2017 Q4 Form 10-Q Financial Statement

#000003406717000049 Filed on October 26, 2017

View on sec.gov

Income Statement

Concept 2017 Q4 2017 Q3 2016 Q3
Revenue $54.49M $52.16M $36.55M
YoY Change 35.64% 42.7% -7.48%
Cost Of Revenue $36.60M $35.00M $28.10M
YoY Change 21.19% 24.57% -3.84%
Gross Profit $17.85M $17.16M $8.457M
YoY Change 79.71% 102.93% -17.81%
Gross Profit Margin 32.75% 32.9% 23.14%
Selling, General & Admin $12.50M $10.98M $9.517M
YoY Change 14.68% 15.38% -4.24%
% of Gross Profit 70.05% 63.98% 112.53%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $2.510M $2.680M $2.770M
YoY Change -8.06% -3.25% 8.2%
% of Gross Profit 14.07% 15.62% 32.75%
Operating Expenses $13.60M $29.61M $10.90M
YoY Change 14.29% 171.69% -2.95%
Operating Profit $4.245M -$12.45M -$2.442M
YoY Change -315.48% 409.79% 159.51%
Interest Expense -$400.0K $367.0K $265.0K
YoY Change 100.0% 38.49% 3.92%
% of Operating Profit -9.42%
Other Income/Expense, Net -$400.0K -$436.0K -$157.0K
YoY Change -180.0% 177.71% -89.27%
Pretax Income -$300.0K -$13.25M -$2.864M
YoY Change -82.35% 362.71% 7.71%
Income Tax $700.0K $812.0K $272.0K
% Of Pretax Income
Net Earnings -$1.958M -$14.06M -$3.136M
YoY Change -10.59% 348.47% -25.92%
Net Earnings / Revenue -3.59% -26.96% -8.58%
Basic Earnings Per Share -$0.13 -$0.98 -$0.22
Diluted Earnings Per Share -$0.13 -$0.98 -$0.22
COMMON SHARES
Basic Shares Outstanding 14.77M shares 14.37M shares 14.20M shares
Diluted Shares Outstanding 14.37M shares 14.20M shares

Balance Sheet

Concept 2017 Q4 2017 Q3 2016 Q3
SHORT-TERM ASSETS
Cash & Short-Term Investments $9.000M $8.900M $7.500M
YoY Change 40.63% 18.67% -12.79%
Cash & Equivalents $8.983M $8.861M $7.451M
Short-Term Investments
Other Short-Term Assets $5.800M $5.300M $6.600M
YoY Change 13.73% -19.7% -46.34%
Inventory $35.74M $31.49M $32.87M
Prepaid Expenses
Receivables $49.47M $45.44M $25.97M
Other Receivables $0.00 $0.00 $0.00
Total Short-Term Assets $99.96M $91.09M $72.88M
YoY Change 36.26% 24.97% -24.58%
LONG-TERM ASSETS
Property, Plant & Equipment $59.87M $59.59M $59.01M
YoY Change 4.79% 0.98% -2.28%
Goodwill $0.00 $0.00 $17.42M
YoY Change -100.0% -100.0% -41.47%
Intangibles
YoY Change
Long-Term Investments
YoY Change
Other Assets $296.0K $215.0K $107.0K
YoY Change 112.95% 100.93% -90.73%
Total Long-Term Assets $73.13M $73.78M $94.05M
YoY Change -18.02% -21.55% -16.98%
TOTAL ASSETS
Total Short-Term Assets $99.96M $91.09M $72.88M
Total Long-Term Assets $73.13M $73.78M $94.05M
Total Assets $173.1M $164.9M $166.9M
YoY Change 6.48% -1.24% -20.48%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $19.83M $15.79M $11.79M
YoY Change 49.52% 34.02% 14.01%
Accrued Expenses $6.884M $4.188M $5.336M
YoY Change 64.97% -21.51% 26.48%
Deferred Revenue $5.888M
YoY Change
Short-Term Debt $0.00 $0.00 $0.00
YoY Change
Long-Term Debt Due $0.00
YoY Change
Total Short-Term Liabilities $45.63M $33.03M $29.96M
YoY Change 48.39% 10.23% 20.8%
LONG-TERM LIABILITIES
Long-Term Debt $17.98M $22.00M $14.70M
YoY Change 14.55% 49.66% -59.17%
Other Long-Term Liabilities $3.119M $2.534M $2.036M
YoY Change 40.56% 24.46% 1.55%
Total Long-Term Liabilities $21.10M $2.534M $2.036M
YoY Change 851.01% 24.46% 1.55%
TOTAL LIABILITIES
Total Short-Term Liabilities $45.63M $33.03M $29.96M
Total Long-Term Liabilities $21.10M $2.534M $2.036M
Total Liabilities $67.30M $58.56M $48.26M
YoY Change 34.21% 21.36% -32.67%
SHAREHOLDERS EQUITY
Retained Earnings $60.07M $62.33M $82.59M
YoY Change -25.01% -24.53% -20.66%
Common Stock $741.0K $740.0K $724.0K
YoY Change 2.21% 2.21% 1.97%
Preferred Stock
YoY Change
Treasury Stock (at cost) $362.0K $361.0K $25.00K
YoY Change 1348.0% 1344.0%
Treasury Stock Shares 39.78K shares 39.78K shares 2.378K shares
Shareholders Equity $105.8M $106.3M $118.7M
YoY Change
Total Liabilities & Shareholders Equity $173.1M $164.9M $166.9M
YoY Change 6.48% -1.24% -20.48%

Cashflow Statement

Concept 2017 Q4 2017 Q3 2016 Q3
OPERATING ACTIVITIES
Net Income -$1.958M -$14.06M -$3.136M
YoY Change -10.59% 348.47% -25.92%
Depreciation, Depletion And Amortization $2.510M $2.680M $2.770M
YoY Change -8.06% -3.25% 8.2%
Cash From Operating Activities $6.230M $3.650M $9.400M
YoY Change 1630.56% -61.17% -656.21%
INVESTING ACTIVITIES
Capital Expenditures -$2.890M -$1.130M -$2.840M
YoY Change 75.15% -60.21% 21.37%
Acquisitions
YoY Change
Other Investing Activities $0.00 $0.00 -$10.00K
YoY Change -100.0% -100.0% -106.67%
Cash From Investing Activities -$2.880M -$1.130M -$2.850M
YoY Change 70.41% -60.35% 30.14%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities -4.160M -2.370M -8.560M
YoY Change -595.24% -72.31% -621.95%
NET CHANGE
Cash From Operating Activities 6.230M 3.650M 9.400M
Cash From Investing Activities -2.880M -1.130M -2.850M
Cash From Financing Activities -4.160M -2.370M -8.560M
Net Change In Cash -810.0K 150.0K -2.010M
YoY Change 65.31% -107.46% -10.27%
FREE CASH FLOW
Cash From Operating Activities $6.230M $3.650M $9.400M
Capital Expenditures -$2.890M -$1.130M -$2.840M
Free Cash Flow $9.120M $4.780M $12.24M
YoY Change 353.73% -60.95% 1783.08%

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<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">COMMITMENTS AND CONTINGENCIES</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-decoration:underline;">Contingent Liabilities</font></div><div style="line-height:120%;text-align:justify;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company records an accrual for contingent liabilities when a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. When no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued. </font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Anti-dumping and Countervailing Duties </font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In June 2015, U.S. Customs and Border Protection (&#8220;U.S. Customs&#8221;) sent us a Notice of Action that proposed to classify certain of our imports as subject to anti-dumping duties pursuant to a 2010 anti-dumping duty (&#8220;AD&#8221;) order on Oil Country Tubular Goods (&#8220;OCTG&#8221;) from China. A companion countervailing duty (&#8220;CVD&#8221;) order on the same product is in effect as well. The Notice of Action covered one entry of certain raw material steel mechanical tubing made in China and imported into the U.S. from Canada by our DynaEnergetics segment during 2015 for use in manufacturing perforating guns. </font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In July 2015, we sent a response to U.S. Customs outlining the reasons our mechanical tubing imports do not fall within the scope of the AD order on OCTG from China and should not be subject to anti-dumping duties. U.S. Customs proposed to take similar action with respect to other entries of this product and requested an approximately </font><font style="font-family:inherit;font-size:10pt;">$1,100</font><font style="font-family:inherit;font-size:10pt;"> cash deposit or bond for AD/CVD duties. </font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In August 2015, we posted the bond of approximately </font><font style="font-family:inherit;font-size:10pt;">$1,100</font><font style="font-family:inherit;font-size:10pt;"> to U.S. Customs. Subsequently, U.S. Customs declined to conclude on the Company's assertion that the mechanical tubing the Company has been importing is not within the scope of the AD order on OCTG from China. As a result, on September 25, 2015 the Company filed a request for a scope ruling with the U.S. Department of Commerce ("Commerce Department"). </font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On February 15, 2016, the Company received the Commerce Department&#8217;s scope ruling, which determined certain imports, primarily used for gun carrier tubing, are included in the scope of the AD/CVD orders on OCTG from China and thus are subject to AD/CVD duties.</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On March 11, 2016, the Company filed an appeal with the U.S. Court of International Trade (&#8220;CIT&#8221;) related to the Commerce Department&#8217;s scope ruling. On February 7, 2017, the CIT remanded the scope ruling to the Commerce Department to reconsider its determination. The Commerce Department filed its remand determination with the CIT on June 7, 2017 continuing to find that the Company's imports at issue are within the scope of the AD/CVD orders on OCTG from China. This determination is subject to the CIT's review in the ongoing appeal, which is continuing.</font></div><div style="line-height:120%;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On December 27, 2016, we received notice from U.S. Customs that it may pursue penalties against us related to the AD/CVD issue and demanding tender of alleged loss of AD/CVD duties in an amount of </font><font style="font-family:inherit;font-size:10pt;">$3,049</font><font style="font-family:inherit;font-size:10pt;">, which was covered by our reserve. We filed a response to the notice on February 6, 2017 asserting our position that any decision to pursue penalties would be premature in light of the Remand Order and that penalties would not be appropriate under the applicable legal standards. On February 16, 2017, we received notice that U.S. Customs was seeking penalties in the amount of </font><font style="font-family:inherit;font-size:10pt;">$14,783</font><font style="font-family:inherit;font-size:10pt;">. U.S. Customs also reasserted its demand for tender of alleged loss of AD/CVD duties in the amount of </font><font style="font-family:inherit;font-size:10pt;">$3,049</font><font style="font-family:inherit;font-size:10pt;">. We tendered </font><font style="font-family:inherit;font-size:10pt;">$3,049</font><font style="font-family:inherit;font-size:10pt;"> in AD amounts (&#8220;Tendered Amounts&#8221;) on March 6, 2017 into a suspense account pending ultimate resolution of the AD/CVD case. We believe that this penalty assessment is premature and patently unreasonable in the face of the ongoing CIT appeal and that penalties are not appropriate under applicable legal standards. Further, even if penalties are found to be justified, we believe the amount of penalties asserted by U.S. Customs is unreasonable and subject to challenge on various grounds. We submitted a petition for relief and mitigation of penalties on May 17, 2017 asserting these and other points and seeking a stay of the penalty proceedings pending ultimate resolution of the CIT appeal and any further appeals. We are awaiting a response from U.S. Customs and U.S. Customs Headquarters on this petition. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;padding-bottom:16px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">For the </font><font style="font-family:inherit;font-size:10pt;">nine months ended</font><font style="font-family:inherit;font-size:10pt;"> </font><font style="font-family:inherit;font-size:10pt;">September&#160;30, 2017</font><font style="font-family:inherit;font-size:10pt;">, the Company recorded </font><font style="font-family:inherit;font-size:10pt;">$84</font><font style="font-family:inherit;font-size:10pt;"> of interest on its reserve for AD/CVD duties, bringing the total reserved amount related to AD/CVD duties as of </font><font style="font-family:inherit;font-size:10pt;">September&#160;30, 2017</font><font style="font-family:inherit;font-size:10pt;"> to </font><font style="font-family:inherit;font-size:10pt;">$3,585</font><font style="font-family:inherit;font-size:10pt;">. The Tendered Amounts were applied to reduce the reserve. The Company will continue to incur legal defense costs and could also be subject to additional interest and penalties. Accruals for the potential penalties discussed above are not reflected in our financial statements as of </font><font style="font-family:inherit;font-size:10pt;">September&#160;30, 2017</font><font style="font-family:inherit;font-size:10pt;"> as we do not believe they are probable at this time.</font></div><div style="line-height:120%;text-align:left;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Patent and Trademark Infringement </font></div><div style="line-height:120%;text-align:left;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On September 22, 2015,&#160;GEODynamics, Inc., a US-based oil and gas perforating equipment manufacturer based in Fort Worth, TX,&#160;filed a patent and trademark infringement action against DynaEnergetics US, Inc., (&#8220;DynaEnergetics&#8221;), a wholly owned subsidiary of DMC, in the United States District Court for the Eastern District of Texas (&#8220;District Court&#8221;) regarding alleged infringement of US Patent No. 9,080,431 granted on July 14, 2015 (the &#8220;431 patent&#8221;) and a related US trademark for REACTIVE, alleging that DynaEnergetics&#8217; US sales of DPEX</font><font style="font-family:inherit;font-size:10pt;"><sup style="vertical-align:top;line-height:120%;font-size:7pt">TM</sup></font><font style="font-family:inherit;font-size:10pt;"> shaped charges infringe the &#8216;431 patent and the trademark. The 431 case went to trial in late March 2017, and on March 30, 2017, the jury found in favor of DynaEnergetics on all counts. A bench trial on related matters, including the trademark infringement action occurred on April 20, 2017, and the Court ordered cancellation of GEODynamics' REACTIVE trademark.</font></div><div style="line-height:120%;text-align:left;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On July 1, 2016, GEODynamics filed a second patent infringement action against DynaEnergetics in District Court alleging infringement of US Patent No. 8,544,563 (the &#8220;563 patent&#8221;), also based on DynaEnergetics&#8217; US sales of DPEX shaped charges. DynaEnergetics denies validity and infringement of the 563 patent and plans to vigorously defend against this lawsuit. On September 20, 2016, DynaEnergetics filed an Inter Parties Review (IPR) against the 563 patent at the U.S. Patent Trial and Appeal Board (&#8220;PTAB&#8221;), requesting invalidation of the 563 patent. On March 17, 2017, DynaEnergetics' IPR request was instituted by the PTAB, and a decision is expected in early 2018. Trial on the 563 patent has been stayed pending resolution of the IPR.</font></div><div style="line-height:120%;text-align:left;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On April 28, 2017, GEODynamics filed a third patent infringement action against DynaEnergetics in District Court alleging infringement of U.S. Patent No. 8,220,394 (the &#8220;394 patent&#8221;), based on DynaEnergetics' sales of its DPEX and HaloFrac&#174; shaped charges. DynaEnergetics denies validity and infringement of the 394 patent and plans to vigorously defend against this lawsuit. On June 9, 2017, DynaEnergetics filed a motion to dismiss for improper venue, or in the alternative to change venue, and the District Court&#8217;s decision is pending. On August 28, 2017, DynaEnergetics filed an IPR against the 394 patent at the PTAB, requesting invalidation of the 394 patent.</font></div><div style="line-height:120%;text-align:left;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On August 21, 2017, GEODynamics filed a patent infringement action against DynaEnergetics GmbH &amp; Co. KG and DynaEnergetics Beteiligungs GmbH, both wholly owned subsidiaries of DMC (collectively, &#8220;DynaEnergetics EU&#8221;), in the Regional Court of D&#252;sseldorf, Germany, alleging infringement of European patent EP 1 671 013 B1 granted on June 29, 2011, a patent related to the 394 patent (the &#8220;EP 013 patent&#8221;), based on the manufacturing, sale and marketing of DPEX shaped charges in Germany. DynaEnergetics EU denies validity and infringement of the EP 013 patent and plans to vigorously defend against this lawsuit. </font></div><div style="line-height:174%;text-align:left;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">We do not believe that the 563 patent, the 394 patent, the EP 013 patent or infringement claims based on the patents are valid, and we do not believe it is probable that we will incur a material loss on the 563 matter, the 394 matter or the EP 013 matter. However, if it is determined that the patents are valid and that DynaEnergetics or DynaEnergetics EU, as applicable, has infringed them, it is reasonably possible that our financial statements could be materially affected. We are not able to provide a reasonable estimate of the range of loss, and we have not accrued for any such losses. Such an evaluation includes, among other things, a determination of the total number of infringing sales in the United States or infringing products manufactured in Germany, as applicable, what a reasonable royalty, if any, might be under the circumstances; or, alternatively, the scope of damages and the relevant period for which damages would apply, if any.</font></div></div>

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