage relationship to net sales of certain income statement data:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Products Manufactured 76.2% 79.3% 77.5% 80.3%
---------- ---------- ---------- ----------
Gross Margin 23.8% 20.7% 22.5% 19.7%
General & Administrative 6.4% 6.9% 5.7% 6.3%
Selling Expenses 6.7% 5.5% 5.9% 5.2%
R & D 0.9% 1.4% 1.0% 1.4%
Interest Expense 0.3% 0.1% 0.5% 0.1%
Income Tax Provision 3.1% 2.6% 3.0% 2.5%
Net Income 6.6% 4.4% 6.5% 4.3%
</TABLE>
NET SALES. Net sales for the quarter ended June 30, 1997 increased 38.0% to
$7,877,630 from $5,708,423 in the second quarter of 1996. This increase is
principally a result of the July 22, 1996 acquisition of Detaclad. For the six
months ended June 30, 1997, net sales increased 50.9% to $17,659,541 from
$11,703,997 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 the Company's increase in net sales and an
improvement in the gross margin rate, gross profit for the quarter ended June
30, 1997 increased by 58.3% to $1,874,459 from $1,183,932 in the second quarter
of 1996. The gross profit margin for the quarter ended June 30, 1997 was 23.8%,
representing a 15% increase from the gross profit margin of 20.7% for the
second quarter of 1996. For the six months ended June 30, 1997, gross profit
increased 72.1% to $3,966,653 from $2,304,256 in the comparable period of 1996.
The gross profit margin for the six months ended June 30, 1997 was 22.5%,
representing a 14.2% increase from the gross profit margin of 19.7% for the
first six months of 1996. The increases for both the three and six month
periods are 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. General and administrative expenses for the quarter
ended June 30, 1997 increased 28.5% to $502,970 from $391,472 in the second
quarter of 1996. For the six months ended June 30, 1997, general and
administrative expenses increased 35.9% to $1,007,070 from $741,105 in the
comparable period of 1996. These increases reflect 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
9
<PAGE> 11
to support the Detaclad operations, increased sales activity and other
strategic business initiatives. Despite the increases experienced in general
and administrative expenses for the three and six month periods ended June 30,
1997, general and administrative expenses as a percentage of net sales
decreased from 6.9% in the second quarter of 1996 to 6.4% for the quarter ended
June 30, 1997 and from 6.3% to 5.7% for the comparable six month periods.
SELLING EXPENSE. Selling expenses increased by 66.5% to $524,591 for the
quarter ended June 30, 1997 from $315,014 in the second quarter of 1996. For
the six months ended June 30, 1997, selling expenses increased 73% to
$1,048,177 from $605,771 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 the
Company's plans to expand its domestic and international marketing activities.
Selling expenses as a percentage of net sales increased from 5.5% in the second
quarter of 1996 to 6.7% for the quarter ended June 30, 1997, and from 5.2% for
the six months ended June 30, 1996 to 5.9% for the comparable period of 1997,
as a result of these higher spending levels.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 17.4% to
$68,030 for the quarter ended June 30, 1997 from $82,322 in the second quarter
of 1996. For the six months ended June 30, 1997, research and development
expenses increased 1.9% to $171,292 from $168,139 in the comparable period of
1996. The decrease in the second quarter reflects increased engineering effort
during the second quarter in the Company's manufacturing activities versus new
product or process development programs.
INCOME FROM OPERATIONS. Income from operations increased by 97.1% to $778,868
for the quarter ended June 30, 1997 from $395,124 in the second quarter of
1996. This increase is a direct result of the 38% increase in net sales
combined with an improvement in the gross margin rate to 23.8% for the quarter
ended June 30, 1997 from 20.7% in the second quarter of 1996. For the six
months ended June 30, 1997, income from operations increased 120.5% to
$1,740,114 from $789,241 in the comparable period of 1996. This increase is a
direct result of the 50.9% increase in net sales combined with an improvement
in the gross margin rate to 22.5% for the six months ended June 30, 1997 from
19.7% for the comparable period of 1996. These improved gross margin rates are
principally a result of favorable changes in product mix. Income from
operations as a percentage of net sales increased to 9.9% for the both the
quarter and six months ended June 30, 1997 as compared to 6.9% and 6.7%,
respectively, for the comparable periods of 1996.
INTEREST EXPENSE. Interest expense increased to $24,921 for the quarter ended
June 30, 1997 from $5,316 in the second quarter of 1996. For the six months
ended June 30, 1997, interest expense increased to $90,285 from $13,832 in the
comparable period of 1996. These increases are due to borrowings under the
Company's revolving line of credit with KeyBank of Colorado 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 second quarter of
1997 as the line of credit borrowings, which totaled $3,930,000 at December 31,
1996 and $1,500,000 at March 31, 1997, were paid down to zero.
10
<PAGE> 12
INCOME TAX PROVISION. The Company's income tax provision increased by 64.1% to
$242,857 for the quarter ended June 30, 1997 from $148,000 in the second
quarter of 1996. The income tax provision for the six months ended June 30,
1997 increased 81.7% to $537,857 from $296,000 for the comparable period of
1996. For both the quarter and six months ended June 30, 1997, the effective
tax rate was 32% as compared to 36.8% and 37%, 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 June 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 June 30, 1997, borrowing availability under the line of credit
was approximately $5,450,000.
During the six months ended June 30, 1997, the Company generated
$4,704,230 in cash flows from operating activities as compared to $2,236,243 for
the comparable period of 1996. The principal sources of cash flow from
operations for the six months ended June 30, 1997 were net income of $1,142,565,
a decrease in inventories of $3,158,852 and a decrease in accounts receivable of
$1,669,203. These sources of operating cash flow were offset by a $584,895
reduction in accounts payable and a $743,471 reduction in a bank overdraft. The
current ratio was 2.9 at June 30, 1997 as compared to 2.8 at December 31, 1996.
Investing activities in the six months ended June 30, 1997 used $156,925 of net
cash, including $170,614 to fund capital expenditures. Financing activities for
the six months ended June 30, 1997 used $3,685,553 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 $304,036 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 effect 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.
11
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders (the "Annual Meeting")
was held on May 23, 1997. At the Annual Meeting, the shareholders of the
Company (i) elected each of the persons listed below to serve as a director of
the Company until the 1998 Annual Meeting of Shareholders or until his
successor is elected, (ii) approved the amendment and restatement of the
Company's 1992 Incentive Stock Option Plan and 1994 Nonemployee Director Stock
Option Plan in the form of the 1997 Equity Incentive Plan and increased the
aggregate number of shares of Common Stock authorized for issuance under such
plan by 275,000 shares, (iii) did not approve the reincorporation of the
Company into the State of Delaware, and (iv) ratified the selection of Arthur
Andersen LLP as independent accountants of the Company for its fiscal year
ending December 31, 1997.
The Company had 2,675,958 shares of Common Stock outstanding as of
April 10, 1997, the record date for the Annual Meeting. At the Annual Meeting,
holders of a total of 2,314,516 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 Annual Meeting:
Proposal 1: Election of Directors
<TABLE>
<CAPTION>
Voting Shares Voting Shares Voting Shares
Director In Favor Against Withheld
-------- -------- ------- --------
<S> <C> <C>
Dean K. Allen 2,296,261 - 18,255
David E. Bartlett 2,296,261 - 18,255
Paul Lange 2,296,261 - 16,455
George Morgenthaler 2,296,261 - 16,455
</TABLE>
Proposal 2: Approval of 1997 Equity Incentive Plan
<TABLE>
<S> <C>
Votes in favor: 957,823
Votes against: 252,389
Abstentions: 4,122
Broker non-votes: 1,100,182
</TABLE>
12
<PAGE> 14
Proposal 3: Reincorporation of the Company into the State of Delaware
<TABLE>
<S> <C>
Votes in favor: 964,208
Votes against: 307,111
Abstentions: 5,715
Broker non-votes: 1,037,482
</TABLE>
Proposal 4: Ratification of Selection of Independent Accountants
<TABLE>
<S> <C>
Votes in favor: 2,290,131
Votes against: 11,834
Abstentions: 5,201
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) Exhibits
11. Statement regarding computation of per share earnings
27. Financial Data Schedule
(b.) None.
13
<PAGE> 15
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: August 11, 1997 /s/ Richard A. Santa
---------------------------------
Richard A. Santa, Vice President
of Finance and Chief Financial
Officer (Duly Authorized Officer
and Principal Financial and
Accounting Officer)
14
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
11 Statement re: Computation of Net Income Per Share
27 Financial Data Schedule
</TABLE>
15
<PAGE> 1
EXHIBIT 11
DYNAMIC MATERIALS CORPORATION
Statement Re: Computation of Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30,1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding ........................... 2,692,436 2,508,000 2,646,592 2,506,000
Common stock equivalents resulting from
the application of the treasury stock
method to the assumed exercise of
outstanding stock options ............. 163,513 187,703 231,551 198,061
------------ ------------ ------------ ------------
Total ........................ 2,855,949 2,695,703 2,878,143 2,704,061
============ ============ ============ ============
Net income ............................... $ 517,309 $ 253,705 $ 1,142,565 $ 504,000
============ ============ ============ ============
Net income per share ..................... $ 0.18 $ 0.09 $ 0.40 $ 0.19
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,071,402
<SECURITIES> 0
<RECEIVABLES> 4,727,636
<ALLOWANCES> 220,250
<INVENTORY> 1,669,976
<CURRENT-ASSETS> 7,820,741
<PP&E> 5,876,580
<DEPRECIATION> 2,702,928
<TOTAL-ASSETS> 12,482,468
<CURRENT-LIABILITIES> 2,657,253
<BONDS> 125,654
0
0
<COMMON> 135,527
<OTHER-SE> 9,536,834
<TOTAL-LIABILITY-AND-EQUITY> 12,482,468
<SALES> 17,659,541
<TOTAL-REVENUES> 17,659,541
<CGS> 13,692,888
<TOTAL-COSTS> 13,692,888
<OTHER-EXPENSES> 2,226,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,285
<INCOME-PRETAX> 1,680,422
<INCOME-TAX> 537,857
<INCOME-CONTINUING> 1,142,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,142,565
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
