SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MARCH 18,1998
DYNAMIC MATERIALS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-8328 84-0608431
(State or other jurisdiction (Commission (IRS Employee
of incorporation) File Number) Identification No.)
551 ASPEN RIDGE DRIVE, LAFAYETTE, CO 80026
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 665-5700
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Dynamic Materials Corporation (the "Company") filed a Form 8-K on April
2, 1998 reporting the acquisition of certain assets of Spin Forge, LLC ("Spin
Forge") on March 18, 1998. The financial statements required in connection with
that report were omitted pursuant to the provisions of Item 7 on Form 8-K, and
are being provided herewith.
(a) Financial Statements of business acquired.
Report of Independent Public Accountants
Balance Sheet as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Members' Equity for the Year Ended December 31, 1997
Statement of Cash Flows for the Year Ended December 31, 1997
Notes to Financial Statements
(b) Pro forma financial information.
Unaudited Pro Forma Condensed Statement of Operations for the Three
Months Ended March 31, 1998
Unaudited Pro Forma Condensed Statement of Operations for the Year
Ended December 31, 1997
(c) Exhibits.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DYNAMIC MATERIALS CORPORATION
(Registrant)
Date May 29, 1998 By: /s/ Richard A. Santa
------------------------------------------
Name: Richard A. Santa
Title: Vice President, Finance, Chief
Financial Officer and Secretary
<PAGE>
SPIN FORGE, LLC
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-1
Balance Sheet as of December 31, 1997 F-2
Statement of Operations for the Year Ended
December 31, 1997 F-3
Statement of Members' Equity for the Year Ended
December 31, 1997 F-4
Statement of Cash Flows for the Year Ended
December 31, 1997 F-5
Notes to Financial Statements F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Dynamic Materials Corporation:
We have audited the accompanying balance sheet of SPIN FORGE, LLC (a California
limited liability company) as of December 31, 1997 and the related statements of
operations, members' equity and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 Spin Forge, LLC as of December
31, 1997 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado,
April 21, 1998.
F-1
<PAGE>
SPIN FORGE, LLC
BALANCE SHEET
AS OF DECEMBER 31, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 77,170
Accounts receivable 1,364,566
Inventories (Note 2) 910,224
Prepaid expenses and other 17,550
Related party receivables (Note 4) 14,245
-----------
Total current assets 2,383,755
-----------
PROPERTY, PLANT AND EQUIPMENT (Note 2) 3,161,339
Less - Accumulated depreciation (143,643)
-----------
Property, plant and equipment - net 3,017,696
-----------
OTHER ASSETS, net 17,699
-----------
$ 5,419,150
===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 663,729
Accrued expenses 302,581
Current maturities of long-term debt (Note 3) 1,495,314
-----------
Total current liabilities 2,461,624
LONG-TERM DEBT (Note 3) 2,704,013
-----------
Total liabilities 5,165,637
-----------
COMMITMENTS AND CONTINGENCIES (Note 5)
MEMBERS' EQUITY 253,513
-----------
$ 5,419,150
===========
The accompanying notes to financial statements are an
integral part of this balance sheet.
F-2
<PAGE>
SPIN FORGE, LLC
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
NET SALES (Note 6) $ 6,511,524
COST OF PRODUCTS SOLD 5,239,181
-----------
Gross profit 1,272,343
-----------
EXPENSES:
General and administrative expenses 399,144
Selling expenses 250,347
-----------
Total expenses 649,491
-----------
INCOME FROM OPERATIONS 622,852
OTHER INCOME (EXPENSE):
Other income 4,820
Interest expense (364,741)
-----------
NET INCOME $ 262,931
===========
The accompanying notes to financial statements are an
integral part of this statement.
F-3
<PAGE>
SPIN FORGE, LLC
STATEMENT OF MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
Members'
Equity
---------
BALANCES, December 31, 1996 $ (9,418)
Net income 262,931
---------
BALANCES, December 31, 1997 $ 253,513
=========
The accompanying notes to financial statements are an
integral part of this statement.
F-4
<PAGE>
SPIN FORGE, LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 262,931
Adjustments to reconcile net income
to net cash from operating activities-
Depreciation 135,503
Change in-
Accounts receivable (837,918)
Inventories 510,454
Prepaid expenses and other (17,272)
Accounts payable 376,100
Accrued expenses 232,447
---------
Net cash flows from operating activities 662,245
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (702,742)
Change in other noncurrent assets, net 11,484
---------
Net cash flows from investing activities (691,258)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (176,418)
Borrowings on long-term debt 260,666
---------
Net cash flows from financing activities 84,248
NET INCREASE IN CASH AND CASH EQUIVALENTS 55,235
CASH AND CASH EQUIVALENTS, beginning of the period 21,935
---------
CASH AND CASH EQUIVALENTS, end of the period $ 77,170
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 372,276
=========
The accompanying notes to financial statements are an
integral part of this statement.
F-5
<PAGE>
SPIN FORGE, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND BUSINESS
Spin Forge, LLC (the "Company") was organized in the State of California in late
1996. The Company was formed in order to acquire the assets of Spin Forge
International, Inc. ("SFI"). SFI and the predecessor owners/operators of the
manufacturing facility had been operating the manufacturing facility for over 25
years. The Company purchased substantially all of the assets of SFI in December
1996.
The Company manufactures tactical missile motor cases which are supplied to
certain defense contractors. In addition, the Company manufactures titanium
pressurant vessels used in the commercial aerospace industry.
Subsequent to December 31, 1997, the Company sold substantially all of its
assets (excluding land, buildings and accounts receivable), to Dynamic Materials
Corporation ("DMC") (Note 7).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 of assets 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.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Cost elements included in inventory are material, labor, subcontract costs and
manufacturing overhead. Manufacturing overhead included in inventory at December
31, 1997 totaled approximately $477,000. Substantially all of the December 31,
1997 inventory balance was work in process.
F-6
<PAGE>
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:
Manufacturing equipment and tooling 15 years
Furniture, fixtures and computer equipment 5-15 years
Property, plant and equipment consists of the following at December 31, 1997:
Land $ 817,075
Manufacturing equipment and tooling 2,272,244
Furniture, fixtures, computer equipment and other 72,020
-----------
$ 3,161,339
===========
REVENUE RECOGNITION
The Company's contracts with its customers generally require the production and
delivery of multiple units or products. The Company measures progress to
completion and records revenue from its contracts as units are produced and
shipped 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.
INCOME TAXES
The Company is a flow-through entity for federal and state income tax purposes.
Accordingly, its taxable income or loss is reported by the members on their
individual tax returns.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
F-7
<PAGE>
(3) LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1997:
Note payable secured by Company real estate $2,597,925
Purchase money note payable secured by Company
inventory and proceeds from such inventory 1,054,079
Term Loan Facility secured by selected Company
machinery and equipment 222,967
Capital Expenditure Line secured by selected Company
machinery and equipment 149,356
Unsecured note payable due in three installments of
$25,000 plus interest at 10% during 1998, final
payment of $100,000, plus interest, on December 31, 1998 175,000
----------
Total debt 4,199,327
Less- current maturities 1,495,314
----------
Long-term debt $2,704,013
==========
NOTE PAYABLE SECURED BY REAL ESTATE
Under the terms of the Company's asset acquisition agreement (Note 1), the
Company assumed an existing loan from the previous owner in the amount of
$2,600,000. The loan is payable in monthly installments of $17,500 through 1998,
$22,500 through 1999 and $25,000 through the remaining term including interest
at 8%. A final payment of $2,320,243 plus any unpaid interest and fees is due at
maturity on January 1, 2002.
PURCHASE MONEY NOTE PAYABLE SECURED BY INVENTORY
The Company also executed a purchase money note payable to SFI secured by
inventory (and all proceeds related to such inventory) purchased from SFI in
December 1996. Interest at 9.5% is payable monthly and principal payments of
$10,000 are to be made in April, July and October of 1998. All outstanding
principal and unpaid interest is due at maturity on December 11, 1998. In
connection with the sale of certain Company assets to DMC (Note 7), this note
was repaid in its entirety as of the closing date.
F-8
<PAGE>
TERM LOAN FACILITY
The Company had a $1,100,000 Term Loan Facility which had outstanding borrowings
of $222,967 as of December 31, 1997. Each borrowing under the Term Loan Facility
shall be in a minimum principal amount of $50,000 and is secured by various
machinery, equipment and other assets. The loan bears interest at a rate of 3.5%
above the Norwest Bank Minneapolis, NA prime rate plus a service charge of 0.3%
of the average daily outstanding balance per month. Monthly repayments include
interest, service charges and principal amounts equal to one-sixtieth (1/60) of
the original principal amount of that particular loan. The facility expires on
December 15, 1998 at which time the outstanding balance plus any accrued and
unpaid interest is payable in full. In connection with the sale of certain
Company assets to DMC (Note 7), the Term Loan Facility was repaid in its
entirety as of the closing date.
CAPITAL EXPENDITURE LINE
During fiscal year 1997, the Company amended the Term Loan Facility described
above to provide for an additional $200,000 credit facility for capital
expenditures. Each borrowing under the Capital Expenditure Line shall be in
minimum principal amounts of $25,000. Each borrowing shall not exceed 75% of the
cost of the equipment to be purchased. The loan bears interest at 3% above the
Norwest Bank Minneapolis, NA prime rate plus a service charge of 0.3% of the
average daily outstanding balance per month. Monthly repayments include
interest, service charges and principal amounts equal to one-forty-eighth (1/48)
of the original principal amount of that particular loan. The loan expires on
April 1, 2001 at which time the outstanding balance plus any accrued and unpaid
interest is payable in full. In connection with the sale of certain Company
assets to DMC (Note 7), this loan was repaid in its entirety as of the closing
date.
Scheduled principal repayments of long-term debt at December 31, 1997, are
summarized as follows:
Year ending December 31-
1998 $1,495,314
1999 105,704
2000 142,798
2001 135,867
2002 2,319,644
----------
Total $4,199,327
==========
As described in Note 7, all outstanding current and long-term debt of the
Company, except for the note payable secured by real estate and the unsecured
note payable with outstanding principal balances of $2,597,925 and $175,000,
respectively, at December 31, 1997, was paid off on March 18, 1998 in connection
with the DMC transaction.
F-9
<PAGE>
(4) RELATED PARTY RECEIVABLES
The related party receivables are a result of loans made by the Company to
employees during 1997. The total employee receivables balance at December 31,
1997 was $14,245. Definitive terms of the loans have not been established,
however, these non-interest bearing loans have been included as a current asset
in the accompanying balance sheet.
(5) COMMITMENTS AND CONTINGENCIES
The Company leases certain vehicles and other equipment under various operating
lease agreements. Future minimum rental commitments under noncancelable
operating leases are as follows:
Year ending December 31-
1998 $14,029
1999 5,856
2000 2,273
-------
$22,158
=======
Total rental expense included in operations was approximately $12,630 for the
year ended December 31, 1997.
The Company is aware that certain state tax deficiencies have been assessed
against prior owners of the business operated by Spin Forge, LLC, however,
Company management believes it has no liability with respect to such
deficiencies. In addition, 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 or results of
operations of the Company.
(6) SIGNIFICANT CUSTOMERS
During the year ended December 31, 1997, three customers accounted for
approximately 52%, 18% and 12% of net sales, respectively. Due to the fact that
a significant portion of the Company's sales are derived from a relatively small
number of customers, the failure to perform existing contracts on a timely
basis, 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
operating activities.
(7) SUBSEQUENT EVENTS
On May 14, 1997, the Company entered into an agreement to purchase the land
adjacent to its existing manufacturing facility from Southern California Edison
Company (the "Seller") for $280,000. On February 26, 1998, the transaction
closed and the Company purchased the land with cash. The land had previously
been leased from the Seller for use as the employee and customer parking lot.
On March 18, 1998, the Company closed on the sale of certain of its assets to
DMC of Lafayette, Colorado. DMC, a publicly held company, is involved in the
high energy metal working business. The high energy metal working business
includes the use of explosives to perform both metallurgical
F-10
<PAGE>
bonding, or metal "cladding," and metal forming. The assets sold to DMC were
used by the Company to manufacture metal formed products, including tactical
missile motor cases and titanium pressure vessels for the commercial aerospace
and defense industries. The assets sold consisted principally of inventories,
machinery, equipment (including computer equipment), and certain trade names
used by the Company. The Company has also leased its manufacturing facilities to
DMC. In addition, the Company retained all of its trade accounts receivable and
DMC assumed all trade obligations of the Company in connection with this
transaction.
The purchase price of approximately $3,866,000 was paid by approximately
$2,357,000 in cash, the assumption of certain liabilities in the amount of
approximately $1,059,000 and the delivery of 50,000 shares of DMC's Common Stock
valued at $9.00 per share. The purchase price is subject to post-closing
adjustments. The amount of the post-closing adjustments (to be determined within
60 days of closing) is not anticipated to be material. In addition, DMC paid
$10,000 at the closing for an option to purchase the Company's real property at
which the operations of the Company were conducted for a purchase price of
$2,880,000 (subject to certain adjustments), which option may be exercised under
certain conditions until January 2002, subject to DMC's right to extend the
option under certain conditions.
F-11
<PAGE>
DYNAMIC MATERIALS CORPORATION
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
On March 18, 1998 Spin Forge, LLC ("Spin Forge") entered into an agreement to
sell Dynamic Materials Corporation ("DMC" or the "Company") certain of its
assets for approximately $3,866,000. The purchase price was paid by
approximately $2,357,000 in cash (drawn under the Company's bank line of credit
facility), the assumption of approximately $1,059,000 of liabilities and the
delivery of 50,000 shares of DMC's stock valued at $9.00 per share. In addition,
approximately $120,000 of transaction related costs were also incurred.
The Unaudited Pro Forma Condensed Statements of Operations is presented for the
quarter ended March 31, 1998 and for the year ended December 31, 1997, and
illustrates the effects of the acquisition of certain Spin Forge assets and the
related financing as if they had occurred on January 1, 1997. Pro forma balance
sheet information is not presented as the Company has filed its Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, which included the effect of
the Spin Forge acquisition and related purchase accounting entries.
The Unaudited Pro Forma Condensed Statements of Operations should be read in
conjunction with the historical financial statements of DMC included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997,
DMC's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and the
historical financial statements of Spin Forge included elsewhere herein. The pro
forma adjustments are based on preliminary information about Spin Forge's assets
acquired and results of operations. Final purchase price allocations will be
based on a more complete evaluation and may differ from those shown herein.
However, management of DMC believes that the assumptions utilized provide a
reasonable basis for presenting the significant effects of the acquisition and
the related financing and that the pro forma adjustments give appropriate effect
to those assumptions and are properly applied in the accompanying pro forma
financial information. The Unaudited Pro Forma Condensed Statements of
Operations may not be indicative of DMC's actual operating results had the
transactions occurred as of the dates indicated above, nor do they purport to
indicate operating results which may be attained in the future.
<PAGE>
DYNAMIC MATERIALS CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Dynamic Pro Forma Pro Forma
Materials Spin Forge(9) Adjustments Results
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
NET SALES $ 9,495,154 $ 1,261,285 $ - $ 10,756,439
COST OF PRODUCTS SOLD 7,498,794 959,234 52,500 2 8,526,363
(39,995) 6
55,830 7
--------
Gross profit 1,996,360 302,051 (68,335) 2,230,076
EXPENSES:
General and administrative 608,337 86,197 1,250 8 695,784
Selling expense 522,501 44,934 - 567,435
Research and development costs 16,486 - - 16,486
----------- ----------- -------- ------------
1,147,324 131,131 1,250 1,279,705
INCOME FROM OPERATIONS 849,036 170,920 (69,585) 950,371
Other income - 2,368 - 2,368
Interest expense (29,350) (81,476) 81,476 3 (74,350)
(45,000) 4
Interest income 1,289 - - 1,289
----------- ----------- -------- ------------
Income before income tax
provision 820,975 91,812 (33,109) 879,678
INCOME TAX PROVISION
(312,000) - (23,481) 5 (335,481)
----------- ----------- -------- ------------
NET INCOME $ 508,975 $ 91,812 $(56,590) $ 544,197
=========== =========== ======== ============
EARNINGS PER SHARE - BASIC $ 0.19 $ 0.20
EARNINGS PER SHARE - DILUTED $ 0.18 $ 0.19
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 2,735,324 50,000 1 2,785,324
DILUTED 2,869,547 50,000 1 2,919,547
See the accompanying Notes to Unaudited Pro Forma Condensed Statements of Operations
</TABLE>
<PAGE>
DYNAMIC MATERIALS CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Dynamic Pro Forma Pro Forma
Materials Spin Forge Adjustments Results
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
NET SALES $32,119,585 $ 6,511,524 $ - $ 38,631,109
COST OF PRODUCTS SOLD 24,293,440 5,239,181 210,000 2 29,830,438
----------- ----------- (135,503) 6 ------------
223,320 7
--------
Gross profit 7,826,145 1,272,343 (297,817) 8,800,671
EXPENSES:
General and administrative 2,161,888 399,144 5,000 8 2,566,032
Selling expense 1,946,758 250,347 - 2,197,105
Research and development costs 427,173 - - 427,173
----------- ----------- -------- ------------
4,535,819 649,491 5,000 5,190,310
----------- ----------- -------- ------------
INCOME FROM OPERATIONS 3,290,326 622,852 (302,817) 3,610,361
Other income 17,177 4,820 - 21,997
Interest expense (117,372) (364,741) 364,741 3 (297,372)
(180,000) 4
38,782 - - 38,782
----------- ----------- -------- ------------
Income before income tax
provision 3,228,913 262,931 (118,076) 3,373,768
INCOME TAX PROVISION (1,221,000) - (57,942) 5 (1,278,942)
----------- ----------- -------- ------------
NET INCOME $ 2,007,913 $ 262,931 $(176,018) $ 2,094,821
=========== =========== ========= ============
EARNINGS PER SHARE - BASIC $ 0.75 $ 0.77
EARNINGS PER SHARE - DILUTED $ 0.70 $ 0.72
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 2,681,943 50,000 1 2,731,943
DILUTED 2,875,703 50,000 1 2,925,703
See the accompanying Notes to Unaudited Pro Forma Condensed Statements of Operations
</TABLE>
<PAGE>
DYNAMIC MATERIALS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED
STATEMENTS OF OPERATIONS
1. Represents the issuance of 50,000 shares of DMC stock (valued at $9.00 per
share) to Spin Forge as part of the consideration paid in connection with
the asset purchase.
2. Represents estimated annual rent expense that DMC is obligated to pay to
Spin Forge in connection with the lease of real property on which DMC holds
a purchase option.
3. Represents the elimination of historical Spin Forge interest expense.
4. Represents the pro forma interest expense at current rates that was
relating to DMC's revolving credit borrowings used to finance a portion of
the purchase price.
5. Represents income tax on the pro forma adjustments and the historical
pretax income of Spin Forge based on an estimated combined effective
federal and state income tax rate of 40%.
6. Represents the elimination of historical Spin Forge depreciation expense.
7. Represents the pro forma depreciation expense as a result of the DMC
acquisition transaction. The portion of the purchase price not allocated to
inventory was allocated to machinery and equipment which DMC intends to
amortize over 5 to 15 years.
8. Represents the net increase in officer salaries resulting from the asset
purchase transaction.
9. Represents Spin Forge historical financial results from January 1, 1998
through March 18, 1998 (date of acquisition).
