U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2005.
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-16250
DYNATEM, INC.
(Exact name of small business issuer as specified in its charter)
| California | 95-3627099 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
23263 Madero, Suite C, Mission Viejo, California 92691
(Address of principal executive offices)
(949) 855-3235
(Issuer’s telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
On December 31, 2005, there were 1,464,564 shares of the issuer’s Common Stock outstanding.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x
Transitional Small Business Disclosure Format (check one): Yes ¨ No x
DYNATEM, INC.
Part I. | Financial Information | |||
Item 1. | Financial Statements (Unaudited) | |||
Condensed Balance Sheets at November 30, 2005 and May 31, 2005 | 1 | |||
| 2 | ||||
Condensed Statements of Operations for the Six Months Ended November 30, 2005 and November 30, 2004 | 3 | |||
Condensed Statements of Cash Flows for the Six Months Ended November 30, 2005 and November 30, 2004 | 4 | |||
| 5 | ||||
Item 2. | 8 | |||
Item 3. | 11 | |||
Part II. | 12 | |||
CONDENSED BALANCE SHEETS (UNAUDITED)
| November 30, 2005 | May 31, 2005 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 611,157 | $ | 720,046 | ||||
Accounts receivable, net | 489,633 | 280,446 | ||||||
Inventories | 982,533 | 814,675 | ||||||
Prepaid expenses | 15,662 | 43,506 | ||||||
Total current assets | 2,098,985 | 1,858,673 | ||||||
Property and equipment, net | 51,344 | 53,043 | ||||||
Other assets | 12,517 | 12,252 | ||||||
| $ | 2,162,846 | $ | 1,923,968 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 248,451 | $ | 219,967 | ||||
Credit line advances | 50,000 | — | ||||||
Accrued expenses | 356,075 | 278,234 | ||||||
Total current liabilities | 654,526 | 498,201 | ||||||
Commitment and Contingencies | — | — | ||||||
Stockholders’ equity: | ||||||||
Common stock, no par value, 50,000,000 shares authorized; 1,469,564 and 1,469,564 shares issued and outstanding | 2,185,408 | 2,185,408 | ||||||
Accumulated deficit | (677,088 | ) | (759,641 | ) | ||||
Total stockholders’ equity | 1,508,320 | 1,425,767 | ||||||
| $ | 2,162,846 | $ | 1,923,968 | |||||
See accompanying notes to condensed financial statements.
1
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended November 30, 2005 and 2004
| 2005 | 2004 | |||||||
Net sales | $ | 989,305 | $ | 771,231 | ||||
Cost of sales | 629,525 | 503,909 | ||||||
Gross profit | 359,780 | 267,322 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative | 302,032 | 271,454 | ||||||
Research and development | 129,248 | 140,889 | ||||||
Total operating expenses | 431,280 | 412,343 | ||||||
Operating loss | (71,500 | ) | (145,021 | ) | ||||
Other income, net | 2,780 | 3,728 | ||||||
Loss before income taxes | $ | (68,720 | ) | $ | (141,293 | ) | ||
Provision for income taxes | — | 800 | ||||||
Net loss | $ | (68,720 | ) | $ | (142,093 | ) | ||
Loss per share – basic and diluted | $ | (0.05 | ) | $ | (0.10 | ) | ||
Weighted average shares outstanding – basic and diluted | 1,469,564 | 1,480,773 | ||||||
See accompanying notes to condensed financial statements.
2
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Six months ended November 30, 2005 and 2004
| 2005 | 2004 | ||||||
Net sales | $ | 2,044,324 | $ | 1,335,537 | |||
Cost of sales | 1,118,036 | 868,362 | |||||
Gross profit | 926,288 | 467,175 | |||||
Operating expenses: | |||||||
Selling, general and administrative | 583,840 | 521,533 | |||||
Research and development | 265,725 | 271,974 | |||||
Total operating expenses | 849,565 | 793,507 | |||||
Operating income (loss) | 76,723 | (326,332 | ) | ||||
Other income, net | 6,630 | 6,382 | |||||
Net income (loss) before taxes | 83,353 | (319,950 | ) | ||||
Provision for income taxes | 800 | 800 | |||||
Net income (loss) | $ | 82,553 | $ | (320,750 | ) | ||
Income (loss) per share - basic | $ | 0.06 | $ | (0.22 | ) | ||
Income (loss) per share - diluted | $ | 0.05 | $ | (0.22 | ) | ||
Weighted average shares outstanding – basic | 1,469,564 | 1,490,110 | |||||
Weighted average shares outstanding – diluted | 1,595,364 | 1,490,110 | |||||
See accompanying notes to condensed financial statements.
3
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For Six months ended November 30, 2005 and 2004
| 2005 | 2004 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 82,553 | $ | (320,750 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 3,528 | 7,686 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (209,187 | ) | 480,477 | |||||
Inventories | (167,858 | ) | (2,692 | ) | ||||
Prepaid expenses | 27,844 | 20,288 | ||||||
Accounts payable | 28,484 | (16,412 | ) | |||||
Accrued expenses | 77,841 | 84,748 | ||||||
Net cash provided by (used in) operating activities | (156,795 | ) | 253,345 | |||||
Cash flows from investing activities: | ||||||||
Purchases of fixed assets | (1,829 | ) | (8,569 | ) | ||||
Changes in other assets | (265 | ) | (2,516 | ) | ||||
Net cash used in investing activities | (2,094 | ) | (11,085 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from credit line advances | 109,500 | — | ||||||
Proceeds from exercise of stock options | — | 3,500 | ||||||
Payment of credit line advances | (59,500 | ) | — | |||||
Payment of repurchase and retirement of the Company’s Common Stock | — | (101,400 | ) | |||||
Net cash provided by (used in) investing activities | 50,000 | (97,900 | ) | |||||
Net increase (decrease) in cash | (108,889 | ) | 144,360 | |||||
Cash, beginning balance | 720,046 | 1,042,600 | ||||||
Cash, ending balance | $ | 611,157 | $ | 1,186,960 | ||||
See accompanying notes to condensed financial statements.
4
Notes to Condensed Financial Statements
November 30, 2005 and 2004
(1)Interim Accounting Policy
In the opinion of the management of Dynatem, Inc. (the “Company”), the accompanying unaudited financial statements include only normal recurring adjustments necessary for a fair presentation of the Company’s financial position as of November 30, 2005 and the results of operations and cash flows for the three and six months ended November 30, 2005 and November 30, 2004, respectively. Although the Company believes that the disclosures in these financial statements are adequate to ensure that the information presented is not misleading, certain information and footnote information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Results of operations for interim periods are not necessarily indicative of results of operations to be expected for the full year.
(2)Significant Recently Issued Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs - an amendment of ARB No. 43, Chapter 4,” which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. In Chapter 4 of ARB 43, paragraph 5 previously stated that “…under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and re-handling costs may be so abnormal as to require treatment as current period charges….” SFAS No. 151 requires that such items be recognized as current-period charges, regardless of whether they meet the criterion of so abnormal (an undefined term). This pronouncement also requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred in years beginning after June 15, 2005.
In December 2004, the FASB issued SFAS No. 123-R, “Share-Based Payment,” which requires that the compensation cost relating to share-based payment transactions (including the cost of all employee stock options) be recognized in the financial statements. That cost will be measured based on the estimated fair value of the equity or liability instruments issued. SFAS No. 123-R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No.123-R replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” As originally issued, SFAS No. 123 established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that pronouncement permitted entities to continue applying the intrinsic-value model of APB Opinion 25, provided that the financial statements disclosed the pro forma net income or loss based on the preferable fair-value method.
Small Business Issuers are required to apply SFAS No. 123-R in the first interim reporting period of the first annual period that begins after December 15, 2005.
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Notes to Condensed Financial Statements
November 30, 2005 and 2004
In December 2004, the following pronouncements were also issued:
The FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured using the estimated fair value of the assets exchanged. SFAS No. 153 eliminates the narrow exception for nonmonetary exchanges of similar productive assets, and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has “commercial substance” if the future cash flows of the entity are expected to change significantly as a result of the transaction. This pronouncement is effective for nonmonetary exchanges in fiscal periods beginning after June 15, 2005.
Management is presently evaluating the potential effect, if any, the above pronouncements might have on its future financial statements.
(3)Accounting for Stock-Based Compensation
The Company presently accounts for employee stock options in accordance with the Accounting Principles Board Opinion No. 25 (“APB 25”)“Accounting for Stock Issued to Employees”and related Interpretations and makes the necessary pro forma disclosures mandated by SFAS No. 123 (“SFAS 123”)“Accounting for Stock-based Compensation.”
At November 30, 2005, the Company has two stock-based employee compensation plans (the “Plans”). The Company accounts for the Plans under the recognition and measurement principles of APB 25 and related Interpretations. There was no stock-based employee compensation cost reflected in net income for the periods ended November 30, 2005 and 2004 under APB 25. If the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation, the effect would be insignificant. The effects of applying SFAS No. 123 are not likely to be a representation of the pro forma effect on reported net income (loss) for future periods.
(4)Inventories
A summary of inventories follows:
| November 30, 2005 | May 31, 2005 | |||||
Raw materials and component parts | $ | 615,035 | $ | 474,626 | ||
Work-in-process | 292,706 | 253,435 | ||||
Finished goods | 74,792 | 86,614 | ||||
| $ | 982,533 | $ | 814,675 | |||
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Notes to Condensed Financial Statements
November 30, 2005 and 2004
(5)Earnings (Loss) Per Share
Under SFAS No. 128 “Earnings Per Share”, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares assumed to be outstanding during the period of computation. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive using the treasury stock method. The Company had a net loss for the three month periods ended November 30, 2005 and 2004 and for the six month period November 30, 2004. As a result, all shares of common stock issuable upon exercise of stock options have been excluded from the calculation of diluted loss per share for those periods ended November 30, 2005 because their inclusion would be antidilutive.
The following is a reconciliation of the shares used in the computation of basic and diluted earnings (loss) per share for the six months periods ended November 30, 2005 and 2004, respectively:
| 2005 | 2004 | |||||
Basic earnings (loss) per share - weighted-average number of common shares outstanding | $ | 1,469,564 | $ | 1,490,110 | ||
Effect of dilutive potential common shares - stock options outstanding | 125,800 | — | ||||
Diluted earnings (loss) per share - weighted-average number of common shares and potential common shares outstanding | $ | 1,595,364 | $ | 1,490,110 | ||
(6)Credit Line Agreement
On October 18, 2005, the Company renewed its line-of-credit agreement that permits borrowings of up to $500,000, which will expire on April 18, 2006. During the six month period ended November 30, 2005, the bank applied certain cash overdrafts against the line-of-credit. As of November 30, 2005 the line-of-credit balance was $50,000.
(7)Stock Repurchase Plan
On October 27, 2005, the Board of Directors formally adopted a resolution to continue the Company’s Stock Repurchase Plan, originally initiated on October 1, 2003, (the “Repurchase Plan”). Pursuant to the resolution, the Company is authorized to acquire shares of the Company’s common stock with an aggregate repurchase price not to exceed $300,000, expiring November 1, 2006. There were no repurchase transactions during the six months ended November 30, 2005.
On December 8, 2005, the Company repurchased 5,000 shares for an aggregate repurchase price of $6,650.
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DYNATEM, INC.
(8)Lease Agreement
On November 15, 2005 the Company has renewed the lease agreement for the premises located at 23263 Madero, Suite C, Mission Viejo, California for another five years starting January 1, 2006 and ending December 31, 2010 with minimum annual payments as follows:
January 1, 2006 through December 31, 2006 | $ | 86,196 | |
January 1, 2007 through December 31, 2007 | $ | 88,116 | |
January 1, 2008 through December 31, 2008 | $ | 92,340 | |
January 1, 2009 through December 31, 2009 | $ | 95,568 | |
January 1, 2010 through December 31, 2010 | $ | 98,916 |
Pursuant to the lease agreement, common area operating expenses will not increase by more than five (5%) per year cumulative. The base year for this limitation is calendar year 2005.
In connection with the renewal of the lease agreement, the landlord has granted Dynatem an allowance toward tenant improvements not to exceed $48,000.
On December 27, 2005 the Company initiated a leasehold improvement program to develop office space for future employees, as well as to enhance the working environment. The cost is estimated approximately $75,000, of which the landlord will pay $48,000 per terms of lease agreement.
| Item 2. | Management’s Discussion and Analysis or Plan of Operation |
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE COMPANY’S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW. SEE ALSO THE COMPANY’S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED MAY 31, 2005.
Results of Operations
Net sales for the three months ended November 30, 2005, increased 28.3% to $989,305 compared to net sales of $771,231 in the same period a year ago. For the six months ended November 30, 2005, net sales increased 53.1% to $2,044,324 compared to net sales of $1,335,537, $708,787 higher than the corresponding period in the previous fiscal year. The increase in revenue is attributed to the receipt of orders for the ongoing programs that were delayed last year and shipped this year.
Cost of sales for the three months ended November 30, 2005, was $629,525 or 63.6% of net sales compared to $503,909 or 65.3% of net sales in the same period a year ago. For the six months ended November 30, 2005, cost of sales of $1,118,036 represented 54.7% of net sales and compares to $868,362 representing 65.2% of net sales for the same period a year ago. The decrease in cost of sales as a percentage of net sales was the consequence of the Company’s higher sales volume of its own manufactured products for which it realizes a higher margin than from sales of its distributed products.
Selling, general and administrative expenses for the three and six months ended November 30, 2005, were $302,032 and $583,840, respectively, as compared to $271,454 and $521,533 for the same periods a year ago. The increase in selling, general and administrative expenses is primarily the result of increased costs due to general monetary inflation most notably in the escalation of rents, insurance rates, legal and audit fees.
Research and development expenses for the three and six months ended November 30, 2005, were $129,248 and $265,725, respectively, and $140,889 and $271,974, respectively, for the same periods a year ago. Research and development expenses for the three and six month periods were lower by 8% and 2.5%, respectively, as compared to prior year. The decrease is primarily due to the closing of the Company’s Escondido design center towards the end of the 2005 fiscal year.
Liquidity and Capital Resources
As of November 30, 2005, the Company’s working capital, which is current assets less current liabilities, was $1,444,459 and the Company’s current ratio, which is current assets divided by current liabilities, was 3.2:1 compared to $1,360,472 and a ratio of 3.7:1 as of May 31, 2005. Management believes that the Company’s existing working capital and cash flows from operations will be sufficient to
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meet its working capital needs during fiscal year 2006. The Company has a revolving line-of-credit agreement that permits borrowings of up to $500,000. The Company may consider other sources of capital should the need arise.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, the valuation of long-lived and intangible assets, and the amortization of intangible assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions. We do not have off-balance sheet arrangements, financings, or relationships with unconsolidated entities or other persons, also known as “special purposes entities” (SPEs). We believe the following critical accounting policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements.
| • | Revenue recognition; |
| • | Valuation of deferred tax assets; and |
| • | Estimation of the allowance for doubtful accounts receivable. |
Revenue Recognition
Revenue is recognized at the time the product is shipped.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101 (“SAB 101”), “Revenue Recognition,” as superseded by SAB 104, which outlines the basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes the Company’s revenue recognition policy conforms to SAB 104.
VME
The VME product group is the Company’s principal product group. This product group consists of hardware only. A customer will place an order. The Company then fills the order and ships the product to the customer FOB shipping point, with a one-year Warranty. Revenue is recognized at the time the product is shipped.
CPU Boards – The Company manufactures boards classified as hardware products and recognizes revenue upon shipment.
Hardware – The Company manufactures computer hardware as noted above and recognizes revenue upon shipment of the product.
Support Services – The Company does not provide support services. It provides a hardware warranty. If the product does not work, the Company repairs or replaces the product. After the warranty period expires, the Company continues to provide repair services for all its products regardless of the age of the product, subject to availability of spare parts.
Custom Designed Products and Software – The Company occasionally provides custom designed hardware products, but generally builds single board products for sale to its general customer base.
Software
The Company sells software drivers specific to its hardware and software it has purchased from other suppliers (operating system software for resale). The volume of resale software is minimal and typically only involves installing an operating system in order to pre-install software drivers in situations where customers request pre-installation (the drivers cannot be installed unless there is an operating system). The software drivers are sold with the related hardware as an “off the shelf product.” Software resale represents “off the shelf”
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operating systems designed, maintained, and supported by the original software manufacturer. The Company provides support to its customers under the terms of its warranty and does not supply software support services billed separately. There are no multiple element software sales as described in SOP 97-2. The Company’s software sale activities are incidental to the core hardware products sold and the Company is not in the business of selling software; rather, it is necessary for the Company to supply integration of the various hardware products it sells. Such integration is done by software drivers, which in effect are part of the hardware.
Systems and Software – The Company does not develop operating system software and is not in this line of business. The Company sells hardware systems and related software drivers.
Software Drivers – The Company develops and sells software drivers with its hardware products. Revenue is recognized upon shipment of the related hardware products.
Resale of Other Manufacturer’s Software – The Company is not in the business of selling software and rarely sells an operating system (such as Windows XP) in order for pre-installation of drivers. The Company recognizes the revenue upon shipment of the related hardware products. Software sales of this type are very minor.
Microsys
The Company is a distributor of Microsys GmbH products and purchases such products from Microsys as needed. The Company reports the related revenue on a “gross revenue basis” under EITF 99-19 because the Company is (1) the primary obligor in the arrangement, (2) has the general inventory risk, (3) has reasonable latitude to establish the price with the customer, (4) changes the mix of the products between Microsys and Company products as required, (5) determines the customer needs, (6) has physical loss inventory risk, and finally (7) has the credit risk. Revenue is recognized upon shipment of the Microsys product as noted herein in accordance with EITF 99-19.
Long-Lived Assets
Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset (excluding interest), an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. SFAS 144 also requires companies to separately report discontinued operations and extends that reporting requirement to a component of an entity that either has been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or the estimated fair value less costs to sell. The provisions of this pronouncement relating to assets held for sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated commitments to plan to sell or dispose of such asset, as defined, by management. As a result, management cannot determine the potential effects that adoption of SFAS 144 will have on the Company’s financial statements with respect to future decisions, if any.
Management believes that no impairment loss is necessary on long-lived assets. There can be no assurance, however, that market conditions or demand for the Company’s products or services will not change which could result in long-lived assets impairment charges in the future.
Important Factors Related to Forward-Looking Statements and Associated Risks.
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 and we intend that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements include our plans and objectives of management for future operations, including plans and objectives relating to the products and our future economic performance. The forward-looking statements included herein are based upon current expectations that involve a number of risks and uncertainties. These forward-looking statements are based upon assumptions that we will design, manufacture, market and ship new products on a timely basis, that competitive conditions within the computer and electronic markets will not change materially or adversely, that the computer and electronic markets will continue to experience growth, that
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demand for the our products will increase, that we will obtain and/or retain existing development partners and key management personnel, that future inventory risks due to shifts in market demand will be minimized, that our forecasts will accurately anticipate market demand and that there will be no material adverse change in our operations or business. Assumptions relating to the foregoing involve judgments with respect, among other things, to future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking information will be realized. In addition, as disclosed above, our business and operations are subject to substantial risks which increase the uncertainty inherent in such forward-looking statements. Any of the other factors disclosed above could cause our net sales or net income (or loss), or our growth in net sales or net income (or loss), to differ materially from prior results. Growth in absolute amounts of costs of sales and selling and administrative expenses or the occurrence of extraordinary events could cause actual results to vary materially from the results contemplated in the forward-looking statements. Budgeting and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our results of operations. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.
| Item 3. | Controls and Procedures. |
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, 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 our management, including our 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.
We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of November 30, 2005, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of November 30, 2005.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended November 30, 2005 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Items 1, 2 and 3 have been omitted because there is nothing material to report.
| Item 4. | Submission of Matters to a Vote of Security Holders |
On October 27, 2005, the Company held its annual meeting of shareholders and took the following actions:
Election of Directors
The following persons were duly elected to the Company’s Board of Directors. The tabulation of the votes cast for and against each director is set forth opposite their names below.
Directors | Yes | No | ||
Robert Anslow | 1,268,178 | 500 | ||
Eileen D. Schmalbach | 1,268,178 | 500 | ||
Richard Jackson | 1,268,178 | 500 | ||
Dr. Costis Toregas | 1,268,178 | 500 | ||
Charles Spear | 1,268,178 | 500 | ||
H. Richard Anderson | 1,268,178 | 500 | ||
Michael Horan | 1,268,178 | 500 | ||
Appointment of Auditors
The shareholders approved the appointment of the accounting firm of Squar, Milner, Reehl & Williamson, LLP as its independent auditors for the fiscal year ending May 31, 2006. Such appointment was approved by 1,238,920 votes and 29,758 votes either abstained or voted against approval of the appointment.
| Item 5. | Other Information |
The Board of Directors approved the election of the following officers at a meeting held October 27, 2005.
President and Chief Executive Officer – Michael Horan
Executive Vice President and Corporate Secretary – Eileen D. Schmalbach
Chief Financial Officer – Belen M. Ramos
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| Item 6. | Exhibits |
The following is a list of Exhibits required by Item 601 of Regulation S-B. Except for those exhibits indicated by an asterisk which are filed herewith, the remaining exhibits listed below are incorporated by reference to the exhibit previously filed by us as indicated.
Exhibit Number | Exhibit | |
| 3(a) | Restated Articles of Incorporation of the Company1 | |
| 3(b) | Bylaws of the Company2 | |
| 31.1* | Certifications Pursuant to Securities Exchange Act Rules 13A – 14 and 15D -14 - Section 302, signed by Michael Horan, Chief Executive Officer | |
| 31.2* | Certifications Pursuant to Securities Exchange Act Rules 13A – 14 and 15D -14 - Section 302, signed by Belen Ramos, Chief Financial Officer | |
| 32* | Certification Pursuant to 18 U.S.C. Section 1350 - Section 906, signed by Michael Horan, Chief Executive Officer and Belen Ramos, Chief Financial Officer | |
| 1 | Incorporated herein by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-KSB for fiscal year ended May 31, 1997. |
| 2 | Incorporated herein by reference to Exhibit 3(b) to the Company’s Annual Report on Form 10-KSB for fiscal year ended May 31, 1997. |
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DYNATEM, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DYNATEM, INC. | ||||||||
January 13, 2006 | By: | /s/ Michael Horan | ||||||
Michael Horan | ||||||||
President and CEO | ||||||||
January 13, 2006 | By: | /s/ Belen Ramos | ||||||
Belen Ramos | ||||||||
Chief Financial Officer | ||||||||
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