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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003

( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the transition period from to

Commission file number 0-8328

-------------------------
DYNAMIC MATERIALS CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware 84-0608431
(State or Incorporation or Organization) (I.R.S. Employer Identification No.)

5405 Spine Road, Boulder, Colorado 80301
(Address of principal executive offices, including zip code)

(303) 665-5700
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.05 Par Value

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this form, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 under the Act). Yes No X
--- ---

The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant was $4,987,373 as of June 30, 2003.

The number of shares of Common Stock outstanding was 5,089,634 as of March
12, 2004.

Certain information required by Items 10, 11, 12, 13 and 14 of Form 10-K is
incorporated by reference into Part III hereof from the registrant's proxy
statement for its 2004 Annual Meeting of Shareholders, which is expected to be
filed with the Securities and Exchange Commission ("SEC") within 120 days of the
close of the registrant's fiscal year ended December 31, 2003.




PART I

ITEM 1. Business

Overview

Dynamic Materials Corporation ("DMC" or the "Company") is a worldwide
leader in the high energy metal working business. The high energy metal working
business includes the use of explosives to perform metallurgical bonding, or
metal "cladding". The Company performs metal cladding using its proprietary
technologies. In 1998, the Company established its Aerospace Group after
acquiring three businesses that provided a variety of metalworking, fabrication,
welding and assembly services to the aerospace industry.

Explosive Metalworking. The primary product of the Explosive Metalworking
Group is explosion bonded clad metal plate. Clad metal plates are used in the
construction of heavy, corrosion resistant pressure vessels and heat exchangers
for chemical processing, refining, power and similar industries. Clad plates
consist of a thin layer of an expensive, corrosion resistant metal, such as
titanium or stainless steel, which is metallurgically bonded to a less
expensive, less corrosion resistant, thick base metal, typically carbon steel.
Explosion clad occupies a well-defined technical and commercial niche in the
broader clad metal marketplace. Explosion clad is a high performance, low cost
alternative for many applications requiring corrosion resistant alloys.
Explosive metalworking can also be used for precision metal forming, powder
metal compaction, and shock synthesis. The company has a long-term ongoing
contract for shock synthesis of industrial diamonds.

On July 3, 2001, the Company completed its acquisition of substantially all
of the outstanding stock of Nobelclad Europe S.A. ("Nobelclad") from Nobel
Explosifs France ("NEF"). Nobelclad and its wholly-owned subsidiary, Nitro
Metall AB ("Nitro Metall") are the primary manufacturers of explosion clad
products in Europe and operate cladding businesses located in Rivesaltes, France
and Likenas, Sweden, respectively, along with sales offices in each country.
Products manufactured by Nobelclad and Nitro Metall are similar to those
produced by DMC's domestic factory in Mount Braddock, Pennsylvania. NEF is
wholly owned by Groupe SNPE and is a sister company to SNPE, Inc., which owns
54% of the Company's common stock. The purchase price of approximately $5.3
million was financed through a $4.0 million intercompany note agreement between
the Company and SNPE, Inc. and the assumption of approximately $1.23 million in
third party bank debt associated with Nobelclad's acquisition of Nitro Metall
from NEF prior to the Company's purchase of Nobelclad stock. As a result of the
Company and Nobelclad both being majority owned by Groupe SNPE, the acquisition
of Nobelclad was accounted for as a reorganization of entities under common
control. The historical financial position and operating results of the Company
have been restated to reflect the combination of the Nobelclad and Nitro Metall
historical financial results as if the companies had been consolidated from June
2000, the date on which Groupe SNPE acquired its majority ownership in the
Company.

Aerospace Manufacturing. Products manufactured by the Aerospace Group are
typically made from sheet metal and forgings that are subsequently machined or
formed into precise, three-dimensional shapes that are held to tight tolerances.
Metal machining and forming is accomplished through traditional technologies,
including spinning, machining, rolling and hydraulic expansion. DMC also
performs welding services utilizing a variety of manual and automatic welding
techniques that include electron beam and gas tungsten arc welding processes.
The Company's metalworking and welding operations are often performed to support
the manufacture of completed assemblies and sub-assemblies required by its
customers. Assembly and fabrication services are performed utilizing the
Company's close-tolerance machining, forming, welding, inspection and other
special service capabilities. The Company's forming, machining, welding and
assembly operations serve a variety of product applications in the aerospace,
defense, aircraft engine and power generation industries.

In January 1998, the Company acquired the assets of AMK Welding ("AMK"), a
supplier of commercial aircraft engine, ground-based turbine and
aerospace-related welding services that include the use of automatic and manual
gas tungsten, electron beam and arc welding techniques. The Company acquired the
assets of Spin Forge, LLC ("Spin Forge"), a manufacturer of tactical missile
motor cases and titanium pressure vessels for commercial aerospace and defense
industries, in March 1998. In December 1998, the Company acquired the assets of
Precision Machined Products, Inc. ("PMP"), a contract machining shop
specializing in high precision, high quality, complex machined parts


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used in the aerospace, satellite, medical equipment and high technology
industries. The Company sold PMP on October 7, 2003 after this division had
experienced three consecutive years of significant operating losses and showed
no clear signs of near-term improvement in its operating results.

Stock Purchase Agreement with SNPE. On June 14, 2000, the Company's
stockholders approved a Stock Purchase Agreement (the "Agreement") between the
Company and SNPE, Inc ("SNPE"). The closing of the transaction, which was held
immediately following stockholder approval, resulted in a payment from SNPE of
$5,800,000 to the Company in exchange for 2,109,091 of the Company's common
stock at a price of $2.75 per share causing SNPE to become a 50.8% stockholder
of the Company on the closing date. In addition, the Company borrowed $1,200,000
under a convertible subordinated note from SNPE and $3,500,000 under a credit
facility with SNPE. Proceeds from the SNPE equity investment, convertible
subordinated note issuance and credit facility borrowings enabled the Company to
repay all borrowings from its bank under a revolving credit facility on which
the Company had been in default since September 30, 1999. In December 2001, the
SNPE credit facility was replaced by a bank facility.

Dynamic Materials Corporation, formerly Explosive Fabricators, Inc., was
incorporated in Colorado in 1971 and was reincorporated in Delaware in 1997.

Our principal Internet address is www.dynamicmaterials.com. We make
available free of charge on www.dynamicmaterials.com our annual, quarterly and
current reports, and amendments to those reports, as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the SEC. Information contained on our website does not constitute part of this
Annual Report on Form 10-K.

Financial Information about Industry Segments

See Note 7 to the Company's financial statements included under Item 8 for
certain financial information about the Company's industry segments.

Risk Factors

Except for the historical information contained herein, this report on Form
10-K contains forward-looking statements that involve risks and uncertainties.
The Company wishes to caution readers that the risks detailed below, among
others, in some cases have affected the Company's results, and in others could
cause the Company's results to differ materially from those expressed in any
forward-looking statements made by the Company and could otherwise affect the
Company's business, results of operations and financial condition. Certain of
these factors are further discussed below and should be considered in evaluating
the Company's forward-looking statements and any investment in the Company's
Common Stock.

Fluctuations in Operating Results. The Company has experienced, and expects
to continue to experience, fluctuations in annual and quarterly 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 non-recurring costs associated with plant closings, plant
start-ups, acquisitions and divestitures, and general economic conditions. In
addition, the threat of terrorism and other geopolitical uncertainty could have
a negative impact on the global economy, the industries served by the Company
and the Company's operating results. 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. Significant portions of the Company's
operating expenses are 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. 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."


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Dependence on Clad Metal Business; Limitation on Growth in Existing Markets
for Clad Metal Products. For the year ended December 31, 2003, the Company's
cladding business accounted for approximately 82% of its consolidated net sales.
The explosion bonded clad metal products industry in which the Company currently
operates is mature and offers limited potential for substantial growth in
existing markets. The Company estimates that it currently serves a major
percentage of the world market for its explosion bonded clad metal products.
Historically, the worldwide demand for clad metal products has been cyclical.
Lower future demand for clad metal products could have a material adverse effect
on the Company's business, financial condition and results of operations.

Importance of Aerospace Manufacturing. The Company's aerospace
manufacturing business was established in 1998 and accounted for approximately
18% of the Company's net sales for the fiscal year ended December 31, 2003. The
aerospace manufacturing industry is largely reliant on defense industry demand
and positive economic conditions in general. Fluctuations or downturns in either
could have a materially adverse impact on the Company. The Company's Spin Forge
Division is involved in development work on a number of new programs but today
remains highly dependent on two missile motor case programs for the defense
industry. While these two programs are expected to continue for a number of
years, there are no current orders for one of these two programs and it is not
clear when Spin Forge will receive the next order. Cancellation of one or both
of these programs could have a material adverse impact on the Company. The
Company currently estimates that it services a very small percentage of the
aerospace industry. While the Company believes that it will have the opportunity
to bid on and compete for new programs, there can be no assurance that its sales
and marketing efforts will be successful. Failure to either successfully compete
for new programs or retain the work performed under existing programs could have
a material adverse effect on the Company's business, financial condition and
results of the operations.

Availability of Suitable Cladding Sites. The cladding process involves the
detonation of large amounts of explosives. As a result, the sites where the
Company performs cladding must meet certain criteria, including lack of
proximity to a densely populated area, the specific geological characteristics
of the site, and the Company's ability to comply with local noise and vibration
abatement regulations in conducting the process. The process of identifying
suitable sites and obtaining permits for using the sites from local government
agencies can be time-consuming and costly. In addition, the Company could
experience difficulty in obtaining permits because of resistance from residents
in the vicinity of proposed sites. The Company currently leases its only
domestic cladding site in Dunbar, Pennsylvania. The lease term for the
Pennsylvania site expires in 2005 but the underlying agreement has renewal
options extending through 2029. The failure to obtain required governmental
approvals or permits would have a material adverse effect on the Company's
business, financial condition and results of operations.

Competition. The Company's explosion clad products compete with explosion
clad made by other like-kind manufacturers located throughout the world and with
clad products manufactured using other technologies. The company's combined
North American and European operations typically supply explosive clad for a
major percentage of the worldwide market needs. There is one well-known other
major explosion clad supplier worldwide, a small division of Asahi-Kasei
Corporation of Japan. There are a number of other companies worldwide with
explosion clad manufacturing capability, with most of these being smaller
companies. There are no other significant North American based explosion clad
suppliers. The company focuses strongly on reliability, product quality, on-time
delivery performance, and low cost manufacturing to minimize the potential of
future competitive threats.

Explosion clad products also compete with clad manufactured by rollbond and
overlay cladding processes. In rollbond technology, the clad and base metal are
bonded together during a hot rolling process in which slab is converted to
plate. In weld overlay, which is typically performed by the Company's fabricator
customers, the cladding layer is deposited on the base metal through a fusion
welding process. The technical and commercial niches of each cladding process
are well understood within the industry and vary from one world market location
to another. The company has established exclusive sales arrangements with other
manufacturers where explosion clad is not the low cost solution, and
consequently participates as a sales agent in a significant share of the North
American rollbond market. The company has minimal share of the world rollbond
market, which is dominated by very large Japanese and European steel producers.
The U.S. clad market is currently protected from Japanese and European
competition by anti-dumping orders. The Company's products compete with weld
overlay clad products manufactured by a significant number of its fabricator
customers. Competitive niche positions in the world market are strongly driven
by currency exchange rates and regulatory factors. Unfavorable currency exchange
and regulatory conditions in various parts of world could put the


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Company at a competitive disadvantage and thus have a material adverse effect on
the Company's business, financial condition and results of operations.

Competition in the aerospace business is, and is expected to remain,
intense. Competitors include domestic and international companies. Many of these
competitors have financial, technical, marketing, sales, manufacturing,
distribution and other resources significantly greater than those of the
Company. In addition, many of these competitors have name recognition,
established positions in the market, and long standing relationships with
customers. To remain competitive, the Company will be required to continue to
develop and provide technologically advanced manufacturing services, maintain
quality levels, offer flexible delivery schedules, deliver finished products on
a reliable basis and compete favorably on the basis of price. The Company
competes against aerospace manufacturers on the basis of product quality,
performance and cost. There can be no assurance that the Company will continue
to compete successfully against these companies.

Availability and Pricing of Raw Materials. Although the Company generally
uses standard metals and other materials in manufacturing its products, certain
materials such as specific grades of carbon steel, titanium, zirconium and
nickel are currently obtained from single sources or are subject to supply
shortages due to general economic conditions. While the Company seeks to
maintain a sufficient inventory of these materials and believes that these
materials are available from other sources, there can be no assurance that the
Company would be able to obtain alternative supplies, or a sufficient inventory
of materials, or obtain supplies at acceptable prices without production delays,
additional costs or a loss of product quality. If the Company were to lose a
single-source supply or fail to obtain sufficient supply on a timely basis or
obtain supplies at acceptable prices, such loss or failure would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Suppliers."

Customer Concentration. A significant portion of the Company's net sales is
derived from a relatively small number of customers. The Company expects to
continue to depend upon its principal customers for a significant portion of its
sales, although there can be no assurance that the Company's principal customers
will continue to purchase products and services from the Company at current
levels, if at all. The loss of one or more major customers or a change in their
buying patterns could have a material adverse effect on the Company's business,
financial condition and results of operations. Historically, the majority of the
Company's Explosive Metalworking revenues have been derived from customers in
the chemical and petrochemical processing, petroleum refining, aluminum
smelting, shipbuilding and air conditioning industries and the majority of the
Company's Aerospace Group revenues have been derived from customers in the
defense, aircraft engine and power turbine industries. Economic downturns in
these industries could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company believes that its
risks in this area for its Explosive Metalworking business are partially
mitigated by its strengthened world market position in explosive clad following
the 2001 acquisition of Nobelclad and the breadth and depth of its customer base
in the various industries that purchase clad metal. Risks in this area for the
Company's Aerospace businesses are partially mitigated by Spin Forge being a
sole source supplier on certain programs and by AMK Welding's diversification
into the power generation industry where it provides a number of welding and
heat-treat services in support of the manufacturing of power turbines.

Dependence on Key Personnel; Need to Attract and Retain Employees. The
Company's continued success depends to a large extent upon the efforts and
abilities of key managerial and technical employees. The loss of services of
certain of these key personnel could have a material adverse effect on the
Company's business, results of operations and financial condition. There can be
no assurance that the Company will be able to attract and retain such
individuals on acceptable terms, if at all, and the failure to do so could have
a material adverse effect on the Company's business, financial condition and
results of operations.

Government Regulation; Safety. The Company's explosion metal working
business is subject to extensive government regulation in the United States,
France and Sweden, including guidelines and regulations for the safe handling
and transport of explosives provided by the U.S. Bureau of Alcohol, Tobacco and
Firearms, the U.S. Department of Transportation set forth in the Federal Motor
Carrier Safety Regulations and the Institute of Makers of Explosive Safety
Library Publications. The Company must comply with licensing and regulations for
the purchase, transport, manufacture and use of explosives. In addition,
depending upon the types of explosives used, the detonation by-products may be
subject to environmental regulation. The Company's activities are also subject
to federal, state and local environmental and safety laws and regulations,
including but not limited to, local noise abatement and air emissions


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regulations, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended, including the regulations issued and laws
enforced by the labor and employment departments of states in which the Company
conducts business, the U.S. Department of Commerce, the U.S. Environmental
Protection Agency and by state and county health and safety agencies. Any
failure to comply with present and future regulations could subject the Company
to future liabilities. In addition, such regulations could restrict the
Company's ability to expand its facilities, construct new facilities or could
require the Company to incur other significant expenses in order to comply with
government regulations. In particular, any failure by the Company to adequately
control the discharge of its hazardous materials and wastes could subject it to
future liabilities, which could be significant.

The Company's explosive metalworking operation involves the detonation of
large amounts of explosives. As a result, the Company is required to use
specific safety precautions under the Occupational Safety and Health
Administration guidelines. These include precautions which must be taken to
protect employees from facility deterioration as well as exposure to sound and
ground vibration.

Explosive Metalworking

The explosive metalworking business includes the use of explosives to
perform metal cladding and shock synthesis of industrial diamonds. While metal
cladding is a mature industry, DMC believes that the characteristics of its
high-energy metal working processes may enable the development of new products
in a variety of industries and continues to explore such development
opportunities.

Metal Cladding. The principal product of metal cladding is a metal plate
composed of two or more dissimilar metals, usually a corrosion resistant alloy
and carbon steel, bonded together at the atomic level. High energy metal
cladding is performed by detonating an explosion on the surface of an assembly
of two parallel metal plates, the cladding metal and the backing metal,
separated by a "standoff space". The explosive force creates a metallurgical
bond between the two metal components. The technology is unique in that it can
be used to weld non-compatible metals, which cannot be welded by conventional
processes, such as titanium-steel, aluminum-steel, and aluminum-copper. It can
also be used to weld compatible metals, such as stainless steels and nickel
alloys to steel. DMC Detaclad(R) is used in the fabrication of pressure vessels
and heat exchangers for chemical and petrochemical processing, power generation,
petroleum refining, mining, air conditioning (HVAC) and other industries where
corrosion, temperature, and pressure combine to produce demanding environments.
DMC Detacouple(R) bimetal welding transition joints are used in ship
construction, and a variety of electrochemical industries including aluminum
smelters.

The Company's clad metal products are primarily produced on a
project-by-project basis conforming to requirements set forth in customer
purchase orders. Upon receipt of an order, the Company obtains the component
materials from a variety of sources based on quality, availability and cost. The
company explosively bonds the metals in one of its three manufacturing plants
(Mount Braddock, PA, USA; Rivesaltes, France and Likenas, Sweden). Final
products are processed to meet contract specific requirements for product
configuration and quality/inspection level. Maintaining DMC's corporate culture
and reputation for product quality and on-time delivery is a critical factor for
management.

Shock Synthesis. In connection with the 1996 acquisition of the Detaclad
division of DuPont, DMC entered into an agreement to provide explosive shock
synthesis services associated with the manufacture of industrial diamonds. Shock
synthesis is one step in a series of operations required for production of
industrial grade diamond abrasives.

Aerospace Manufacturing

Metalworking. The Company currently manufactures machined and formed metal
parts for the defense, aerospace, aircraft engine and power generation
industries. Products are made generally from sheet metal or forgings that are
subsequently machined or formed into precise, three-dimensional shapes that are
held to tight tolerances according to customers' specifications.

Traditional metalworking technologies used by DMC in its aerospace
manufacturing operations include spinning, machining, rolling, and hydraulic
expansion. These technologies were acquired in the 1998 purchase of Spin



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Forge. The equipment utilized in the spinning process at Spin Forge is believed
to be the largest of its kind in North America, and is capable of producing
large, thin wall, close tolerance parts. Formed and machined metal products
include tactical and ballistic missile motor cases, high strength, light weight
pressurant tanks utilizing specialty aerospace alloys and other high precision,
high quality and complex parts. Industries served include defense, aerospace,
aircraft engine and power generation.

The Company's products are produced on a project-by-project basis based on
specifications set forth in a customer's purchase order. Upon receipt of an
order for a product from a customer, the Company identifies sources for the
specified raw materials, which typically include sheet metals composed of
aluminum, titanium, nickel alloy and various grades of steel. The Company
obtains the raw materials from a variety of sources based on quality,
availability, transportation costs and unit price. Following the machining and
forming processes, the Company treats the metal parts by using operations such
as anodizing, heat-treating and painting. The Company completes the
manufacturing process by performing testing for final certification of the
product to the customer's specifications.

Welding. The Company's capabilities for providing welding services and
assemblies reside primarily with AMK Welding and Spin Forge. Both AMK and Spin
Forge provide welding and assembly services to the commercial aircraft,
aerospace, power generation and defense industries. Welding services are
provided on a project-by-project basis based on specifications set forth in
customer's purchase orders. Upon receipt of an order for welded assemblies, the
Company performs welding services using customer specific welding procedures.

The welding services are performed utilizing a variety of manual and
automatic welding techniques, including electron beam and gas tungsten arc
welding processes. The Company has considerable expertise in vacuum controlled
atmospheric purged chamber welding which is a critical capability when welding
titanium, zirconium, high temperature nickel alloys and other specialty alloys.
In addition to its welding capabilities, the Company also utilizes various
special stress relieving and non-destructive examination processes such as mag
particle and radiographic inspection in support of its welding operations.

Metal Assembly Operations. The Company's metalworking and welding
operations are often performed to support the manufacture of completed
assemblies and sub-assemblies required by its customers. DMC's assembly
capabilities are provided on a project-by-project basis according to
specifications set forth in customers' purchase orders. After receiving customer
orders for completed assemblies and sub-assemblies, the Company performs
fabrication services utilizing its close-tolerance machining, forming, welding,
inspection and other special service capabilities.

Strategy

The Company's strategy for growth is to expand and refine its basic
processes and product offerings to generate solutions to the materials needs of
customers in its target markets. Key elements of the Company's strategy include:

Take Advantage of Recent Investments in New Technology and Manufacturing
Leadership. The Company seeks to take advantage of its technology leadership in
the explosion metalworking business. In 1998 and 1999, the Company invested
nearly $7 million in new manufacturing equipment and technologies at Mount
Braddock, Pennsylvania, that has substantially increased manufacturing
efficiencies and plant capacity. Management believes this new clad plate
manufacturing facility provides a significant advantage to the Company in the
global marketplace for explosion bonded clad metal plates. In 2001, the Company
invested approximately $5.3 million in the acquisition of Nobelclad,
strengthening its competitive position in Europe, and much of the rest of the
world.

Establish Global Presence. The Company seeks to establish a global sales
and marketing presence in the major international markets for explosion metal
working, including Europe, Australia, the Far East and the Americas. The Company
is working to establish relationships with end users, engineering contractors,
metal fabricators and independent sales representatives in these markets and has
developed the capacity in its sales and marketing department to address these
markets. The Company's plan to continue its international expansion depends on a
number of factors. See "Risk Factors" for a discussion of certain of the risks
associated with the Company's ability to establish a global presence.


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Add New Product Lines or Customers. The Company seeks to grow its sales
base by adding new product lines and new customers to both of its business
segments. The Company's future sales growth plans depend on a number of factors.
See "Risk Factors" for a discussion of certain of the risks associated with the
Company's ability to achieve its planned sales growth.

Suppliers

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. The Company generally uses standard
metals and other materials in manufacturing its products; however, certain
materials such as specific grades of carbon steel, titanium, zirconium and
nickel are currently obtained from single sources or are subject to supply
shortages due to general economic conditions. If the Company were to lose a
single-source supply or fail to obtain sufficient supply on a timely basis or
obtain supplies at acceptable prices, such loss or failure could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Competition

Competition in the explosion metal working business and the aerospace
business is, and is expected to remain, intense. The Company's strong market
position in the clad metal industry makes it a target for competitors attempting
to gain market share. Competitors include major domestic and international
companies. Competitors in the explosion metal working business use alternative
technologies; additionally certain of DMC's customers and suppliers have
in-house metalworking capabilities. Many of these companies have financial,
technical, marketing, sales, manufacturing, distribution and other resources
significantly greater than those of the Company. In addition, many of these
companies have name recognition, established positions in the market, and long
standing relationships with customers. To remain competitive, the Company will
be required to continue to develop and provide technologically advanced
manufacturing services, maintain quality levels, offer flexible delivery
schedules, deliver finished products on a reliable basis and compete favorably
on the basis of price.

Customer Profile and Marketing

The primary industries served by the Company are the chemical processing,
power generation, petrochemical, defense, aircraft engine and marine engineering
industries. The Company's metal cladding customers in these industries require
metal products that can withstand exposure to corrosive materials, high
temperatures and high pressures. The Company's Aerospace Group customers operate
in industries that require metal products that meet rigorous criteria for
tolerances, weight, strength and reliability.

At any given time, certain customers may account for significant portions
of the Company's business. A significant portion of the Company's net sales is
derived from a relatively small number of customers. Large customers also
accounted for a significant portion of the Company's backlog as of March 2004.
The Company expects to continue to depend upon its principal customers for a
significant portion of its sales, although there can be no assurance that the
Company's principal customers will continue to purchase products and services
from the Company at current levels, if at all. The loss of one or more major
customers or a change in their buying pattern could have a material adverse
effect on the Company's business, financial condition and results of operations.

The Company extends its internal selling efforts by marketing its services
to potential customers through senior management, direct sales personnel,
program managers and independent sales representatives. Prospective accounts in
specific industries are identified through networking in the industry,
cooperative relationships with suppliers, public relations, customer references,
inquiries from technical articles and seminars and trade shows. The Company
markets its clad metal products to three tiers of customers; the product
end-users (e.g., operators of chemical processing plants), the engineering
contractors in charge of specifying the metal parts to be used by the end-users,
and the metal fabricators who manufacture the products or equipment that utilize
the Company's metal products. By maintaining relationships with


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these parties and educating them as to the technical benefits of DMC's
high-energy metal worked products, the Company endeavors to have its products
specified as early as possible in the design process.

The DMC clad metal businesses have several exclusive or non-exclusive
agreements with agents for sales and business promotion in specific territories
defined by each agreement. These agency contracts cover sales in specific
European, Middle East and Far East countries. Agency agreements are usually of
one to two years in duration and, subject to agents meeting the Company's
performance expectations, are automatically renewed.

Backlog

The Company's backlog with respect to its three Explosive Metalworking
businesses was approximately $11.7 million at December 31, 2003 compared with
approximately $8.6 million and $11.3 at December 31, 2002 and 2001,
respectively. The Aerospace Group backlog was approximately $3.9 million and
$5.1 million at December 31, 2003 and 2002, respectively (accurate records were
not maintained for the December 31, 2001 Aerospace Group backlog). Backlog
consists of firm purchase orders and commitments that the Company expects to
fill within the next 12 months. The Company expects most of the backlog at
December 31, 2003 to be filled during 2004. However, since orders may be
rescheduled or canceled and a significant portion of the Company's net sales is
derived from a small number of customers, backlog is not necessarily indicative
of future sales levels.

Employees

The Company employs approximately 190 full-time employees as of February
29, 2004, the majority of which are engaged in manufacturing operations. The
Company believes that its relations with its employees are good. Of the 190
employees, there are 49 full-time employees working in France at the Nobelclad
facility and 16 full-time employees working in Sweden for Nitro Metall.
Twenty-six of the Nobelclad employees and all of the Swedish employees are
members of trade unions.

Protection of Proprietary Information

The Company holds numerous patents related to the business of explosion
metal working and metallic processes and also owns certain registered
trademarks, including Detaclad(R), Detacouple(R), Dynalock(R), EFTEK(R) and
NOBELCLAD(R). The Company's current patents expire on various dates through
2012. Since individual patents relate to specific product applications and not
to core technology, the Company does not believe that such patents are material
to its business and the expiration of any single patent is not expected to have
a material adverse effect on the Company or its operations.

Financial Information about Foreign and Domestic Operations and Export
Sales

See Note 7 to the Company's financial statements included under Item 8 for
certain financial information about geographic areas and the Company's export
sales.


ITEM 2. Properties

The Company's principal manufacturing site, which is owned by the Company,
is located in Mount Braddock, Pennsylvania. The Company also leases property in
Dunbar, Pennsylvania that serves as an explosion site. The lease for the Dunbar,
Pennsylvania property will expire in December 2005, but has renewal options that
extend through 2029. The Company leases office space in Boulder, Colorado to
house its corporate headquarters under a lease with the building owner that
expires in February 2006. The Company owns the land and buildings housing the
operations of AMK in South Windsor, Connecticut. The Company leases the land and
building occupied by its Spin Forge operations in El Segundo, California. The
lease expires in January 2012, and the Company holds an option to purchase the
land and building housing the Spin Forge operations at a fixed price through
January 2005 and at market value thereafter. The Company, through its French
subsidiary Nobelclad, owns the land and the buildings housing its operations in
Rivesaltes, France and leases the land that serves as the shooting site in
Tautavel, France. This lease expires in December 31, 2007 and may be extended.
The Company, through its Swedish subsidiary, Nitro Metall, owns the buildings
housing its manufacturing


-9-


operations in Likenas, Sweden and leases the land. Both the buildings and the
land housing the Nitro Metall sales office in Nora, Sweden are leased. These
leases are automatically renewed every year. The Company believes that its
current facilities are adequate for its existing operations and are in good
condition. See "Item 1 - Risk Factors" for a discussion of certain of the risks
associated with the Company's ability to renew the leases for its current
manufacturing sites and to identify and establish new manufacturing sites.


ITEM 3. Legal Proceedings

There are no significant pending legal proceedings against the Company or
its subsidiary.


ITEM 4. Submission of Matters to a Vote of Security Holders

The Company's Annual Meeting of Stockholders was held on October 15, 2003.
At the Annual Meeting, the stockholders of the Company (i) elected the persons
listed below to serve as directors of the Company until the 2006 Annual Meeting
of Stockholders or until their respective successors are elected and (ii)
approved the amendment of the Employee Stock Purchase Plan to increase the
number of shares thereunder from 175,000 to 225,000.

The Company had 5,072,943 shares of Common Stock outstanding as of August
25, 2003, the record date for the Annual Meeting. At the Annual Meeting, holders
of a total of 4,933,480 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

DIRECTOR Shares Voted "FOR" Shares Withheld
-------- ------------------ ---------------
Mr. Bernard Hueber 4,918,346 15,134
Mr. Gerard Munera 4,918,866 14,614


Proposal 2: To approve the amendment of the Employee Stock Purchase Plan

Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTANING" not voted
------------ ------------ -------------- ---------
3,568,309 34,069 10,481 1,320,621



-10-


PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Common Stock of the Company is publicly traded on The Nasdaq SmallCap
Market under the symbol "BOOM." The following table sets forth quarterly high
and low bid quotations for the Common Stock during the Company's last two fiscal
years, as reported by Nasdaq. The quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.

2004 High Low
---- ---- ---

January 1, 2004 to March 12, 2004 $ 3.53 $ 2.79

2003
----

First Quarter $ 2.90 $ 1.82
Second Quarter $ 2.40 $ 1.82
Third Quarter $ 3.99 $ 2.23
Fourth Quarter $ 3.87 $ 2.54

2002
----

First Quarter $ 4.10 $ 2.52
Second Quarter $ 3.98 $ 3.08
Third Quarter $ 3.35 $ 2.00
Fourth Quarter $ 3.41 $ 2.01


As of March 12, 2004, there were approximately 471 holders of record of the
Company's Common Stock.

The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any future earnings to finance the
growth and development of its business and therefore does not anticipate paying
any cash dividends in 2004.


-11-


ITEM 6. Selected Financial Data

The following selected financial data should be read in conjunction with
the Consolidated Financial Statements, including the related Notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."



Year Ended December 31,
----------------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------------------------------------------------------------------------------

Statement of Operations
Net sales $ 40,277,970 $ 43,885,896 $ 38,256,059 $ 29,424,723 $ 25,398,193
Cost of products sold 31,405,999 31,921,432 27,960,955 25,014,510 23,021,239
--------------- --------------- -------------- --------------- ---------------
Gross profit 8,871,971 11,964,464 10,295,104 4,410,213 2,376,954
Cost and expenses 6,698,304 5,954,691 5,707,409 4,998,890 5,705,143
--------------- --------------- -------------- --------------- ---------------
Income (loss) from operations 2,173,667 6,009,773 4,587,695 (588,677) (3,328,189)
Other expense, net 527,412 741,554 848,556 869,403 978,985
--------------- --------------- -------------- --------------- ---------------
Income before income taxes 1,646,255 5,268,219 3,739,139 (1,458,080) (4,307,174)
Income tax provision (benefit) 1,058,006 2,065,953 615,600 164,000 (1,154,000)
--------------- --------------- -------------- --------------- ---------------
Income (loss) from continuing operations 588,249 3,202,266 3,123,539 (1,622,080) (3,153,174)
Discontinued operations, net of tax (1,297,407) (714,029) (334,309) (38,419) 435,066
Extraordinary item - loss from
extinguishment of debt - - - (80,111) -
Cumulative effect of change in
accounting principle, net of tax
benefit of $1,482,000 - (2,318,108) - - -
--------------- --------------- -------------- --------------- ---------------
Net income (loss) $ (709,158) $ 170,129 $ 2,789,230 $ (1,740,610) $ (2,718,108)
=============== =============== ============== =============== ===============

Income (loss) from continuing
operations per share:
Basic $ 0.12 $ 0.64 $ 0.62 $ (0.41) $ (1.12)
Diluted $ 0.12 $ 0.63 $ 0.62 $ (0.41) $ (1.12)
Net income (loss) per share:
Basic $ (0.14) $ 0.03 $ 0.56 $ (0.43) $ (0.96)
Diluted $ (0.14) $ 0.03 $ 0.55 $ (0.43) $ (0.96)
Weighted average number of shares
outstanding:
Basic 5,067,324 5,042,382 5,003,399 4,004,873 2,822,184
Diluted 5,110,806 5,087,051 5,051,223 4,004,873 2,822,184

Financial Position
Current assets $ 16,639,254 $ 16,576,271 $ 16,179,455 $ 14,182,452 $ 8,617,386
Total assets 32,381,408 33,697,992 36,913,345 35,406,455 30,087,318
Current liabilities 10,113,439 8,382,411 8,060,823 7,189,274 19,921,074
Non-current liabilities 6,683,563 9,750,841 14,206,528 10,477,887 136,261
Stockholders' equity 15,584,406 15,564,740 14,645,994 17,739,294 10,029,983



-12-


Selected unaudited quarterly financial data for the years ended December 31,
2003 and 2002 is presented below:



Year ended December 31, 2003
------------------------------------------------------------------------
Quarter ended Quarter ended Quarter ended Quarter ended
March 31, June 30, September 30, December 31,
------------------------------------------------------------------------

Net sales $ 9,203,866 $ 10,701,205 $ 11,129,210 $ 9,243,689

Gross profit $ 2,309,677 $ 2,671,682 $ 2,243,775 $ 1,646,837

Income (loss) from continuing operations $ 336,192 $ 515,517 $ 226,239 $ (489,699)

Net income (loss) $ 153,705 $ 395,407 $ (679,393) $ (578,877)

Income (loss) from continuing operations
per share - basic and diluted $ 0.07 $ 0.10 $ 0.04 $ (0.10)

Net income (loss) per share - basic and diluted $ 0.03 $ 0.08 $ (0.13) $ (0.11)



Year ended December 31, 2002
------------------------------------------------------------------------
Quarter ended Quarter ended Quarter ended Quarter ended
March 31, June 30, September 30, December 31,
------------------------------------------------------------------------
Net sales $ 11,499,345 $ 9,221,328 $ 10,267,254 $ 12,897,969

Gross profit $ 3,365,947 $ 2,384,208 $ 2,580,479 $ 3,633,830

Income from continuing operations $ 1,030,116 $ 453,449 $ 547,959 $ 1,170,742

Net income (loss) $ (1,531,572) $ 295,564 $ 383,974 $ 1,022,163

Income from continuing operations
per share - basic and diluted $ 0.20 $ 0.09 $ 0.11 $ 0.23

Net income (loss) per share - basic and diluted $ (0.30) $ 0.06 $ 0.08 $ 0.20



The total net income (loss) per share for the 2003 and 2002 quarters do not
equal net income (loss) per share for the respective years as the per share
amounts for each quarter and for each year are computed based on their
respective discrete periods.

For all of the quarters reported for the year ended December 31, 2002 and
for the quarters ended March 31 and June 30, 2003, the amounts have been
restated to reflect the reclassification of discontinued operations. In
connection with the decision to sell its PMP division, the Company began to
report PMP as discontinued operations beginning in its September 30, 2003 Form
10-Q. The amounts that were restated include net sales, gross profit and income
from continuing operations.


-13-


ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Executive Overview

The year ended December 31, 2003 proved to be a challenging one for DMC.
Our Explosive Metalworking Group and Aerospace Group both experienced declines
in sales and operating results in 2003 as compared to those in 2002.
Additionally, our PMP Division continued to experience significant operating
losses in 2003, leading to our decision to sell this underperforming division.
The sale of PMP was completed on October 7, 2003 and the operating losses of
PMP, as well as the loss recorded on the sale, have been presented as
"Discontinued Operations" in our consolidated statements of operations for the
years ended December 31, 2003, 2002 and 2001 (PMP results were previously
reported with those of our Aerospace Group). As a result of a decrease in income
from continuing operations from $3,202,266 in 2002 to $588,249 in 2003 and a
loss from discontinued operations of $1,297,407 in 2003, DMC reported a
consolidated net loss of $709,158 for the year ended December 31, 2003. This
consolidated net loss compared to consolidated net income of $170,129 in 2002
that included a loss from discontinued operations of $714,029 and an after tax
loss of $2,318,108 from the cumulative effect of a change in accounting
principle that related to the write-off of PMP's goodwill.

The Explosive Metalworking Group began 2003 with a relatively low backlog
of $8.6 million and experienced a slow flow of new orders during the first half
of 2003. As a result, Explosive Metalworking 2003 sales and operating income
declined to $33,043,448 and $2,854,818, respectively, from $35,603,415 and
$6,149,962, respectively, in 2002. After eliminating the favorable foreign
exchange effects of approximately $2.25 million relating to the translation of
Nobelclad Europe's sales from Euros to U.S. dollars, the year-to-year sales
decline for the Explosive Metalworking Group approximated $4.8 million. Other
than the variable costs of direct materials, supplies, labor and subcontract
costs associated with the production and sale of clad products, the major
portion of manufacturing overhead expenses and operating expenses for both the
U.S. and European cladding businesses are fixed in nature. As a result, the
decrease in 2003 sales volume led to a significant reduction in gross profit
margins and operating income for the Explosive Metalworking Group. Steps have
recently been taken to improve the fixed cost structure of our two European
cladding businesses, but full benefit from these organizational changes will not
be realized until 2005 due to transitional employment and severance costs that
will be incurred in 2004.

The outlook for measurable improvement in 2004 sales performance and
operating income is promising. The Explosive Metalworking backlog increased to
$11.7 million at December 31, 2003 and the flow of new orders during the early
weeks of 2004 has been very strong. U.S. demand for our clad metal products is
largely driven by plant maintenance and retrofit projects at existing chemical
processing, petrochemical processing and oil refining facilities. Postponed
capital spending within these industries over the past few years, improved
economic conditions and the "Clean Fuels Act" appear to be working together to
increase demand for our products in the U.S. In contrast to the U.S. market,
demand for our clad products in Europe is more dependent on large projects, such
as the building of new purified terephthalic acid ("PTA") plants in different
parts of the world, and on sales of electrical transition joints that are used
in the aluminum smelting industry. European sales should improve in 2004 as
Nobelclad receives expected customer orders in support of scheduled new PTA
plant construction and continues to gain market share in the electrical
transition joint business. We do not expect to benefit in 2004 from a large
nickel hydrometallurgy project, such as the Goro project that contributed more
than $5 million to 2002 sales, but new hydrometallurgy projects are in the
planning phase and could appear as early as 2005.

Our Aerospace Group reported sales of $7,234,522 in 2003 as compared to
sales of $8,282,481 in 2002. This decrease in sales, which was split evenly
between Spin Forge and AMK Welding, contributed to an increase in the Aerospace
Group operating loss from $140,189 in 2002 to $681,151 in 2003. Spin Forge
reported operating losses in excess of $1.1 million in both 2002 and 2003, with
its 2002 operating loss being almost entirely offset by record operating income
at AMK Welding. While Spin Forge is currently involved in a number of new
development programs, it remains highly dependent on two missile motor case
programs for the defense industry. There are no current orders for one of these
two programs and it is not clear when Spin Forge will receive the next order.
Management is hopeful that Spin Forge can show the significant improvement in
its 2004 sales and operating results that has been budgeted, but such
improvement is dependent on the booking of a significant amount of new orders
during the first half of 2004. AMK


-14-


Welding reported record sales and operating income in 2002 as a result of
significant revenues from welding development work on a new ground-based turbine
that did not recur in 2003. AMK Welding sales and operating results for 2004
will likely be comparable to those for 2003, but the prospects for 2005 and
beyond appear to be excellent as the new ground-based turbine goes into
production and the demand for commercial aircraft engines, which has been
depressed since 2001, improves. As the new ground-based turbine goes into
production, AMK Welding may be required to invest approximately $600,000 to
$700,000 in a new heat treat furnace and other capital equipment to support the
anticipated increase in production volume and customer delivery requirements.
The Company believes that it will have sufficient cash resources to fund such
capital expenditures.

Despite the net loss reported in 2003 and the small amount of net income
reported in 2002, DMC generated cash flow from operations of more than $2.0
million and $5.1 million for the respective years. Approximately $1.0 million
and $1.5 million of the operating cash flow was used for capital expenditures in
2003 and 2002, respectively, with most of the remaining operating cash flow used
to repay long-term debt obligations or reduce net borrowings under working
capital lines of credit. With the expected improvement in 2004 operating income
and minimal expected income tax payments due to more than $2.7 million in net
operating loss carry-forwards for U.S. Federal income tax purposes, operating
cash flow for 2004 should be very strong. A significant portion of the operating
cash flow that we expect to generate in 2004 will be used to satisfy
approximately $2.6 million in principle payments that are due in 2004 under
various long-term debt agreements, which will further strengthen our balance
sheet that benefited from long-term debt principal payments of approximately
$2.2 million in 2003.

Year Ended December 31, 2003 compared to Year Ended December 31, 2002

Net Sales. Net sales for 2003 decreased 8.2% to $40,277,970 from
$43,885,896 in 2002. Sales by our Explosive Metalworking Group, which include
explosion bonding of clad metal and shock synthesis of synthetic diamonds,
decreased 7.2% to $33,043,448 in 2003 (82.0% of total sales) from $35,603,415 in
2002 (81.1% of total sales). The Explosive Metalworking sales decrease reflects
a 14.7% decrease in U.S. clad sales that was partially offset by a 9.5% U.S.
dollar sales increase at Nobleclad Europe. The Noblelclad Europe sales increase
of approximately $1.05 million includes a sales volume decrease of approximately
$1.2 million that was entirely offset by a favorable foreign exchange
translation adjustment of approximately $2.25 million due to the significant
decline in the value of the U.S. dollar against the Euro. The decrease in
worldwide Explosive Metalworking Group sales is principally attributable to more
than $5 million of 2002 shipments in support of Inco's Goro Nickel Project in
New Caledonia. There were no similar large project orders and shipments in 2003.
Our Aerospace Group contributed $7,234,522 to 2003 sales (18.0% of total sales)
versus sales of $8,282,481 in 2002 (18.9% of total sales). This 12.7% sales
decrease reflects year-to-year sales decreases of 10% and 16.5% at Spin Forge
and AMK Welding, respectively. The Spin Forge sales decrease relates to the
absence of sales in 2003 under a pressurant tank program for launch vehicles
that generated more than $900,000 of revenues in 2002. AMK Welding reported
record sales in 2002 as a result significant revenues from welding development
work on a new ground-based turbine that has not yet reached the production
phase. The absence of similar development work in 2003 resulted in the
year-to-year sales decrease at AMK.

Gross Profit. Gross profit for 2003 decreased by 25.8% to $8,871,971 from
$11,964,464 in 2002. Our consolidated gross profit margin decreased to 22.0% in
2003 from 27.3% in 2002. The gross profit margin for our Explosion Metalworking
Group decreased from 31.6% in 2002 to 25.9% in 2003, while the gross profit
margin for the Aerospace Group decreased to 4.3% in 2003 from 8.7% in 2002. The
decrease in the gross profit margin for the Explosive Metalworking Group is
principally due to the 2003 sales decrease discussed above and the resultant
less favorable absorption of fixed manufacturing overhead expenses. The decline
in the gross margin rate for the Aerospace Group is principally due to the sales
declines experienced by both Spin Forge and AMK Welding. Spin Forge reported a
negative gross margin of 8.9% in 2003, a slight improvement from the negative
gross margin of 10.8% that it recorded in 2002. AMK Welding's gross margin
declined from a record level of 38.5% in 2002 to 26.1% in 2003.

General and Administrative. General and administrative expenses increased
by $235,787, or 6.8%, to $3,682,150 in 2003 from $3,446,363 in 2002.
Approximately $175,000 of the increase in general and administrative expenses
reflects increased legal, audit and board of directors expenses associated with
Sarbanes-Oxley compliance, activities surrounding the divestiture of PMP, and
amendments to the Company's articles of incorporation. As a


-15-


percentage of net sales, general and administrative expenses increased to 9.1%
in 2003 from 7.9% in 2002. This increased percentage is attributable to
decreased 2003 net sales and higher year-to-year spending levels for our U.S.
operations.

Selling Expense. Selling expenses increased by 20.2% to $3,016,154 in 2003
from $2,508,328 in 2002. This increase in selling expenses is largely
attributable to an increase in outside selling commissions associated with a
large export order that Nobelclad shipped during 2003. As a result of the
increase in outside sales commissions and an unfavorable foreign exchange
translation adjustment of approximately $150,000, Nobleclad Europe's selling
expenses increased from $794,305 in 2002 to $1,482,548 in 2003. Selling expenses
for our U.S. operations decreased from $1,714,023 in 2002 to $1,533,606 in 2003
due principally to a decrease in bonuses earned by the U.S. Explosive
Metalworking Group sales team. As a result of the decrease in 2003 net sales and
higher year-to-year selling expenses at Nobelclad, consolidated selling expenses
as a percentage of net sales increased to 7.5% in 2003 from 5.7% in 2002.

Income from Operations. DMC reported income from operations of $2,173,667
in 2003, a decrease of $3,836,106 from the $6,009,773 of operating income
reported in 2002. This year-to-year decrease reflects a significant decline in
operating income reported by our Explosive Metalworking Group and an increased
operating loss for our Aerospace Group. Our Explosive Metalworking Group
reported income from operations of $2,854,818 in 2003 as compared to $6,149,962
in 2002. This significant decrease in 2003 Explosive Metalworking operating
income is largely attributable to the sales decrease discussed above, which
resulted in a $2,682,092 decline in reported gross profit, and higher 2003
selling expenses. As we stated at the beginning of 2003, with no large projects
like the Goro Nickel Project on the horizon, the Explosive Metalworking Group
would likely have difficulty matching its 2002 sales and operating income
performance in 2003. This proved to be the case. However, an improved year-end
2003 backlog and strong booking levels during the early part of 2004 support the
outlook for significant improvement in the Group's 2004 sales and operating
results.

DMC's Aerospace Group reported a loss from operations of $681,151 in 2003
compared to an operating loss of $140,189 in 2002. Spin Forge reported operating
losses in excess of $1.1 million in both 2002 and 2003, with its 2002 operating
loss being almost entirely offset by record operating income at AMK Welding. AMK
Welding's operating income in 2003 was less than half of that reported in 2002
as a result of the 16.5% decrease in its 2003 sales.

Interest Expense, net. Interest expense decreased by 26.2% to $508,505 in
2003 from $689,129 in 2002. This decrease relates principally to a decline in
interest rates during the year but also reflects lower average borrowings.
Outstanding borrowings were reduced to $10,708,213 at December 31, 2003 from
$11,702,329 at the end of 2002. Related party interest expense totaled $181,741
and $272,727 in 2003 and 2002, respectively.

Income Tax Provision. DMC recorded a consolidated income tax provision of
$1,058,006 in 2003 on income from continuing operations as compared to a
consolidated income tax provision of $2,065,953 in 2002. The effective tax rate
increased to 64.3% in 2003 from 39.2% in 2002. The 2003 and 2002 income tax
provisions include $1,034,299 and $1,749,300, respectively, related to U.S.
taxes, with the remainder relating to foreign taxes (or tax benefits) associated
with the operations of Nobelclad and its Swedish subsidiary Nitro Metall. The
effective tax rate for 2003 is high because U.S. taxes were provided at a 39%
rate on $732,256 of intercompany dividends received in 2003 from Nobleclad. The
dividend income was eliminated in DMC's consolidated statement of operations,
but U.S. taxes are provided on such dividend income in the consolidated income
tax provision without any offsetting tax credit as the recoverability of that
tax credit does not meet the more likely than not test required by Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes. This
increased the consolidated effective tax rate increased from an expected rate of
approximately 39% to an actual rate of 64.3%. Income tax provisions on the 2003
and 2002 earnings of Nobelclad and Nitro Metall have been provided based upon
the respective French and Swedish statutory tax rates.

Income from Continuing Operations. Income from continuing operations before
cumulative effect of a change in accounting principle decreased from $3,202,266
in 2002 to $588,249 in 2003. This decrease is principally attributable to the
large decrease in 2003 income from operations as discussed above and an increase
in the effective tax rate from 39.2% in 2002 to 64.3% in 2003.

Discontinued Operations. In August of 2003, DMC announced that PMP was
continuing to incur significant operating losses and that management would be
considering alternatives with respect to PMP, including the potential sale


-16-


or closure of the business. On October 7, 2003, DMC completed the sale of its
PMP division. The sales price was $580,000 and is being financed through the
issuance of a promissory note payable over a 2 1/2 year period. The sale
included the inventory and property, plant and equipment of PMP. The loss
recorded on the sale of PMP, as well as the operating losses reported by PMP in
2003, 2002 and 2001, have been reported as discontinued operations, net of
related tax benefits. The net loss from discontinued operations increased from
$714,029 in 2002 to $1,297,407 in 2003, with the 2003 net loss including a net
of tax loss from operations of $587,098 (as compared to $714,029 in 2002) and a
$710,309 net of tax loss from the sale of PMP assets.

Cumulative Effect of a Change in Accounting Principle. On January 1, 2002,
DMC adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, and in early 2002 disclosed that up to the full amount
of the remaining goodwill associated with the Company's 1998 acquisition of PMP
could be impaired. In the fourth quarter of 2002, we completed our evaluation of
goodwill impairment at PMP and determined that the remaining goodwill in the
amount of $3,800,108 was impaired. Accordingly, we wrote off all of the
remaining PMP goodwill, less associated tax benefits of $1,482,000, and reported
the resultant after tax loss of $2,318,108 as a cumulative effect of a change in
accounting principle.

Net Income. The Company recorded a net loss of $709,158 in 2003 compared to
net income of $170,129 in 2002. The 2003 net loss includes income form
continuing operations of $588,249 and a loss from discontinued operations of
$1,297,407. Net income for 2002 includes income from continuing operations of
$3,202,266 that was almost entirely offset by a loss from discontinued
operations of $714,029 and a loss of $2,318,108 related to the cumulative effect
of a change in accounting principle as further described above.

Year Ended December 31, 2002 compared to Year Ended December 31, 2001

Net Sales. Net sales for 2002 increased 14.7% to $43,885,896 from
$38,256,059 in 2001. Sales by our Explosive Metalworking Group, which include
explosion bonding of clad metal and shock synthesis of synthetic diamonds,
increased 18.6% to $35,603,415 in 2002 (81.1% of total sales) from $30,019,586
in 2001 (78.5% of total sales). Explosive Metalworking Group results for 2002
and 2001 include net sales of Nobelclad in the amounts of $11,017,250 and
$9,867,000, respectively. The 18.6% increase in worldwide Explosive Metalworking
Group sales is principally attributable to more than $5 million of 2002
shipments in support of Inco's Goro Nickel Project in New Caledonia. Our
Aerospace Group contributed $8,282,481 to 2002 sales (18.9% of total sales)
versus sales of $8,236,473 in 2001 (21.5% of total sales). This small increase
reflects a 60% sales increase at AMK Welding that was largely offset by a 19%
decrease in year-to-year sales at Spin Forge. AMK Welding's large sales increase
reflects a significant amount of revenues that it derived in 2002 from welding
development work on a new ground-based turbine. The Spin Forge sales decrease
relates a more than $1 million year-to-year decrease in sales under a pressurant
tank program for launch vehicles.

Gross Profit. Gross profit for 2002 increased by 16.2% to $11,964,464 from
$10,295,104 in 2001. Our consolidated gross profit margin increased to 27.3% in
2002 from 26.9% in 2001. The gross profit margin for our Explosion Metalworking
Group increased from 30.9% in 2001 to 31.6% in 2002, while the gross profit
margin for the Aerospace Group decreased to 8.7% in 2002 from 12.6% in 2001. The
increase in the gross profit margin for the Explosive Metalworking Group is
principally due to increased sales relating to the Goro Nickel Project and the
more favorable absorption of fixed manufacturing overhead expenses that resulted
from the higher 2002 sales volume. The decline in the gross margin rate for the
Aerospace Group is principally due to the poor sales performance of Spin Forge
where a negative gross margin of 11% was reported in 2002 compared to a positive
gross margin of 8% in 2001. The negative 2002 gross margin at Spin Forge was
largely attributable to sales for this division being at a level that did not
provide for full coverage of its fixed manufacturing overhead costs.

General and Administrative. General and administrative expenses increased
by $154,704 or 4.7%, to $3,446,363 in 2002 from $3,291,659 in 2001. The increase
in general and administrative expenses is principally attributable to increased
compensation expense associated with annual salary adjustments. As a percentage
of net sales, general and administrative expenses decreased from 8.6% in 2001 to
7.9% in 2002 due to the increase in 2002 sales.

Selling Expense. Selling expenses increased by 3.8% to $2,508,328 in 2002
from $2,415,750 in 2001. The increase in 2002 selling expenses relates to
increased compensation expense associated with higher 2002 bonuses for the


-17-


Explosive Metalworking Group and annual salary adjustments. As a percentage of
net sales, selling expenses decreased from 6.3% in 2001 to 5.7% in 2002 due to
the increase in 2002 net sales.

Income from Operations. DMC reported income from operations of $6,009,773
in 2002, an increase of $1,422,078, or 31.0%, from the $4,587,695 reported in
2001. This year-to-year increase reflects a significant improvement in operating
results for our Explosive Metalworking Group that was partially offset by the
2002 operating loss experienced by our Aerospace Group. Our Explosive
Metalworking Group reported income from operations of $6,149,962 in 2002 as
compared to $4,487,824 in 2001. This 37% increase in operating income is largely
attributable to the 18.6% sales increase discussed above. DMC's Aerospace Group
reported a loss from operations of $140,189 in 2002 compared to operating income
of $99,871 in 2001. The Group's 2002 operating loss is attributable to the
previously discussed decline in sales and gross profit at Spin Forge that was
only partially offset by excellent operating results at AMK Welding.

Interest Expense, net. Interest expense decreased by 10.8% to $689,129 in
2002 from $772,723 in 2001. This decrease relates principally to a decline in
interest rates during the year but also reflects lower average borrowings during
the latter part of 2002. Outstanding borrowings were reduced to $11,702,239 at
December 31, 2002 from $15,497,097 at the end of 2001. Related party interest
expense totaled $272,727 and $488,000 in 2002 and 2001, respectively.

Income Tax Provision. DMC recorded a consolidated income tax provision of
$2,065,953 in 2002 on income before income taxes, extraordinary item and
cumulative effect of a change in accounting principle as compared to a
consolidated income tax provision of $615,600 in 2001. This significant increase
reflects an increase in the effective tax rate to 39.2% in 2002 from 16.5% in
2001. The 2002 and 2001 income tax provisions include $1,749,300 and $316,600,
respectively, related to U.S. taxes, with the remainder relating to foreign
taxes associated with the operations of Nobelclad and Nitro Metall. The 2001 tax
provision in the U.S. was low because DMC was able to generate enough taxable
income in 2001 to allow it to fully recognize the tax benefits associated with
operating loss carry-forwards for which valuation allowances has been
established as of December 31, 2000. Income tax provisions on the 2002 and 2001
earnings of Nobelclad and Nitro Metall have been provided based upon the
respective French and Swedish statutory tax rates.

Income from Continuing Operations. Income from continuing operations before
cumulative effect of a change in accounting principle increased from $3,123,539
in 2001 to $3,202,266 in 2002 despite an increase in 2002 income before taxes of
more than $1.5 million. The reason for this small increase in year-to-year
income from continuing operations is attributable to an increase in the
effective tax rate from 16.5% in 2001 to 39.2% in 2002 as explained above.

Discontinued Operations. On October 7, 2003, DMC completed the sale of its
PMP division. The loss recorded on the sale of PMP, as well as the operating
losses reported by PMP in 2003, 2002 and 2001, have been reported as
discontinued operations, net of related tax benefits. The net loss from
discontinued operations increased from $334,309 in 2001 to $714,029 in 2002 as a
result of a significant decline in PMP's sales from 2001 to 2002 and an increase
in PMP's pre-tax operating loss from $548,309 in 2001 to $1,170,629 in 2002. A
tax benefit of $456,600 and $214,000 was recognized in 2002 and 2001 with
respect to PMP's operating losses using an estimated U.S. effective tax rate of
39%.

Cumulative Effect of a Change in Accounting Principle. On January 1, 2002,
DMC adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, and in early 2002 disclosed that up to the full amount
of the remaining goodwill associated with the Company's 1998 acquisition of PMP
could be impaired. In the fourth quarter of 2002, we completed our evaluation of
goodwill impairment at PMP and determined that the remaining goodwill in the
amount of $3,800,108 was impaired. Accordingly, we wrote off all of the
remaining PMP goodwill, less associated tax benefits of $1,482,000, and reported
the resultant after tax loss of $2,318,108 as a cumulative effect of a change in
accounting principle.

Net Income. The Company recorded net income of $170,129 in 2002 compared to
net income of $2,789,230 in 2001. This decline is attributable to the $2,318,108
goodwill impairment charge discussed above and an increase in the effective
income tax rate to 39.2% in 2002 from 16.5% in 2001.


-18-


LIQUIDITY AND CAPITAL RESOURCES

Historically, DMC has obtained its operational financing from a combination
of internally generated cash flow, revolving credit borrowings, various
long-term debt arrangements and the issuance of common stock. On June 14, 2000,
our stockholders approved a Stock Purchase Agreement between DMC and SNPE, Inc
("SNPE"). The closing of the transaction resulted in a payment from SNPE of
$5,800,000 to DMC in exchange for 2,109,091 shares of DMC common stock at a
price of $2.75 per share causing SNPE to become a majority stockholder of DMC on
the closing date. An additional $1,200,000 cash payment was made by SNPE to DMC
to purchase a five-year, 5% Convertible Subordinated Note that is convertible in
whole or in part into common stock by SNPE at a conversion price of $6 per
share. We also borrowed $3,500,000 on June 14, 2000 under a credit facility with
SNPE that carried interest at the Federal Funds Rate plus 1.5% and provided for
maximum borrowings of $4,500,000. Proceeds from the SNPE equity investment,
convertible subordinated note issuance and credit facility borrowings aggregated
$10,500,000 and enabled us to repay all outstanding borrowings under a bank
revolving credit facility on which the Company had defaulted.

In connection with its July 3, 2001 acquisition of Nobelclad, DMC entered
into a $4,000,000 term loan agreement with SNPE. The term loan bears interest at
the Federal Funds Rate plus 3.0%. Commencing September 30, 2002 and on the last
day of each calendar quarter thereafter, principal payments of $333,333 are due,
with a final principal payment of $333,337 being due on June 30, 2005. In
anticipation of its acquisition by DMC, Nobelclad acquired the stock of Nitro
Metall and financed this acquisition with proceeds obtained from a term loan
with a French bank in the amount of 1,448,266 Euros ($1,818,587 based upon the
December 31, 2003 exchange rate). This term loan carries interest at the Euro
Interbank Offered Rate ("EURIBOR") plus 0.4%. Annual principal payments of
289,653 Euros begin on June 21, 2004 and are due on each anniversary date
thereafter until final maturity on June 21, 2008. The bank has the option of
demanding early repayment of any outstanding loans if Groupe SNPE's indirect
ownership of Nobelclad falls below 50%. Nobelclad also maintains a 2 million
Euro ($2,511,400 based upon the December 31, 2003 exchange rate) intercompany
working capital line with Groupe SNPE under which borrowings of $753,420 were
outstanding as of December 31, 2003. This intercompany line bears interest at
EURIBOR plus 1.5%. Additionally, DMC maintains a 4,000,000 Swedish Krona line of
credit with a Swedish bank for its Nitro Metall operations. As of December 31,
2003, there was 2,924,959 Swedish Krona in outstanding borrowings under this
line of credit ($403,865 based upon the December 31, 2003 exchange rate) and the
line has a variable interest rate, which was 2.75% at December 31, 2003.

In December 2001, we obtained a $6,000,000 revolving line of credit with a
U.S. bank that replaced the $4,500,000 credit facility between DMC and SNPE,
Inc. This bank line of credit is being used to finance ongoing working capital
requirements of our U.S. operations. Initial proceeds from the bank line of
credit were used to repay $3,650,000 of borrowings that were outstanding under
the credit facility with SNPE, Inc. The bank line expires on December 4, 2004
and carries an interest rate equal to the bank's prime rate plus 0.5%.
Borrowings under the line of credit are limited to a calculated borrowing base
that is a function of inventory and accounts receivable balances and are secured
by accounts receivable and inventories of our U.S. operations and by new
investments in property, plant and equipment with respect to U.S. operations
that are made during the term of the agreement. As of December 31, 2003,
borrowing availability under the line of credit was approximately $3.7 million
greater than the $902,339 in outstanding borrowings as of that date.

We believe that cash flow from operations and funds available under our
current credit facilities and any future replacement thereof will be sufficient
to fund working capital, debt service obligations and capital expenditure
requirements of our current business operations for the foreseeable future.
However, a significant portion of our sales is derived from a relatively small
number of customers; therefore, 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 our ability to meet cash requirements exclusively through
operating activities. Consequently, any restriction on the availability of
borrowing under our credit facilities could negatively affect our ability to
meet future cash requirements. DMC attempts to minimize its risk of losing
customers or specific contracts by continually improving product quality,
delivering product on time and competing favorably on the basis of price. Risks
associated with the availability of funds are minimized by borrowing from
multiple lenders. The nature of DMC's


-19-


business is largely insulated from the negative effects of inflation on sales
and operating income because the pricing on custom orders reflects current raw
material and other manufacturing costs.

The Company's existing loan agreements include various covenants and
restrictions, certain of which relate to the payment of dividends or other
distributions to stockholders, redemption of capital stock, incurrence of
additional indebtedness, mortgaging, pledging or disposition of major assets,
limits on capital expenditures and maintenance of specified financial ratios. As
of December 31, 2003, the Company failed to meet minimum book net worth and
minimum net income covenants for its U.S. operations under its revolving line of
credit with a U.S. bank. At the beginning of 2003, the lender established
monthly, quarterly and annual financial covenants that were based upon Company
management's forecast of operating results for the respective periods. Covenant
violations occurred as a result of an unexpected fourth quarter net loss that
was largely attributable to lower than expected fourth quarter sales and
operating income and a year-end tax provision adjustment. The Company has
obtained waivers from its lender for these violations and new financial
covenants for 2004 have been established that are based upon management's
forecast of 2004 operating results, cash flows and capital expenditures of the
Company's U.S. operations. Therefore, as of December 31, 2003, the Company is in
compliance with all financial covenants and provisions of its debt agreements.
There is no assurance that the Company will not violate financial covenants in
the future and, in the event of a default, that the Company will be successful
in obtaining waivers.

The table below presents principal cash flows and related weighted-average
interest rates by expected maturity dates for the Company's debt obligations.



Payment Due by Period
As of December 31, 2003
-------------------------------------------------------------------------------
Less than More than Total
1 Year 1-3 Years 4-5 Years 5 Years
------------- ------------- ------------- ------------- -------------

Bank lines of credit $ 1,306,204 $ - $ - $ - $ 1,306,204
SNPE S.A. line of credit 753,420 - - - 753,420
SNPE, Inc. Subordinated note - 1,200,000 - - 1,200,000
SNPE, Inc. Term Loan 1,333,332 666,670 - - 2,000,002
Term Loan with French bank 363,717 727,434 727,436 - 1,818,587
Industrial development revenue bonds 930,000 975,000 420,000 1,305,000 3,630,000
------------- ------------- ------------- ------------- -------------
Total debt obligations* 4,686,673 3,569,104 1,147,436 1,305,000 10,708,213

Operating lease obligations** 854,982 1,164,174 795,505 1,088,784 3,903,445

Purchase obligations** 2,612,835 - - - 2,612,835
------------- ------------- ------------- ------------- -------------
Total $ 8,154,490 $ 4,733,278 $ 1,942,941 $ 2,393,784 $17,224,493
============= ============= ============= ============= =============

* Reflected on accompanying consolidated balance sheets.
** Not reflected on accompany consolidated balance sheets.



Debt obligations. For more information about our debt obligations, refer to
Note 4 to the Company's financial statements.

Operating lease obligations. Our operating lease obligations are primarily
real estate and equipment leases used in the normal operation of the business.

Purchase obligations. Purchase obligations represent open purchase
commitments. These commitments are all short term in nature and in the normal
course of the Company's business.


-20-


Highlights From the Statement of Cash Flows for the Year Ended December 31,
2003

Net cash flows provided by operating activities for the year ended December
31, 2003 totaled $2,015,998, which consisted primarily of income from continuing
operations of $588,249 adjusted for non-cash depreciation and amortization
expense of $1,488,961. Also included in cash flows provided by operating
activities was a provision for deferred income taxes of $882,439. These sources
of operating cash flow were partially offset by negative net changes in various
components of working capital in the amount of $943,651. Net negative changes in
working capital included an increase in inventories and a decrease in accrued
expenses of $1,511,423 and $1,120,475 respectively. These negative changes in
working capital were partially offset by a $1,949,478 decrease in accounts
receivable.

Net cash flow used in investing activities for the year ended December 31,
2003 was $917,927 and consisted primarily of $1,009,447 in capital expenditures.

Net cash flow used in financing activities for the year ended December 31,
2003 was $1,244,130. Significant uses of cash for financing activities included
related party debt repayments of $1,333,332 and industrial development revenue
bond principal payments of $855,000. These payments were partially offset by
related party and bank lines of credit borrowings of $425,167 and 335,289
respectively.

Highlights From the Statement of Cash Flows for the Year Ended December 31,
2002

Net cash flows provided by operating activities for the year ended December
31, 2002 was $5,120,716, which consisted primarily of income from continuing
operations of $3,202,266 adjusted for non-cash depreciation and amortization
expense of $1,486,207. Also included in cash flows provided by operating
activities was a provision for deferred income taxes of 1,760,553. Net negative
changes in various components of working capital totaling $1,319,423 partially
offset these sources of cash flow. Negative changes in working capital include
an increase in accounts receivable and a decrease in accounts payable of
$2,041,422 and $1,080,365 respectively. A decrease in inventories of $1,368,847
help to partially offset these negative changes in working capital.

Net cash flow used in investing activities for the year ended December 31,
2002 was $1,444,898 and consisted primarily of $1,473,252 in capital
expenditures.

Net cash flow used in financing activities for the year ended December 31,
2002 was $3,685,286. Significant uses of cash for financing activities included
a $2,451,266 reduction in borrowings under bank lines of credit, related party
debt repayments of $815,107 and industrial development revenue bond principal
payment of $795,000.

Highlights From the Statement of Cash Flows for the Year Ended December 31,
2001

Net cash flows provided by operating activities for the year ended December
31, 2001 totaled $4,827,298. Significant sources of operating cash flow included
income from continuing operations of $3,123,539 and non-cash depreciation and
amortization expense of $1,298,139. Also included in cash flows provided by
operating activities was a provision for deferred income taxes of $293,600.
Positive net changes in various components of working capital contributed
$112,020 to cash flow from operating activities for the year.

Net cash flow used in investing activities for the year ended December 31,
2001 was $1,203,580 and consisted primarily of $1,200,299 in capital
expenditures.

Financing activities for the year ended December 31, 2001 used $1,747,098
of cash. Significant sources of cash flow from financing activities included
borrowings on bank lines of credit in the amount of $3,381,097 and an aggregate
amount of $5,228,000 in proceeds from a term loan with SNPE, Inc and a French
bank related to the acquisition of Nobelclad and Nitro Metall. These sources
were more than offset by the repayment of intercompany line of credit borrowings
in the amount of $3,941,000, distributions to DMC's parent related to July 2001
reorganization of Nobelclad/Nitro Metall in the amount of $5,293,000, bond
principal payments of $725,000, and dividends payments of $296,000 by Nobelclad
and Nitro Metall to NEF, their former parent company.


-21-


Future Capital Needs and Resources

We anticipate that, for the foreseeable future, significant amounts of
available cash flows will be utilized for:

- operating expenses to support our domestic and foreign manufacturing
operations;
- capital expenditures;
- debt service requirements; and
- other general corporate expenditures.

We expect cash inflows from operating activities to exceed outflows for the
full year 2004. However, our success depends on the execution of our strategies,
including our ability to:

- secure an adequate level of new customer orders at all operating
divisions; and
- continue to implement the most cost-effective internal processes.

Based on available cash resources, anticipated capital expenditures and
projected operating cash flow, we believe that we will be able to fully fund our
operations during 2004. In making this assessment, we have considered:

- presently scheduled debt service requirements during 2004, as well as
the availability of funding related to our line of credit with SNPE
and our bank lines of credit;
- the anticipated level of capital expenditures in 2004; and
- our expectation of realizing positive cash flow from operations in 2004.

Critical Accounting Policies

In response to the SEC's Release No. 33-8040, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies, we identified the most critical
accounting principles upon which our financial status depends. We determined the
critical principles by considering accounting policies that involve the most
complex or subjective decisions or assessments. We identified our most critical
accounting policies to be those related to revenue recognition, asset
impairments, inventory valuation and impact of foreign currency exchange rate
risks.

Revenue Recognition. The Company's contracts with its customers generally
require the production and delivery of multiple units or products. The Company
records revenue from its contracts using the completed contract method as
products are completed 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.

Asset Impairments. The Company reviews its long-lived assets and certain
identifiable intangibles to be held and used by the Company for impairment
whenever events or changes in circumstances indicate their carrying amount may
not be recoverable. In so doing, the Company estimates the future net cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future net cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss is
recognized to reduce the asset to its estimated fair value. Otherwise, an
impairment loss is not recognized. Long-lived assets and certain identifiable
intangibles to be disposed of, if any, are reported at the lower of carrying
amount or fair value less cost to sell.

In performing its asset impairment evaluation of Spin Forge fixed assets as
of December 31, 2003, Company management projected a return to profitability of
this division in 2005 and subsequent years that would enable asset
recoverability through the generation of future positive cash flows. Estimates
of such future profitability and positive cash flows are partially dependent on
the continuation of a missile motor case program that is currently on hold and
future revenues from the successful development of new programs. Management
believes its projection of future results are supported by realistic estimates
of future sales volume under existing programs and new sales that should result
from current new business development projects and recent quoting activities.
Spin Forge's projected return to profitability is also supported by the
magnitude of the operating income that it reported in both 1998 and 1999 at
sales levels below those that are projected for 2005 and subsequent years. If
actual results are significantly less than those projected by Company
management, the Company may be required to record an asset impairment in the
future.


-22-


Inventory Valuation. Inventories are stated at the lower-of-cost (first-in,
first-out) or market value. Cost elements included in inventory are material,
labor, subcontract costs and factory overhead.

Impact of Foreign Currency Exchange Rate Risks. The functional currency for
the Company's foreign operations is the applicable local currency for each
affiliate company. Assets and liabilities of foreign subsidiaries for which the
functional currency is the local currency are translated at exchange rates in
effect at period-end, and the statements of operations are translated at the
average exchange rates during the period. Exchange rate fluctuations on
translating foreign currency financial statements into U.S. dollars that result
in unrealized gains or losses are referred to as translation adjustments.
Cumulative translation adjustments are recorded as a separate component of
stockholders' equity and are included in other cumulative comprehensive income
(loss). Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period-end translations) or realized
upon settlement of the transactions. Cash flows from the Company's operations in
foreign countries are translated at actual exchange rates when known, or at the
average rate for the period. As a result, amounts related to assets and
liabilities reported in the consolidated statements of cash flows will not agree
to changes in the corresponding balances in the consolidated balance sheets. The
effects of exchange rate changes on cash balances held in foreign currencies are
reported as a separate line item below cash flows from financing activities.

Impact of SFAS No. 142. In June 2001, the FASB authorized the issuance of
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets. Under SFAS No. 142, goodwill is no longer amortized on a
straight-line basis over its estimated useful life, but is tested for impairment
on an annual basis and whenever indicators of impairment arise. The goodwill
impairment test, which is based on fair value, is to be performed on a reporting
unit level. A reporting unit is defined as a SFAS No. 131 operating segment or
one level lower. Goodwill is no longer allocated to other long-lived assets for
impairment testing under SFAS No. 144, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of. Under SFAS No.
142, intangible assets with indefinite lives are not amortized. Instead, they
are carried at the lower cost or market value and tested for impairment at least
annually. All other recognized intangible assets continue to be amortized over
their estimated useful lives.

DMC adopted SFAS No. 142 as of January 1, 2002 and in early 2002 disclosed
that up to the full amount of the remaining goodwill associated with the
Company's 1998 acquisition of PMP could be impaired. In the fourth quarter of
2002, DMC completed its evaluation of goodwill impairment at PMP and determined
that the remaining goodwill in the amount of $3,800,108 was impaired.
Accordingly, the Company wrote off all of the remaining PMP goodwill, less
associated tax benefits of $1,482,000, and reported the resultant after tax loss
of $2,318,108, or $.46 per diluted share, as a cumulative effect of a change in
accounting principle.

Off Balance Sheet Arrangements

We have no obligations, assets or liabilities other than those disclosed in
the financial statements forming part of this Form 10-K; no trading activities
involving non-exchange traded contracts accounted for at fair value; and no
relationships and transactions with persons or entities that derive benefits
from their non-independent relationship with us or our related parties.

Forward-Looking Statements

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; any actions which may be taken by
SNPE as the controlling shareholder of the Company with respect to the Company
and its businesses; the timing and size of expenditures; the timely receipt of
government approvals and permits; the adequacy of local labor supplies at the
Company's facilities; the availability and cost of funds; and general economic
conditions, both domestically and abroad. Readers are cautioned not to place
undue reliance on


-23-


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.


ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk

The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates, primarily debt
obligations. Since most of the Company's obligations carry variable interest
rates, there is no material difference between the book value and the fair value
of those obligations.

As of December 31,
2003
------------------

Bank lines of credit - variable rates $1,306,204
Weighted average interest rate 3.96%

SNPE S.A. line of credit - variable rate $753,420
Interest rate 3.59%

SNPE, Inc. Subordinated note - fixed rate $1,200,000
Interest rate 5.00%

SNPE, Inc Term-loan - variable rate $2,000,002
Interest rate 3.94%

Term-loan with French bank - variable rate $1,818,587
Interest rate 2.49%

Industrial development revenue Bonds - variable rate $3,630,000
Interest rate 1.35%


Prior to the acquisition of Nobelclad in 2001, all of DMC's sales were made
in U.S. Dollars and, as a result, DMC was not exposed to foreign exchange risks.
On a going forward basis, the functional currencies for the foreign operations
of Nobelclad and Nitro Metall are the Euro and the Swedish Krona, respectively.
Thus, the major foreign exchange risks relates to the Euro / Swedish Krona and
Euro / U.S. Dollar conversion rates. Additionally, the Company occasionally
enters into transactions denominated in currencies other than the local
currency, which exposes us to other foreign exchange risks. Sales made in
currencies other than U.S. Dollars accounted for 31%, 25% and 26% of total sales
for the years ended 2003, 2002 and 2001, respectively.


-24-


ITEM 8. Consolidated Financial Statements


DYNAMIC MATERIALS CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2003 and 2002 and for the Three Years Ended
December 2003, 2002 and 2001

Page

Report of Independent Auditor............................................. 26
Financial Statements:
Consolidated Balance Sheets.......................................... 27
Consolidated Statements of Operations................................ 29
Consolidated Statements of Stockholders' Equity...................... 30
Consolidated Statements of Cash Flows................................ 33
Notes to Consolidated Financial Statements .......................... 35

The consolidated financial statement schedules required by Regulation S-X are
filed under Item 15 "Exhibits, Financial Statement Schedules and Reports on Form
8-K".


-25-


REPORT OF INDEPENDENT AUDITOR

To the Stockholders and the
Board of Directors of Dynamic Materials Corporation:

We have audited the accompanying consolidated balance sheets of Dynamic
Materials Corporation and subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2003. These
consolidated financial statements are the responsibility of Dynamic Materials
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dynamic
Materials Corporation and subsidiaries as of December 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States.

As discussed in Note 3 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets."



/s/ ERNST & YOUNG LLP

Denver, Colorado
February 27, 2004


-26-






DYNAMIC MATERIALS CORPORATION & SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2003 AND 2002

ASSETS 2003 2002
------ ------------ ------------


CURRENT ASSETS:
Cash and cash equivalents $ 521,697 $ 1,158,234
Accounts receivable, net of allowance for doubtful
accounts of $216,384 and $255,769, respectively 6,922,630 8,747,238
Inventories 7,441,712 5,557,063
Prepaid expense and other 1,207,615 798,236
Current portion of promissory note receivable 157,500 -
Current deferred tax asset 388,100 315,500
------------ ------------
Total current assets 16,639,254 16,576,271

PROPERTY, PLANT AND EQUIPMENT 22,702,857 21,096,656
Less - Accumulated depreciation (8,686,208) (7,121,552)
------------ ------------
Property, plant and equipment 14,016,649 13,975,104

RESTRICTED CASH AND INVESTMENTS 191,999 191,202

GOODWILL, net of accumulated amortization of $234,299 847,076 847,076

INTANGIBLE ASSETS, net of accumulated amortization
of $694,854 and $672,354, respectively 66,668 89,168

OTHER ASSETS, net 197,262 289,579

PROMISSORY NOTE RECEIVABLE 422,500 -

NET ASSETS OF DISCONTINUED OPERATIONS - 1,729,592
------------ ------------
TOTAL ASSETS $ 32,381,408 $ 33,697,992
============ ============

The accompanying notes are an integral part
of these consolidated financial statements.




-27-







DYNAMIC MATERIALS CORPORATION & SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2003 AND 2002


LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2002
------------------------------------ ------------ ------------


CURRENT LIABILITIES:
Bank overdraft $ 288,162 $ 213,979
Accounts payable 2,759,121 2,404,662
Accrued expenses 2,379,483 3,340,071
Lines of credit - current 2,059,624 235,367
Current maturities on long-term debt 2,627,049 2,188,332
------------ ------------
Total current liabilities 10,113,439 8,382,411

LONG-TERM BANK LINE OF CREDIT - 929,839

OTHER LONG-TERM DEBT 6,021,540 8,348,791

NET DEFERRED TAX LIABILITIES 485,555 334,200

DEFERRED GAIN ON SWAP TERMINATION 37,245 48,493

OTHER LONG-TERM LIABILITIES 139,223 89,518
------------ ------------
Total liabilities 16,797,002 18,133,252
------------ ------------


STOCKHOLDERS' EQUITY:
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;
5,088,884 and 5,061,390 shares issued and outstanding,
respectively 254,446 253,071
Additional paid-in capital 12,428,545 12,373,568
Retained earnings 2,053,869 2,763,027
Other cumulative comprehensive income 847,546 175,074
------------ ------------
Total stockholders' equity 15,584,406 15,564,740
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,381,408 $ 33,697,992
============ ============

The accompanying notes are an integral part
of these consolidated financial statements.



-28-


DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



2003 2002 2001
------------ ------------ ------------

NET SALES $ 40,277,970 $ 43,885,896 $ 38,256,059

COST OF PRODUCTS SOLD 31,405,999 31,921,432 27,960,955
------------ ------------ ------------
Gross profit 8,871,971 11,964,464 10,295,104
------------ ------------ ------------
COSTS AND EXPENSES:
General and administrative expenses 3,682,150 3,446,363 3,291,659
Selling expenses 3,016,154 2,508,328 2,415,750
------------ ------------ ------------
Total costs and expenses 6,698,304 5,954,691 5,707,409
------------ ------------ ------------
INCOME FROM OPERATIONS 2,173,667 6,009,773 4,587,695

OTHER INCOME (EXPENSE):
Other income (expense), net (18,907) (52,425) (75,833)
Interest expense (336,324) (420,503) (311,571)
Related party interest expense (181,741) (272,727) (488,000)
Interest income 9,560 4,101 26,848
------------ ------------ ------------
INCOME BEFORE INCOME
TAXES 1,646,255 5,268,219 3,739,139

INCOME TAX PROVISION 1,058,006 2,065,953 615,600
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE DISCONTINUED OPERATIONS AND
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 588,249 3,202,266 3,123,539

DISCONTINUED OPERATIONS:
Loss from operations of discontinued operations,
net of tax benefit (587,098) (714,029) (334,309)
Loss on sale of discontinued operations, net of tax benefit (710,309) - -
------------ ------------ ------------
Loss from discontinued operations (1,297,407) (714,029) (334,309)

CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX
BENEFIT OF $1,482,000 - (2,318,108) -
------------ ------------ ------------
NET INCOME (LOSS) $ (709,158) $ 170,129 $ 2,789,230
============ ============ ============
NET INCOME (LOSS) PER SHARE - BASIC:
Continuing operations $ 0.12 $ 0.64 $ 0.62
Discontinued operations (0.26) (0.15) (0.06)
Cumulative effect of a change in accounting principle - (0.46) -
------------ ------------ ------------
Net Income (Loss) $ (0.14) $ 0.03 $ 0.56
============ ============ ============
NET INCOME (LOSS) PER SHARE - DILUTED:
Continuing operations $ 0.12 $ 0.63 $ 0.62
Discontinued operations (0.26) (0.14) (0.07)
Cumulative effect of a change in accounting principle - (0.46) -
------------ ------------ ------------
Net Income (Loss) $ (0.14) $ 0.03 $ 0.55
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING -
Basic 5,067,324 5,042,382 5,003,399
============ ============ ============
Diluted 5,110,806 5,087,051 5,051,223
============ ============ ============


The accompanying notes are an integral part
of these consolidated financial statements.


-29-





DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


Other Compre-
Common Stock Additional Retained Equity of Cumulative hensive
----------------------- Paid-In Earnings of Nobelclad and Comprehensive Income for
Shares Amount Capital the Company Nitro Metall Loss Total the Period
------------ --------- ------------ ------------ ------------- ------------- ------------ -----------

Balances,
December 31, 2000 4,990,331 $249,517 $12,262,109 $ 792,668 $ 4,600,000 $ (165,000) $17,739,294

Shares issued for
stock option
exercises 1,250 63 2,125 - - - 2,188

Shares issued in
connection with the
employee stock
purchase plan 38,402 1,920 51,362 - - - 53,282

Dividends paid by
Nobelclad and
Nitro Metall to
former parent
company (see Note 2) - - - - (296,000) - (296,000)

Deemed dividend for
debt obligation to
SNPE and third party
debt assumed in July
2001 as a part of
reorganization of
entities under
common control
(See Note 2) - - - (989,000) (4,304,000) - (5,293,000)

Net income - - - 2,789,230 - - 2,789,230 2,789,230

Change in cumulative
foreign currency
translation adjustment - - - - - (349,000) (349,000) (349,000)
----------- --------- ------------ ------------ ------------- ------------- ------------ -----------
Balances,
December 31, 2001 5,029,983 $251,500 $12,315,596 $ 2,592,898 $ - $ (514,000) $14,645,994 $2,440,230
=========== ========= ============ ============ ============= ============= ============ ===========



The accompanying notes are an integral part of these
consolidated financial statements.


-30-







DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


Other
Common Stock Additional Retained Cumulative Comprehensive
----------------------- Paid-In Earnings of Comprehensive Income for
Shares Amount Capital the Company Income (Loss) Total the Period
----------- ---------- ------------- ----------- ------------- ------------ -------------


Balances, December 31, 2001 5,029,983 $ 251,500 $ 12,315,596 $2,592,898 $ (514,000) $ 14,645,994

Shares issued for stock option
exercises 17,252 863 24,577 - - 25,440

Shares issued in connection
with the employee stock
purchase plan 14,155 708 33,395 - - 34,103

Net income - - - 170,129 - 170,129 170,129

Change in cumulative foreign
currency translation adjustment - - - - 689,074 689,074 689,074

----------- ----------- ------------- ------------ ------------ ------------ ---------
Balances, December 31, 2002 5,061,390 $ 253,071 $ 12,373,568 $2,763,027 $ 175,074 $ 15,564,740 $ 859,203
=========== =========== ============= ============ ============ ============ =========



The accompanying notes are an integral part of these
consolidated financial statements.



-31-





DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


Other
Common Stock Additional Retained Cumulative Comprehensive
----------------------- Paid-In Earnings of Comprehensive Income for
Shares Amount Capital the Company Income (Loss) Total the Period
----------- ---------- ------------- ----------- ------------- ------------ -------------


Balances, December 31, 2002 5,061,390 $ 253,071 $ 12,373,568 $2,763,027 $ 175,074 $ 15,564,740

Shares issued for stock option
exercises 5,000 250 11,000 - - 11,250

Shares issued in connection
with the employee stock
purchase plan 22,494 1,125 43,977 - - 45,102

Net loss - - - (709,158) - (709,158) (709,158)

Derivative valuation, net of
tax of $27,276 - - - - (42,662) (42,662) (42,662)

Change in cumulative foreign
currency translation adjustment - - - - 715,134 715,134 715,134
----------- ----------- ------------- ------------ ------------ ------------ ---------
Balances, December 31, 2003 5,088,884 $ 254,446 $ 12,428,545 $2,053,869 $ 847,546 $ 15,584,406 $ (36,686)
=========== =========== ============= ============ ============ ============ =========



The accompanying notes are an integral part of these
consolidated financial statements.


-32-






DYNAMIC MATERIALS CORPORATION & SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

2003 2002 2001
------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 588,249 $ 3,202,266 $ 3,123,539
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities -
Depreciation 1,477,709 1,465,311 1,223,336
Amortization 22,500 34,500 90,593
Amortization of deferred gain on swap termination (11,248) (13,604) (15,790)
Provision for deferred income taxes 882,439 1,760,553 293,600
Gain on sale of property, plant and equipment - (8,887) -
Change in -
Accounts receivable, net 1,949,478 (2,041,422) 629,303
Inventories (1,511,423) 1,368,847 (706,604)
Prepaid expenses and other (396,754) 124,929 (194,971)
Accounts payable 135,523 (1,080,365) (559,250)
Accrued expenses (1,120,475) 308,588 943,542
------------ ------------ ------------
Net cash flows provided by
operating activities 2,015,998 5,120,716 4,827,298
------------ ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Earnings on bond proceeds (797) (2,074) (9,734)
Acquisition of property, plant and equipment (1,009,447) (1,473,252) (1,200,299)
Change in other non-current assets 92,317 20,428 6,453
Proceeds from sale of property, plant and equipment - 10,000 -
------------ ------------ ------------
Net cash flows used in investing activities (917,927) (1,444,898) (1,203,580)
------------ ------------ ------------



-33-





DYNAMIC MATERIALS CORPORATION & SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

2003 2002 2001
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings/(repayments) on bank lines of credit, net 335,289 (2,451,266) 3,381,097
Borrowings/(repayments) on related party lines of credit, net 425,167 (148,441) (3,941,000)
Payment on SNPE Inc term loan (1,333,332) (666,666) -
Payment on industrial development revenue bond (855,000) (795,000) (725,000)
Change in other long-term liabilities 28,859 80,672 -
Net proceeds from issuance of common stock to employees 56,352 59,543 55,470
Reorganization of entities under common control-
Borrowed from parent under note payable - - 4,000,000
Borrowed from bank - - 1,228,000
Distributions to parent for July 2001 reorganization - - (5,293,000)
Dividends paid by Nobelclad / Nitro Metall to former parent company - - (296,000)
Payments on capital lease obligation - - (3,394)
Payment on deferred financing costs - - (146,109)
Bank overdraft 98,532 235,871 -
Repayment of bank overdraft - - (7,159)
------------ ------------ ------------
Net cash flows used in financing
activities (1,244,133) (3,685,287) (1,747,095)
------------ ------------ ------------
EFFECTS OF EXCHANGE RATES ON CASH 133,819 222,945 (70,000)

CASH FLOWS USED IN DISCONTINUED OPERATIONS (624,294) (866,860) (293,535)
------------ ------------ ------------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (636,537) (653,384) 1,513,088

CASH AND CASH EQUIVALENTS, beginning of the period 1,158,234 1,811,618 298,530
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of the period $ 521,697 $ 1,158,234 $ 1,811,618
============ ============ ============


SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:

Cash paid during the period for -
Interest $ 547,852 $ 552,642 $ 683,542
============ ============ ============
Income taxes $ 759,353 $ 317,546 $ 154,531
============ ============ ============



The accompanying notes are an integral part
of these consolidated financial statements.


-34-


DYNAMIC MATERIALS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003, 2002 AND 2001

(1) ORGANIZATION AND BUSINESS

Dynamic Materials Corporation (the "Company") was incorporated in the state
of Colorado in 1971, and reincorporated in the state of Delaware during 1997, to
provide products and services requiring explosive metalworking. The Company is
headquartered in Boulder, Colorado and has manufacturing facilities in the
United States, France and Sweden. Customers are located throughout North
America, Western Europe, Australia and the Far East. The Company currently
operates under two business groups - explosion metalworking, in which metals are
metallurgically joined or altered by using explosives; and aerospace, in which
parts are machined, formed or welded primarily for the commercial aircraft and
aerospace industries. The Company's wholly-owned subsidiary, Nobelclad Europe
S.A. ("Nobelclad"), was acquired during 2001 (See Note 2) from an affiliate of
the Company's parent.

Transaction with SNPE, Inc.

On June 14, 2000, the Company's stockholders approved a Stock Purchase
Agreement ("the Agreement") between the Company and SNPE, Inc. ("SNPE"). The
closing of the transaction, which was held immediately following stockholder
approval, resulted in a payment from SNPE of $5,800,000 to the Company in
exchange for 2,109,091 shares of the Company's common stock at a price of $2.75
per share causing SNPE to become a 50.8% stockholder of the Company on the
closing date. In addition, the Company borrowed $1,200,000 under a convertible
subordinated note from SNPE. The Company also borrowed $3,500,000 under a credit
facility with SNPE (see Note 4). Proceeds from the SNPE equity investment,
convertible subordinated note issuance and credit facility borrowings enabled
the Company to repay all borrowings from its bank under a revolving credit
facility on which the Company had been in default since September 30, 1999. SNPE
Inc. held 406,400 shares of the Company, prior to the Agreement, and purchased
an additional 248,000 shares on June 20, 2000. SNPE, Inc. currently owns
2,763,491 shares or 54% of the Company's common stock.

(2) ACQUISITIONS

On July 3, 2001, the Company completed its acquisition of substantially all
of the outstanding stock of Nobelclad from Nobel Explosifs France ("NEF").
Nobelclad and its wholly-owned subsidiary, Nitro Metall AB ("Nitro Metall"),
operate cladding businesses located in Rivesaltes, France and Likenas, Sweden,
respectively. NEF is wholly owned by SNPE S.A. ("Groupe SNPE") and is a sister
company to SNPE, Inc., which owns 54% of the Company's common stock. The
purchase price of approximately $5.3 million was financed through a $4.0 million
intercompany note agreement between the Company and SNPE, Inc. and the
assumption of approximately $1.23 million in third party bank debt associated
with Nobelclad's acquisition of Nitro Metall from NEF prior to the Company's
purchase of Nobelclad stock.

As a result of the Company and Nobelclad both being majority owned by
Groupe SNPE, the acquisition of Nobelclad has been accounted for as a
reorganization of entities under common control. The financial statements of the
Company for the year ended December 31, 2000 have been retroactively restated to
effectively combine the historical financial statements of Nobelclad and Nitro
Metall prospectively, from June 2000, the date SNPE acquired a majority interest
in the Company. The purchase price paid by the Company in July 2001 of $5.3
million, the majority of which was financed by a note payable to SNPE and
third-party debt assumed from SNPE, is reflected in the statement of
stockholder's equity as a deemed dividend paid to SNPE at the time of the
reorganization.


-35-


(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and subsidiary in which it has a greater than a 50% interest. All significant
intercompany accounts, profits and transactions have been eliminated in
consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.

Foreign Operations and Foreign Exchange Rate Risk

The functional currency for the Company's foreign operations is the
applicable local currency for each affiliate company. Assets and liabilities of
foreign subsidiaries for which the functional currency is the local currency are
translated at exchange rates in effect at period-end, and the statements of
operations are translated at the average exchange rates during the period.
Exchange rate fluctuations on translating foreign currency financial statements
into U.S. dollars that result in unrealized gains or losses are referred to as
translation adjustments. Cumulative translation adjustments are recorded as a
separate component of stockholders' equity and are included in other cumulative
comprehensive income (loss). Transactions denominated in currencies other than
the local currency are recorded based on exchange rates at the time such
transactions arise. Subsequent changes in exchange rates result in transaction
gains and losses which are reflected in income as unrealized (based on
period-end translations) or realized upon settlement of the transactions. Cash
flows from the Company's operations in foreign countries are translated at
actual exchange rates when known, or at the average rate for the period. As a
result, amounts related to assets and liabilities reported in the consolidated
statements of cash flows will not agree to changes in the corresponding balances
in the consolidated balance sheets. The effects of exchange rate changes on cash
balances held in foreign currencies are reported as a separate line item below
cash flows from financing activities.

Cash and Cash Equivalents

For purposes of the financial statements, the Company considers highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents. Cash held in escrow and restricted to a specific use is
classified based on the expected timing of such disbursement.

Inventories

Inventories are stated at the lower-of-cost (first-in, first-out) or market
value. Cost elements included in inventory are material, labor, subcontract
costs and factory overhead.

Inventories consist of the following at December 31, 2003 and 2002:

2003 2002
------------- -------------
Raw materials $ 2,757,459 $ 1,846,038
Work-in-process 4,435,019 3,528,978
Supplies 249,234 182,047
------------- -------------
$ 7,441,712 $ 5,557,063
============= =============


-36-


Shipping and handling costs incurred by the Company upon shipment to
customers are included in cost of products sold in the accompanying consolidated
statement of operations.

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:

Building and improvements 3-30 years
Manufacturing equipment and tooling 3-15 years
Furniture, fixtures and computer equipment 3-10 years
Other 3-10 years

Property, plant and equipment consists of the following at December 31, 2003 and
2002:

2003 2002
-------------- --------------
Land $ 523,212 $ 477,613
Building and improvements 7,201,921 6,735,131
Manufacturing equipment and tooling 11,598,264 10,844,490
Furniture, fixtures and computer equipment 2,505,265 2,469,665
Other 874,195 569,757
-------------- --------------
$ 22,702,857 $ 21,096,656
============== ==============


Asset Impairments

The Company reviews its long-lived assets and certain identifiable
intangibles to be held and used by the Company for impairment whenever events or
changes in circumstances indicate their carrying amount may not be recoverable.
In so doing, the Company estimates the future net cash flows expected to result
from the use of the asset and its eventual disposition. If the sum of the
expected future net cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is recognized to
reduce the asset to its estimated fair value. Otherwise, an impairment loss is
not recognized. Long-lived assets and certain identifiable intangibles to be
disposed of, if any, are reported at the lower of carrying amount or fair value
less cost to sell. On January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). There was no impact to the Company
upon adopting SFAS 144.

Goodwill

Goodwill represents the excess of acquisition costs over the fair value of
net assets of businesses acquired. Prior to the Company's January 1, 2002
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets ("SFAS 142"), goodwill was amortized on a straight-line
basis over a period of 25 years. Under, SFAS 142, goodwill is no longer required
to be amortized; however, the carrying value of goodwill must be tested annually
for impairment.

In the year of its adoption, SFAS 142 required a transitional goodwill
impairment evaluation, which was a two-step process. The first step was to
determine whether there was an indication that goodwill was impaired on January
1, 2002. SFAS 142 required a separate impairment evaluation of goodwill relating
to the Company's U.S.-based Clad Metal Products and Precision Machined Products
("PMP") reporting units, the only two reporting units with recorded goodwill. To
perform the first step, either Company management or a third party appraiser
estimated the fair value of each reporting unit based upon discounting the
expected future cash flows. The estimated fair value of each reporting unit was
then compared to its carrying value, including goodwill. This first step
evaluation indicated an impairment of the goodwill recorded by its PMP reporting
unit, but no impairment of the goodwill recorded with respect to its U.S.-based
Clad Metal Products reporting unit.


-37-


Since the first step indicated an impairment of PMP's goodwill, SFAS 142
required a second step to determine the amount of the impairment. The amount of
the impairment was determined by comparing the implied fair value of PMP's
goodwill to its carrying value. The implied fair value of the goodwill was
determined by allocating the estimated fair value of PMP to its assets and
liabilities as if it had been acquired on January 1, 2002 and the estimated fair
value was the purchase price. Any excess "purchase price" over the amounts
assigned to the assets and liabilities would represent the implied value of
goodwill. In the case of PMP, the estimated fair value or "purchase price" was
less than the amounts assigned to the assets and liabilities. Therefore, the
full carrying value of PMP goodwill in the amount of $3,800,108 was considered
impaired and the resultant loss associated with the write-off of this amount,
net of a tax benefit of $1,482,000, was recorded as a cumulative effect of a
change in accounting principle in the consolidated statement of operations for
the year ended December 31, 2002.

The following tables summarize the Company's net income before
extraordinary item and cumulative effect of a change in accounting principle,
net income (loss), and earnings (loss) per share had the provisions of SFAS 142
been in effect on January 1, 2001:



December 31,
----------------------------------------------
2003 2002 2001
------------- ------------- -------------

Reported income from continuing operations before
discontinued operations and cumulative effect of a
change in accounting principle $ 588,249 $ 3,202,266 $ 3,123,539
Goodwill amortization, net of tax of $84,500 in 2001 - - 132,100
------------- ------------- -------------
Adjusted income from continuing operations before
discontinued operations and cumulative effect of a
change in accounting principle $ 588,249 $ 3,202,266 $ 3,255,639
============= ============= =============
Basic per share - as reported $ 0.12 $ 0.64 $ 0.62
============= ============= =============
Diluted per share - as reported $ 0.12 $ 0.63 $ 0.62
============= ============= =============
Basic per share - adjusted $ 0.12 $ 0.64 $ 0.65
============= ============= =============
Diluted per share - adjusted $ 0.12 $ 0.63 $ 0.64
============= ============= =============

December 31,
----------------------------------------------
2003 2002 2001
------------- ------------- -------------

Reported net income $ (709,158) $ 170,129 $ 2,789,230
Goodwill amortization, net of tax of $84,500 in 2001 - - 132,100
------------- ------------- -------------
Adjusted net income (loss) $ (709,158) $ 170,129 $ 2,921,330
============= ============= =============
Basic per share - as reported $ (0.14) $ 0.03 $ 0.56
============= ============= =============
Diluted per share - as reported $ (0.14) $ 0.03 $ 0.55
============= ============= =============
Basic per share - adjusted $ (0.14) $ 0.03 $ 0.58
============= ============= =============
Diluted per share - adjusted $ (0.14) $ 0.03 $ 0.58
============= ============= =============




-38-



Intangible Assets

The Company holds numerous product and process patents related to the
business of explosion metalworking and metallic products produced by various
explosive processes. The Company's current patents expire between 2002 and 2012;
however, expiration of any single patent is not expected to have a material
adverse effect on the Company or its operations.

Patent costs are included in intangible assets in the accompanying balance
sheets and include primarily legal and filing fees associated with the patent
registration. These costs are amortized over the expected useful life of the
issued patent, up to 17 years.

Non-compete agreements are included in intangible assets in the
accompanying balance sheets and are fully amortized as of December 31, 2003.

Intangible assets are summarized as follows as of December 31, 2003 and
2002:

2003 2002
-------------- --------------

Non-compete agreements $ 420,000 $ 420,000
Patents and other 341,522 341,522
---------- ----------
761,522 761,522
Accumulated amortization (694,854) (672,354)
---------- ----------
$ 66,668 $ 89,168
========== ==========

Other Assets

Included in other assets are deferred financing costs of $108,558 and
$175,174, net of accumulated amortization of $168,299 and $101,683, as of
December 31, 2003 and 2002, respectively. The deferred financing costs
outstanding at December 31, 2003 related to the Company's line of credit with a
U.S. bank (see Note 4) and the replacement letter of credit on the industrial
revenue bonds (see Note 4). The Company obtained the new bank line of credit in
December 2001 and is amortizing the related deferred financing costs over the
three-year term of the loan agreement. The original letter of credit on the
industrial revenue bonds expired in September 2001 at which time the Company
obtained a replacement letter of credit. The deferred financing costs associated
with the replacement letter of credit in the amount of $100,225 are being
amortized over its five-year term. Also included in other assets at December 31,
2003 and 2002 are net bond issue costs of $60,799 and $79,159, respectively,
associated with the industrial development revenue bonds used to finance the
Company's new manufacturing facility (Note 4). These costs, which originally
totaled $195,720, are being amortized over the life of the bonds.

Revenue Recognition

The Company's contracts with its customers generally require the production
and delivery of multiple units or products. The Company records revenue from its
contracts using the completed contract method as products are completed 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.


-39-


Net Income (Loss) Per Share

Basic earnings per share ("EPS") is computed by dividing net income (loss)
by the weighted average number of shares of common stock outstanding during the
period. Diluted EPS recognizes the potential dilutive effects of dilutive
securities. The following represents a reconciliation of the numerator and
denominator used in the calculation of basic and diluted EPS:



For the year ended December 31, 2003
----------------------------------------------
Per share
Income Shares Amount
----------- ---------- ----------


Basic loss per share:
Net loss $ (709,158) 5,067,324 $ (0.14)

Dilutive effect of options to purchase common stock - 43,482
----------- ----------

Dilutive loss per share:
Net loss $ (709,158) 5,110,806 $ (0.14)
=========== ========== ==========



For the year ended December 31, 2002
----------------------------------------------
Per share
Income Shares Amount
----------- ---------- ----------

Basic earnings per share:
Net income $ 170,129 5,042,382 $ 0.03

Dilutive effect of options to purchase common stock - 44,669
----------- ----------
Dilutive earnings per share:
Net income $ 170,129 5,087,051 $ 0.03
=========== ========== ==========



For the year ended December 31, 2001
----------------------------------------------
Per share
Income Shares Amount
----------- ---------- ----------
Basic earnings per share:
Net income $2,789,230 5,003,399 $ 0.56

Dilutive effect of options to purchase common stock - 47,824
----------- ----------
Dilutive earnings per share:
Net income $2,789,230 5,051,223 $ 0.55
=========== ========== ==========



-40-


Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, trade accounts receivable
and payable, accrued expenses and notes receivable are considered to approximate
fair value due to the short-term nature of these instruments. The fair value of
the Company's long-term debt is estimated to approximate carrying value based on
the borrowing rates currently available to the Company for bank loans with
similar terms and average maturities.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected
future income tax consequences based on enacted tax laws of temporary
differences between the financial reporting and tax bases of assets and
liabilities. The Company recognizes deferred tax assets for the expected future
effects of all deductible temporary differences. Deferred tax assets are then
reduced, if deemed necessary, by a valuation allowance for the amount of any tax
benefits which, more likely than not based on current circumstances, are not
expected to be realized (see Note 6).

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to a
concentration of credit risk, consist primarily of cash, restricted cash, cash
equivalents and accounts receivable. Generally, the Company does not require
collateral to secure receivables. Other than the one foreign currency hedging
arrangement discussed below under "Derivatives," the Company currently has no
significant financial instruments with off-balance sheet risk of accounting
losses, such as options contracts or other foreign currency hedging
arrangements.

Derivatives

The Company's U.S. cladding operation has a 1,107,000 Euro contract with a
German customer. In order to hedge its risk with respect to this sales order,
the Company has contracted with Groupe SNPE to acquire $1,320,098, at a fixed
price, in exchange for 1,107,000 Euros during the period from March 1, 2004 to
June 30, 2004 (the date range for payment settlement under this sales order). As
of December 31, 2003, the company has a derivative liability associated with
this forward contract of $42,662. The derivative liability is included in
accrued expenses on the accompanying consolidated balance sheet as of December
31, 2003 with the offsetting charge reflected in other cumulative comprehensive
income (loss) on the statement of changes in stockholders' equity.

With respect to this foreign currency hedging arrangement, the Company
follows Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instrument and Hedging Activities ("SFAS 133"), which establishes
fair value accounting and reporting standards for derivative instruments and
hedging activities. SFAS 133 requires every derivative instrument (including
certain derivative instruments embedded in other contracts) to be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset the related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting treatment. Based on
the criteria established by SFAS 133, the Company's hedge is deemed effective.
While the Company expects that its derivative instruments will continue to meet
the conditions for hedge accounting, if hedges did not qualify as highly
effective or if the Company did not believe that forecasted transactions would
occur, the changes in the fair value of the derivatives used as a hedge would be
reflected in earnings. The Company does not believe it is exposed to more than a
nominal amount of credit risk in its hedging activities, as the counterparties
are established, well-capitalized financial institutions.


-41-


Other Cumulative Comprehensive Income (Loss)

Other cumulative comprehensive income (loss) as of December 31, 2003, 2002
and 2001 consisted of the following:

2003 2002 2001
----------- ----------- ------------
Currency translation adjustment $ 890,208 $ 175,074 $ (514,000)
Derivative valuation adjustment (42,662) - -
----------- ----------- ------------
$ 847,546 $ 175,074 $ (514,000)
=========== =========== ============

Stock Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for its employee stock options including Statement
of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure ("SFAS 148"). Under APB 25, because the
exercise price of the Company's employee stock options is generally equal to the
market price of the underlying stock on the date of the grant, no compensation
expense is recognized. Statement of Financial Accounting Standards No. 123,
Accounting and Disclosure of Stock-Based Compensation ("SFAS 123"), establishes
an alternative method of expense recognition for stock-based compensation awards
to employees that is based on fair values. The Company elected not to adopt SFAS
123 for expense recognition purposes.

Pro-forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options and employees stock purchase plan under the fair
value method of SFAS 123. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:


2003 2002 2001
-------------- ------------- -------------
Risk-free interest rate 2.7% 3.8% 4.4%
Expected lives 4.0 years 4.0 years 4.0 years
Expected volatility 83.2% 101.2% 103.0%
Expected dividend yield 0.0% 0.0% 0.0%


The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including expected stock price
characteristics significantly different from those of traded options. Because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

The weighted average fair value of options granted during 2003, 2002 and
2001 was $1.60, $2.18, and $1.45, respectively. For purposes of pro-forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting periods. The Company's pro-forma net income (loss) and
pro-forma net income (loss) per share, as if the Company had used the fair value
accounting provisions of SFAS 123, are shown below.


-42-




2003 2002 2001
----------- ---------- -----------

Net income (loss):
As reported $ (709,158) $ 170,129 $ 2,789,230
Expense calculated under SFAS 123 (208,750) (203,110) (235,801)
----------- ---------- -----------
Pro forma $ (917,908) $ (32,981) $ 2,553,429
=========== ========== ===========

Basic net income (loss) per common share:
As reported $ (0.14) $ 0.03 $ 0.56
=========== ========== ===========
Pro forma $ (0.18) $ (0.01) $ 0.51
=========== ========== ===========

Diluted net income (loss) per common share:
As reported $ (0.14) $ 0.03 $ 0.55
=========== ========== ===========
Pro forma $ (0.18) $ (0.01) $ 0.51
=========== ========== ===========



(4) DEBT

Lines of credit consist of the following at December 31, 2003 and 2002:

2003 2002
-------------- -------------
Bank lines of credit $ 1,306,204 $ 929,839
SNPE S.A line of credit 753,420 235,367
-------------- -------------
2,059,624 1,165,206
Less current portion (2,059,624) (235,367)
-------------- -------------
Long-term bank line of credit $ - $ 929,839
============== =============


Other long-term debt consists of the following at December 31, 2003 and
2002:

2003 2002
-------------- -------------
SNPE, Inc. Convertible subordinated note $ 1,200,000 $ 1,200,000
SNPE, Inc. Term loan 2,000,002 3,333,334
Term loan - French bank 1,818,587 1,518,789
Industrial development revenue bonds 3,630,000 4,485,000
-------------- -------------
8,648,589 10,537,123
Less current maturities (2,627,049) (2,188,332)
-------------- -------------
Other long-term debt $ 6,021,540 $ 8,348,791
============== =============


-43-



Bank Lines of Credit

In December 2001, the Company obtained a $6,000,000 revolving line of
credit with a U.S. bank that has an outstanding balance of $902,339 as of
December 31, 2003. At closing, proceeds from the line of credit were used to
retire line of credit borrowings from SNPE and the line is used to finance
ongoing working capital requirements of the Company's U.S. operations. The line
of credit, which expires on December 4, 2004, carries an interest rate equal to
the bank's prime rate plus 1% through February 28, 2002 and the bank's prime
rate plus 0.5% thereafter. Maximum borrowings under the line of credit are
limited to a calculated borrowing base ($4,576,989 based on inventory and
accounts receivable balances as of December 31, 2003) and are secured by
accounts receivable and inventories of the Company's U.S. operations and by
investments in property, plant and equipment with respect to U.S. operations
that are made during the term of the agreement and that constitute capital
expenditures. The interest rate on outstanding borrowings as of December 31,
2003 was 4.50%.

In addition, the Company maintains a 4,000,000 Swedish Krona line of credit
with a Swedish bank for its Nitro Metall operations. As of December 31, 2003,
there was 2,924,959 Swedish Krona in outstanding borrowings under this line of
credit ($403,865 based upon the December 31, 2003 exchange rate). Borrowings
under the line of credit are secured by real estate used in Nitro Metall's
operations. This line of credit carries an interest rate equal to the basic rate
stipulated by the Central Bank of Sweden ("Repo Rate") which was 2.75% as of
December 31, 2003.

SNPE S.A. Line of Credit

The Company's subsidiary, Nobelclad, has a line of credit or "cash
agreement" with SNPE S.A. ("Groupe SNPE") that provides for up to 2 million
Euros ($2,511,400 based upon the December 31, 2003 exchange rate) in cash
advances to meet the working capital needs of Nobelclad. Borrowings under the
line had an outstanding balance of 600,000 Euros ($753,420 based upon the
December 31, 2003 exchange rate) and bears interest at EURIBOR plus 1.5%. The
line expires on December 31, 2004 but is subject to annual renewal by the
parties. The agreement automatically terminates if Groupe SNPE loses its
indirect control of Nobelclad. The interest rate on outstanding borrowings as of
December 31, 2003 was 3.59%.

SNPE, Inc. Convertible Subordinated Note

In connection with the SNPE transaction (see Note 1), a cash payment was
made by SNPE to the Company to purchase a five-year, 5% Convertible Subordinated
Note ("Subordinated Note"). SNPE may convert the $1,200,000 Subordinated Note
into common stock of the Company at a conversion price of $6 per share at any
time up to, and including the maturity date (June 14, 2005). If the note is not
converted, the entire principal balance is due at the maturity date.

SNPE, Inc. Term Loan

In connection with its July 3, 2001 acquisition of Nobelclad, the Company
entered into a $4,000,000 term loan agreement with SNPE, Inc. The term loan
bears interest at the Federal Funds Rate plus 3.0%, payable quarterly.
Commencing September 30, 2002 and on the last day of each calendar quarter
thereafter, principal payments of $333,333 are due, with the final principal
payment of $333,337 being due on June 30, 2005. The Company made all of the
scheduled principal payments during 2002 and 2003; the balance as of December
31, 2003 is $2,000,002. The term loan is secured by a pledge of 65% of the
capital stock of Nobelclad held by the Company. The interest rate on outstanding
borrowings as of December 31, 2003 was 3.94%.

Term Loan - French Bank

In June 2001, Nobelclad obtained a term loan with a French bank that
provides for borrowings of 1,448,265 Euros ($1,818,587 based upon the December
31, 2003 exchange rate), the full amount of which was outstanding as of December
31, 2003 and 2002. Proceeds from the term loan were used to finance Nobelclad's
acquisition of the stock of Nitro Metall (see Note 2). Borrowings under the term
loan bear interest at EURIBOR plus 0.4%. Beginning on June 21, 2004 and on each
anniversary date thereafter until final maturity on June 21, 2008, principal
payments of 289,653 Euros will be required. The bank has the option of demanding
early repayment of any outstanding loans if Groupe


-44-


SNPE's indirect ownership of Nobelclad falls below 50%. The interest rate on
outstanding borrowings as of December 31, 2003 was 2.49%.

Industrial Development Revenue Bonds

During September 1998, the Company began construction on a new
manufacturing facility in Fayette County, Pennsylvania. This project financed
with proceeds from industrial development revenue bonds issued by the Fayette
County Industrial Development Authority. The loan bears interest at a variable
rate which is set weekly based on the current weekly market rate for tax-exempt
bonds. The interest rate at December 31, 2003 was 1.35%. Principal payments,
which vary in amount, are paid on a quarterly basis though out the life of the
bonds. The Company has established a bank letter of credit in the trustee's
favor for the principal amount of outstanding bonds plus 98 days accrued
interest on the bonds. The original letter of credit, which expired in September
2001, was secured by the U.S.-based accounts receivable, inventory, property,
plant and equipment of the Company's Explosive Metalworking Group and the bond
proceeds not yet expended for construction. On September 5, 2001, the Company
obtained a replacement letter of credit from a different bank that has a
five-year term and does not require an asset pledge. The portion of the
borrowings not yet expended for construction was $191,999 and $191,202 as of
December 31, 2003 and 2002, respectively, and is classified as restricted cash
and investments in the accompanying balance sheets. A trustee holds the proceeds
until qualified expenditures are made and reimbursed to the Company. The Company
may redeem the bonds prior to their final maturity on September 1, 2013 at an
amount equal to the outstanding principal plus any accrued interest. Annual
principal repayments ranging from $185,000 to $930,000 are required with final
maturity on September 1, 2013.

In September 1998, the Company entered into an interest rate swap agreement
with its bank under which the Company converted the variable interest rate on
the bonds to a rate that is largely fixed. The Company terminated this swap
agreement during the third quarter of 1999 resulting in a deferred gain of
$105,300, which is being amortized over the term of the bonds.

Loan Covenants and Restrictions

The Company's existing loan agreements include various covenants and
restrictions, certain of which relate to the payment of dividends or other
distributions to stockholders, redemption of capital stock, incurrence of
additional indebtedness, mortgaging, pledging or disposition of major assets,
limits on capital expenditures and maintenance of specified financial ratios. As
of December 31, 2003, the Company failed to meet minimum book net worth and
minimum net income covenants for its U.S. operations under its revolving line of
credit with a U.S. bank. At the beginning of 2003, the lender established
monthly, quarterly and annual financial covenants that were based upon Company
management's forecast of operating results for the respective periods. Covenant
violations occurred as a result of an unexpected fourth quarter net loss that
was largely attributable to lower than expected fourth quarter sales and
operating income and a year-end tax provision adjustment. The Company has
obtained waivers from its lender for these violations and new financial
covenants for 2004 have been established that are based upon management's
forecast of 2004 operating results, cash flows and capital expenditures of the
Company's U.S. operations. Therefore, as of December 31, 2003, the Company is in
compliance with all financial covenants and provisions of its debt agreements.
There is no assurance that the Company will not violate financial covenants in
the future and, in the event of a default, that the Company will be successful
in obtaining waivers.


-45-


Scheduled Debt Maturity

The Company's long-term debt matures as follows:

Year ended December 31-
2004 $ 2,627,049
2005 3,020,387
2006 548,717
2007 563,717
2008 583,719
Thereafter 1,305,000
------------
$ 8,648,589
============

(5) COMMON STOCK OPTIONS AND BENEFIT PLAN

Stock Option Plans

The Company maintains stock option plans that provide for grants of both
incentive stock options and non-statutory stock options. During 1997, the 1992
Incentive Stock Option Plan and the 1994 Non-employee Director Stock Option Plan
were both amended and restated in the form of the 1997 Equity Incentive Plan,
which was approved by the Company's stockholders in May of 1997. Incentive stock
options are granted at exercise prices that equal the fair market value at date
of grant based upon the closing sales price of the Company's common stock on
that date. Incentive stock options generally vest 25% annually and expire ten
years from the date of grant. Non-statutory stock options are granted at
exercise prices that range from 85% to 100% of the fair market value of the
stock at date of grant. These options vest over periods ranging from one to four
years and have expiration dates that range from five to ten years from the date
of grant. Under the 1997 Equity Incentive Plan, there are 1,075,000 shares of
common stock authorized to be granted, of which 124,500 remain available for
future grants.

A summary of stock option activity for the years ended December 31, 2003,
2002 and 2001 is as follows:



2003 2002 2001
--------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- --------- --------- --------- --------- --------

Outstanding at beginning of year 600,498 $ 4.05 465,750 $ 4.27 354,251 $ 5.75
Granted 116,000 $ 2.60 166,500 $ 3.03 187,000 $ 2.02
Cancelled (7,250) $ (2.70) (14,500) $ 2.53 (74,251) $ 5.69
Exercised (5,000) $ (2.25) (17,252) $ 1.47 (1,250) $ 1.75
--------- --------- --------- --------- --------- --------
Outstanding at end of year 704,248 $ 3.84 600,498 $ 4.05 465,750 $ 4.27
========= ========= ========= ========= ========= ========
Exercisable at end of year 425,814 $ 4.63 316,755 $ 5.38 239,941 $ 5.93
========= ========= ========= ========= ========= ========



-46-



The weighted average fair values and weighted average exercise prices of options
granted are as follows:



For the Year Ended For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002 December 31, 2001
------------------------------- ------------------------------- -------------------------------
Fair Exercise Fair Exercise Fair Exercise
Number Value Price Number Value Price Number Value Price
--------- ------- ---------- --------- ------- ---------- --------- ------- ----------

Exercise Price
- --------------
Less than market
price - - 35,000 $ 1.83 $ 2.65
Equal to market price 116,000 $ 1.60 $ 2.60 166,500 $ 2.18 $ 3.03 152,000 $ 1.36 $ 1.88
--------- ------- ---------- --------- ------- ---------- --------- ------- ----------
Total 116,000 $ 1.60 $ 2.60 166,500 $ 2.18 $ 3.03 187,000 $ 1.45 $ 2.02
========= ======= ========== ========= ======= ========== ========= ======= ==========



The following table summarizes information about employee stock options
outstanding and exercisable at December 31, 2003:



Options Outstanding Options Exercisable
----------------------------------------------------- --------------------------------
Number of Weighted
Options Average Number
Range of Outstanding at Remaining Weighted Exercisable at Weighted
Exercise December 31, Contractual Life Average December 31, Average
Prices 2003 in Years Exercise Price 2003 Exercise Price
- ------------ -------------- ---------------- -------------- -------------- --------------


$1.33 - 1.88 196,998 6.87 $1.76 122,814 $1.70
$2.00 - 2.39 101,250 8.79 $2.32 38,250 $2.25
$2.65 - 2.83 88,000 9.19 $2.77 30,000 $2.65
$3.35 - 4.19 142,500 7.59 $3.49 59,250 $3.70
$5.31 - 9.63 175,500 3.81 $7.86 175,500 $7.86
============== ================ ============== ============== ==============
$1.33 - 9.63 704,248 6.82 $3.84 425,814 $4.63
============== ================ ============== ============== ==============


Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan ("ESPP") which is
authorized to issue up to 225,000 shares. The offerings begin on the first day
following each previous offering ("Offering Date") and end six months from the
offering date ("Purchase Date"). The ESPP provides that full time employees may
authorize the Company to withhold up to 15% of their earnings, subject to
certain limitations, to be used to purchase common stock of the Company at the
lesser of 85% of the fair market value of the Company's common stock on the
Offering Date or the Purchase Date. In connection with the ESPP, 22,494, 14,155
and 38,402 shares of the Company's stock were purchased during the years ended
December 31, 2003, 2002 and 2001, respectively.


-47-



The pro forma net income calculation in Note 3 reflects $19,001, $15,253 and
$26,575 in compensation expense associated with the ESPP for 2003, 2002 and
2001, respectively. The compensation expense represents the fair value of the
employees' purchase rights which was estimated using an acceptable pricing model
with the following weighted average assumptions:

Year Ended December 31,
--------------------------------------------------
2003 2002 2001
---------------- ------------------ --------------

Risk-free interest rate 1.4% 2.2% 4.6%
Expected lives 0.5 year 0.5 year 0.5 year
Expected volatility 74.4% 78.5% 98.0%
Expected dividend yield 0.0% 0.0% 0.0%


401(k) Plan

The Company offers a contributory 401(k) plan (the "Plan") to its
employees. For the years 2002 and 2001, the Company made matching contributions
to the Plan equal to 50% of each employee's contribution for up to the first 8%
of each employee's compensation for 2002 and 2001. Beginning in 2003, the
Company made matching contributions equal to 100% of each employee's
contribution up to 3% and 50% for the next 2% contributed. Total Company
contributions were $263,903, $166,556 and $161,104 for the years ended December
31, 2003, 2002 and 2001, respectively.


(6) INCOME TAXES

The components of the provision for income taxes are as follows:

2003 2002 2001
----------- ----------- ----------
Current - Federal $ 118,400 $ - $ 32,000
Current - State - - -
Current - Foreign 57,167 305,400 290,000
----------- ----------- ----------
175,567 305,400 322,000

Deferred - Federal 798,799 1,525,100 275,400
Deferred - State 117,100 224,200 9,200
Deferred - Foreign (33,460) 11,253 9,000
----------- ----------- ----------
882,439 1,760,553 293,600
----------- ----------- ----------
$ 1,058,006 $ 2,065,953 $ 615,600
=========== =========== ==========


-48-


The Company's deferred tax assets and liabilities at December 31, 2003 and
2002 consist of the following:

2003 2002
------------ -----------
Deferred tax assets:
Federal net operating loss carry-forward $ 932,500 $ 70,400
Federal AMT tax credit carry-forward 160,000 112,800
State net operating loss carry-forward 135,600 -
Inventory 15,700 33,700
Inventory reserve 22,200 29,200
Allowance for doubtful accounts 93,600 74,500
Repair reserve 19,500 19,500
Vacation accrual 171,200 118,500
Accrual for unbilled services 9,800 5,100
Goodwill impairment - 1,482,000
Other 56,100 35,300
------------ -----------
1,616,200 1,981,000
Deferred tax liability:
Depreciation (1,499,100) (1,609,000)
Amortization (22,300) (184,000)
Foreign income taxed in future periods (133,155) (141,300)
Other (59,100) (65,400)
------------ -----------
Net deferred tax liabilities $ (97,455) $ (18,700)
============ ===========


Net current deferred tax assets $ 388,100 $ 315,500
Net long-term deferred tax liabilities (485,555) (334,200)
------------ -----------
$ (97,455) $ (18,700)
============ ===========


A reconciliation of the Company's income tax provision computed by applying
the federal statutory income tax rate of 34% to income before taxes is as
follows:



2003 2002 2001
----------- ----------- -----------

Federal income tax at statutory rate $ 559,727 $ 1,791,194 $ 1,271,000
State tax items, net 86,490 263,411 144,500
Effect of difference between U.S. Federal
and Foreign tax rates 2,308 63,848 (3,000)
Permanent differences - tax effected 11,265 (52,500) 8,100
Tax on foreign dividend received 324,120 - -
Revision of prior years estimates 74,096 - 195,000
AMT expense - - 32,000
Change in valuation allowance - - (1,032,000)
------------ ------------ ------------
Provision for income taxes $ 1,058,006 $ 2,065,953 $ 615,600
============ ============ ============



-49-



The domestic and foreign components of income before tax are summarized
below:

2003 2002 2001
------------ ----------- -----------
Domestic $ 1,696,670 $ 4,458,239 $ 2,851,139
Foreign (50,415) 809,980 888,000
------------ ----------- -----------
$ 1,646,255 $ 5,268,219 $ 3,739,139
============ =========== ===========

The Company has $2,739,000 in NOL carry-forwards for U.S. Federal tax
purposes that expire through 2023.

(7) BUSINESS SEGMENTS

The Company is organized in the following two segments: the Explosive
Metalworking Group ("Explosive Manufacturing") and the Aerospace Group
("Aerospace"). Explosive Manufacturing uses explosives to perform metal cladding
and shock synthesis. The most significant product of this group is clad metal
which is used in the fabrication of pressure vessels, heat exchangers and
transition joints used in the hydrocarbon processing, chemical processing, power
generation, petrochemical, pulp and paper, mining, shipbuilding and heat,
ventilation and air conditioning industries. Aerospace machines, forms and welds
parts for the commercial aircraft, aerospace and defense industries.

The accounting policies of both segments are the same as those described in
the summary of significant accounting policies.

The Company's reportable segments are strategic business units that offer
different products and services and are separately managed. Each segment is
marketed to different customer types and requires different manufacturing
processes and technologies.


-50-


Segment information is presented for the years ended December 31, 2003,
2002 and 2001 as follows:



Explosive
Manufacturing Aerospace Total
--------------- ----------- ------------

As of and for the year ended December 31, 2003:
Net sales $ 33,043,448 $7,234,522 $40,277,970
============== =========== ============
Depreciation and amortization $ 1,049,431 $ 450,778 $ 1,500,209
============== =========== ============
Income (loss) from operations $ 2,854,818 $ (681,151) $ 2,173,667
Unallocated amounts:
Other income (expense) (18,907)
Interest expense (518,065)
Interest income 9,560
------------
Consolidated income before income taxes $ 1,646,255
============
Segment assets $ 22,877,667 $6,417,068 $29,294,735
============== =========== ============

Assets not allocated to segments:
Cash 521,697
Prepaid expenses and other 1,207,615
Current deferred tax asset 388,100
Promissory note 580,000
Other long-term corporate assets 389,261
------------
Consolidated total assets $32,381,408
============
Capital expenditures $ 648,222 $ 361,225 $ 1,009,447
============== =========== ============





Explosive
Manufacturing Aerospace Total
--------------- ----------- ------------

As of and for the year ended December 31, 2002:
Net sales $ 35,603,415 $8,282,481 $43,885,896
============== =========== ============
Depreciation and amortization $ 1,008,788 $ 491,023 $ 1,499,811
============== =========== ============
Income (loss) from operations $ 6,149,962 $ (140,189) $ 6,009,773
Unallocated amounts:
Other income (expense) (52,425)
Interest expense (693,230)
Interest income 4,101
------------
Consolidated income before income taxes $ 5,268,219
============
Segment assets $ 21,799,134 $7,416,515 $29,215,649
============== =========== ============

Assets not allocated to segments:
Cash 1,158,234
Prepaid expenses and other 798,236
Current deferred tax asset 315,500
Assets held for sale 1,729,592
Other long-term corporate assets 480,781
------------
Consolidated total assets $33,697,992
============
Capital expenditures $ 678,182 $ 795,070 $ 1,473,252
============== =========== ============



-51-




Explosive
Manufacturing Aerospace Total
--------------- ----------- ------------

As of and for the year ended December 31, 2001:
Net sales $ 30,019,586 $8,236,473 $38,256,059
============== =========== ============
Depreciation and amortization $ 999,465 $ 314,464 $ 1,313,929
============== =========== ============
Income (loss) from operations $ 4,487,824 $ 99,871 $ 4,587,695
Unallocated amounts:

Other income (expense) (75,833)
Interest expense (799,571)
Interest income 26,848
------------
Consolidated income before income taxes $ 3,739,139
============
Segment assets $ 21,274,942 $7,109,449 $28,384,391
============== =========== ============

Assets not allocated to segments:
Cash 1,811,618
Prepaid expenses and other 347,326
Current deferred tax asset 261,400
Assets held for sale 5,710,380
Other long-term corporate assets 398,230
------------
Consolidated total assets $36,913,345
============
Capital expenditures $ 613,893 $ 586,406 $ 1,200,299
============== =========== ============




The geographic location of the Company's property, plant and equipment, net
of accumulated depreciation, is as follows:

For the years ended December 31,
-------------------------------------------------
2003 2002 2001
----------- ----------- -----------
United States $10,939,851 $11,403,135 $11,414,631
France 2,664,584 2,216,691 1,834,000
Sweden 412,214 355,278 305,000
----------- ----------- -----------
Total $14,016,649 $13,975,104 $13,553,631
=========== =========== ===========


-52-


All of the Company's sales are shipped from the manufacturing locations
located in the United States, France and Sweden. The following represents the
Company's net sales based on the geographic location of the customer:

For the years ended December 31,
-----------------------------------------------
2003 2002 2001
----------- ----------- -----------
United States $22,378,493 $29,321,031 $25,385,261
Canada 4,610,234 2,460,128 1,687,545
Australia 1,768,111 659,641 553,444
Italy 1,617,396 642,744 1,540,802
Russia 1,488,164 416,921 4,731
France 1,424,053 1,571,567 1,190,898
Belgium 794,506 3,383,202 1,839,361
Netherlands 749,410 625,888 746,599
Spain 586,562 693,259 948,171
South Korea 579,011 56,473 10,139
Mexico 569,666 592,121 305,757
Germany 549,954 663,791 600,991
Other foreign countries 3,162,410 2,799,130 3,442,360
----------- ----------- -----------
Total $40,277,970 $43,885,896 $38,256,059
=========== =========== ===========


During the years ended December 31, 2003, 2002 and 2001, no one customer
accounted for more than 10% of total net sales.

(8) COMMITMENTS AND CONTINGENCIES

The Company leases certain office space, storage space, vehicles and other
equipment under various operating lease agreements. Future minimum rental
commitments under non-cancelable operating leases are as follows:

Year ended December 31-
2004 $ 854,982
2005 715,308
2006 448,866
2007 418,327
2008 377,178
Thereafter 1,088,784
-----------
$ 3,903,445
===========


Total rental expense included in operations was $808,132, $847,180 and
$660,868 in the years ended December 31, 2003, 2002 and 2001, respectively.


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.


-53-


(9) DISCONTINUED OPERATIONS

On October 7, 2003, DMC completed the sale of its PMP division. The sales
price was $580,000 and is being financed through the issuance of a promissory
note payable over a 21/2year period. The sale included the inventory and
property, plant and equipment of PMP. December 31, 2002 inventory and property,
plant and equipment balances for PMP which total $1,729,592 have been
reclassified on the December 31, 2002 balance sheet to net assets of
discontinued operations.

Operating results of the discontinued operations (formerly included in the
Aerospace Group) for the years ended December 31, 2003, 2002 and 2001 are
summarized as follows:



For the years ended December 31,
-----------------------------------------------
2003 2002 2001
------------ ------------ ------------

Net Sales $ 1,532,716 $ 1,771,673 $ 4,258,715
============ ============ ============
Loss from discontinued operations $ (962,098) $(1,170,629) $ (548,309)

Tax benefit 375,000 456,600 214,000
------------ ------------ ------------
Loss from discontinued operations,
net of tax $ (587,098) $ (714,029) $ (334,309)
============ ============ ============


Loss on sale of discontinued
operations $(1,164,309) $ - $ -

Tax benefit 454,000 - -
------------ ------------ ------------
Loss on sale of discontinued
operations, net of tax $ (710,309) $ - $ -
============ ============ ============



-54-


ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not applicable.


ITEM 9A. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on this evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect the internal controls subsequent to the date the
Company completed its evaluation.


-55-


PART III


ITEM 10. Directors and Executive Officers of the Registrant

The information required by this Item 10 will be set forth in our Proxy
Statement for 2004 Annual Meeting of Shareholders (the "2004 Proxy Statement")
under the captions "Proposal for Election of Directors," "Principal Shareholders
and Management Ownership" and "Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference.


ITEM 11. Executive Compensation

The information required by this Item 11 will be set forth in the 2004
Proxy Statement under the captions "Management Compensation" and "Report on
Executive Compensation" and is incorporated herein by reference.


ITEM 12. Security Ownership of Certain Beneficial Owners, Management and
Related Shareholders Matters

The information required by this Item 12 will be set forth in the 2004
Proxy Statement under the caption "Principal Shareholders and Management
Ownership" and is incorporated herein by reference.


ITEM 13. Certain Relationships and Related Transactions

The information required by this Item 13 will be set forth in the 2004
Proxy Statement under the caption "Certain Transactions" and is incorporated
herein by reference.


ITEM 14. Principal Accountant Fees and Services

The information required by this Item 14 will be set forth in the 2004
Proxy Statement under the caption "Fees Billed to the Company by Ernst & Young
LLP" and is incorporated herein by reference.


-56-


ITEM 15. Exhibits, List and Reports on Form 8-K


Exhibits

Exhibit
Number Description
- ------- -----------

4.1 Shareholders Rights Plan, dated January 8, 1999 (incorporated by
reference to the Company's Registration Statement filed with the
Commission on January 21, 1999).
10.1 Employment Agreement between Company and Richard Santa dated October
21, 1996 (incorporated by reference to the Company's Form 10-K filed
with the Commission on March 30, 2000).
10.3 Employee Stock Purchase Plan, dated January 9, 1998 (incorporated by
reference to the Company's Definitive Proxy Statement filed with the
Commission on April 22, 1998).
10.4 Operating Lease, dated as of March 18, 1998, between Company and Spin
Forge, LLC (incorporated by reference to the Company's Form 8-K filed
with the Commission on April 2, 1998).
10.5 Option Agreement, dated as of March 18, 1998, between Company and Spin
Forge, LLC (incorporated by reference to the Company's Form 8-K filed
with the Commission on April 2, 1998).
10.6 Loan Agreement between Company and Fayette County Industrial
Development Authority, dated September 1, 1998 (incorporated by
reference to the Company's Form 10-Q filed with the Commission on
November 17, 1998).
10.7 Option and Right of First Offer Agreement, dated as of December 1,
1998, between the Company and JEA Property, LLC (incorporated by
reference to the Company's Form 8-K filed with the Commission on
December 8, 1998).
10.8 Operating Lease, dated as of December 1, 1998, between the Company and
JEA Property, LLC (incorporated by reference to the Company's Form 8-K
filed with the Commission on December 8, 1998).
10.9 Amended and Restated Employee Stock Option Plan approved by the
Directors of the Company on March 26, 1999 (incorporated by reference
to the Company's Definitive Proxy Statement filed with the Commission
on April 26, 1999).
10.10 Stock Purchase Agreement, dated January 20, 2000, between the Company
and SNPE, Inc. (incorporated by reference to the Company's Form 8-K
filed with the Commission on January 31, 2000).
10.11 Agreement and Amendment to Operating Lease, dated as of February 1,
2000 between the Company and Spin Forge, LLC (incorporated by
reference to the Company's Form 10-K filed with the Commission on
March 30, 2000).
10.12 Letter Agreement, dated February 1, 2000 terminating a Loan Agreement
between the Company and Spin Forge, LLC, which Loan Agreement was
dated as of March 18, 1998 (incorporated by reference to the Company's
Form 10-K filed with the Commission on March 30, 2000).
10.13 Second Amendment to Deferral and Waiver Agreement, dated as of March
27, 2000, between Company and Key Bank National Association
(incorporated by reference to the Company's Form 10-K filed with the
Commission on March 30, 2000).
10.14 Form of Directors and Officers Indemnification Agreement (incorporated
by reference to the Company's Form 10-K filed with the Commission on
March 30, 2000).
10.15 Stock Purchase Agreement, dated as of January 20, 2000, between the
Company and SNPE, Inc. (incorporated by reference to the Company's
Definitive Proxy Statement filed with the Commission on May 9, 2000).
10.16 Amendment Number One to Stock Purchase Agreement, dated as of April
20, 2000, between the Company and SNPE, Inc. (incorporated by
reference to the Company's Form 10-Q filed with the Commission on May
12, 2000).
10.17 Third Amendment to Deferral and Waiver Agreement, dated as of May 2,
2000, between the Company and Keybank National Association
(incorporated by reference to the Company's Form 10-Q filed with the
Commission on May 12, 2000).


-57-


10.18 Registration Rights Agreement, dated as of June 14, 2000, between the
Company and SNPE, Inc. (incorporated by reference to the Company's
Form 8-K filed with the Commission on June 22, 2000).
10.19 First Amendment to Rights Agreement, dated as of June 13, 2000,
between the Company and Harris Trust & Savings Bank (incorporated by
reference to the Company's Form 8-K filed with the Commission on June
22, 2000).
10.20 Credit Facility and Security Agreement, dated as of June 14, 2000,
between the Company and SNPE, Inc. (incorporated by reference to the
Company's Form 8-K filed with the Commission on June 22, 2000).
10.21 Convertible Subordinated Note, dated as of June 14, 2000, between the
Company and SNPE, Inc. (incorporated by reference to the Company's
Form 8-K filed with the Commission on June 22, 2000).
10.22 First Amendment to Reimbursement Agreement, dated as of June 14, 2000,
between the Company and Keybank National Association (incorporated by
reference to the Company's Form 8-K filed with the Commission on June
22, 2000).
10.23 Personal Services Agreement, dated as of June 16, 2000, between the
Company and John G. Banker (incorporated by reference to the Company's
Form 8-K filed with the Commission on June 22, 2000).
10.24 Stock Purchase Agreement, dated June 28, 2001, between DMC and Nobel
Explosifs France (incorporated by reference to the Company's Form 8-K
filed with the Commission on July 16, 2001).
10.25 Term Loan Agreement, dated July 3, 2001, between DMC and SNPE, Inc.
(incorporated by reference to the Company's Form 10-K filed with the
Commission on March 26, 2002).
10.26 Stock Pledge Agreement, dated July 3, 2001, between DMC and SNPE, Inc.
(incorporated by reference to the Company's Form 10-K filed with the
Commission on March 26, 2002).
10.27 Credit and Security Agreement, dated December 4, 2001, between DMC and
Wells Fargo Business Credit, Inc. (incorporated by reference to the
Company's Form 10-K filed with the Commission on March 26, 2002).
23.1 Consent of Ernst & Young LLP, Independent Auditors
99.1 Letter from DMC to the SEC regarding the Company's Auditors
(incorporated by reference to the Company's Form 10-K filed with the
Commission on March 26, 2002).
99.2 Certification of the President and Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.3 Certification of the Vice President and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.


(B) Reports on Form 8-K

Report on Form 8-K, filed October 22, 2003, reporting the sale of the
Precision Machined Products Division to Silvertip, L.L.C.



-58-


SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

DYNAMIC MATERIALS CORPORATION



March 22, 2004 By: /s/ Richard A. Santa
---------------------
Richard A. Santa
Vice President and Chief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.



SIGNATURE TITLE DATE


/s/ Yvon Pierre Cariou President and Chief Executive Officer March 22, 2004
- -------------------------------- (Principal Executive Officer)
Yvon Pierre Cariou

/s/ Richard A. Santa Vice President and Chief Financial Officer March 22, 2004
- -------------------------------- (Principal Financial and Accounting Officer)
Richard A. Santa

/s/ John G. Banker Vice President, Marketing & Sales, Clad Metal Division March 22, 2004
- -------------------------------- (Executive Officer)
John G. Banker

/s/ Bernard Fontana Chairman and Director March 22, 2004
- --------------------------------
Bernard Fontana

/s/ Dean K. Allen Director March 22, 2004
- --------------------------------
Dean K. Allen

/s/ Jacques Loppion Director March 22, 2004
- --------------------------------
Jacques Loppion

/s/ Francois Schwartz Director March 22, 2004
- --------------------------------
Francois Schwartaz

/s/ Bernard Hueber Director March 22, 2004
- --------------------------------
Bernard Hueber

/s/ Gerard Munera Director March 22, 2004
- --------------------------------
Gerard Munera

/s/ George W. Morgenthaler Director March 22, 2004
- --------------------------------
George W. Morgenthaler



-59-


CERTIFICATIONS

I, Yvon Pierre Cariou, certify that:

1. I have reviewed this annual report on Form 10-K of Dynamic Materials
Corporation;

2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:

a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.



Dated: March 22, 2004

/s/ Yvon Pierre Cariou
--------------------------------------
Yvon Pierre Cariou
President and Chief Executive Officer
of Dynamic Materials Corporation


-60-



CERTIFICATIONS


I, Richard A. Santa, certify that:

1. I have reviewed this annual report on Form 10-K of Dynamic Materials
Corporation;

2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:

a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.



Dated: March 22, 2004

/s/ Richard A. Santa
------------------------------------------
Richard A. Santa
Vice President and Chief Financial Officer
of Dynamic Materials Corporation


-61-


DYNAMIC MATERIALS CORPORATION
INDEX TO SCHEDULE II

AS OF DECEMBER 31, 2003

PAGE

Report of Independent Auditor................................................63
Schedule II (a)..............................................................64
Schedule II (b)..............................................................64
Schedule II (c) .............................................................64


-62-



REPORT OF INDEPENDENT AUDITOR

To the Stockholders and the
Board of Directors of Dynamic Materials Corporation:

We have audited the consolidated financial statements of Dynamic Materials
Corporation as of December 31, 2003 and 2002, and for each of the three years in
the period ended December 31, 2003, and have issued our report thereon dated
February 27, 2004 (included elsewhere in this Form 10-K). Our audits also
included the financial statement schedules listed in Item 15 of this Form 10-K.
These schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these schedules based on our audits.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.



/s/ ERNST & YOUNG LLP

Denver, Colorado
February 27, 2004


-63-



DYNAMIC MATERIALS CORPORATION
SCHEDULE II(a) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS




Balance at Additions Accounts Balance at
beginning charged to receivable Other end of
of period income written off adjustments period
----------- ---------- ----------- ----------- ----------

Year ended -

December 31, 2001 $ 130,000 $ 101,304 $ (14,036) $ 17,036 $ 234,304

December 31, 2002 $ 234,304 $ 133,688 $(122,923) $ 10,700 $ 255,769

December 31, 2003 $ 255,769 $ 15,000 $ (54,385) $ - $ 216,384



DYNAMIC MATERIALS CORPORATION
SCHEDULE II(b) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
WARRANTY RESERVE




Balance at Additions Balance at
beginning charged to Repairs end of
of period income allowed period
---------- ----------- ----------- ----------

Year ended -

December 31, 2001 $ 80,000 $ 48,325 $ (53,325) $ 75,000

December 31, 2002 $ 75,000 $ 96,840 $ (21,840) $ 150,000

December 31, 2003 $ 150,000 $ 28,403 $ (28,403) $ 150,000



DYNAMIC MATERIALS CORPORATION
SCHEDULE II(c) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
INVENTORY RESERVE




Balance at Additions Balance at
beginning charged to Inventory end of
of period income write-offs period
---------- ----------- ----------- ----------

Year ended -

December 31, 2001 $ - $ - $ - $ -

December 31, 2002 $ - $ 75,000 - $ 75,000

December 31, 2003 $ 75,000 $ 52,561 $ (70,525) $ 57,036



-64-



Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement File
Nos. 333-58033 and 333-54166 of our report dated February 27, 2004, with respect
to the consolidated financial statements and schedules of Dynamic Material
Corporation included in its Annual Report (Form 10-K) for the year ended
December 31, 2003.

/s/ Ernst & Young LLP

Denver, Colorado
March 19, 2004


-65-



Exhibit 99.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Dynamic Materials Corporation (the
"Company") on Form 10-K for the period ended December 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Yvon
Pierre Cariou, President and Chief Executive Officer of the Company, certify
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

(i) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

(ii) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.


March 22, 2004



/s/ Yvon Pierre Cariou
-------------------------------------
Yvon Pierre Cariou
President and Chief Executive Officer
of Dynamic Materials Corporation



A signed original of this written statement required by Section 906 has been
provided to Dynamic Materials Corporation and will be retained by Dynamic
Materials Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.


-66-


Exhibit 99.3

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Dynamic Materials Corporation (the
"Company") on Form 10-K for the period ended December 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Richard
A. Santa, Vice President and Chief Financial Officer of the Company, certify
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

(i) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

(ii) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.


March 22, 2004



/s/ Richard A. Santa
------------------------------------------
Richard A. Santa
Vice President and Chief Financial Officer
of Dynamic Materials Corporation


A signed original of this written statement required by Section 906 has been
provided to Dynamic Materials Corporation and will be retained by Dynamic
Materials Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.



-67-