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 August 31, 1998.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-16250
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DYNATEM, INC.
(Exact name of small business issuer as
specified in its charter)
California 95-3627099
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23263 Madero, Suite C, Mission Viejo, California 92718
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (949) 855-3235
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 August 31, 1998, there were 1,418,400 shares of the issuer's Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
DYNATEM, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets at August 31, 1998 and May 31, 1998 1
Statements of Operations for the Three Months Ended
August 31, 1998 and 1997 2
Statements of Cash Flows for the Three Months Ended
August 31, 1998 and 1997 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis -
Results of Operations 5,6
Part II. Other Information 7
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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DYNATEM, INC.
BALANCE SHEETS
August 31, May 31,
1998 1998
----------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 585,389 $ 600,525
Accounts receivable, net 209,108 192,125
Inventories (note 2) 389,205 420,585
Prepaid expenses 14,990 17,330
----------- -----------
Total current assets 1,198,692 1,230,565
Note Receivable 7,246 7,766
Property and equipment, net 15,386 16,132
Other assets 48,551 15,533
----------- -----------
$ 1,269,875 $ 1,269,996
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 144,724 $ 112,065
Accrued expenses 47,158 40,512
----------- -----------
Total current liabilities 191,882 152,577
----------- -----------
Shareholders' equity:
Common stock, no par value authorized
50,000,000 shares; 1,418,400 shares
issued and outstanding 2,383,385 2,383,385
Accumulated deficit (1,305,392) (1,265,966)
----------- -----------
Total shareholders' equity 1,077,993 1,117,419
----------- -----------
$ 1,269,875 $ 1,269,996
=========== ===========
See accompanying notes to financial statements.
1
DYNATEM, INC.
STATEMENTS OF OPERATIONS
Three months ended August 31, 1998 and 1997
1998 1997
--------- ---------
Net Sales $ 325,421 $ 336,982
Cost of Sales 188,298 204,156
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Gross profit 137,123 132,826
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Operating expenses:
Selling, general and administrative 135,002 164,866
Research and development 46,510 43,380
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Total operating expenses 181,512 208,246
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Operating loss (44,389) (75,420)
Other income, net 4,963 6,795
--------- ---------
Loss before income taxes (39,426) (68,625)
Provision for income taxes - 800
--------- ---------
Net loss $ (39,426) $ (69,425)
========= =========
Loss per share (note 3) $ (.03) $ (.05)
========= =========
Weighted average common shares outstanding
(note 3) 1,418,400 1,418,400
========= =========
See accompanying notes to financial statements.
2
DYNATEM, INC.
STATEMENTS OF CASH FLOWS
Three months ended August 31, 1998 and 1997
1998 1997
-------- --------
Cash flows from operating activities:
Net loss $(39,426) $(69,425)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization 2,321 3,146
Change in assets and liabilities:
Accounts receivables (16,983) 123,921
Inventories 31,380 (61,761)
Prepaid expenses 2,340 8,004
Accounts payable 32,659 57,839
Accrued expenses 6,646 (11,102)
-------- --------
Total adjustments 58,363 120,047
-------- --------
Net cash provided by operating activities 18,937 50,622
-------- --------
Cash flows from investing activities:
Increase in other assets (33,018) (14,015)
Purchases of property and equipment (1,575) (6,979)
-------- --------
Net cash used in financing activities (34,593) (20,994)
-------- --------
Cash flows from financing activities:
Repayment of notes receivable 520 780
-------- --------
Net increase (decrease) in cash and cash
equivalents (15,136) 30,408
Cash and cash equivalents, beginning balance 600,525 561,511
-------- --------
Cash and cash equivalents, ending balance $585,389 $591,919
======== ========
Supplemental disclosures of
cash flow information:
Cash paid during the quarter for:
Taxes $ -- $ 800
======== ========
See accompanying notes to financial statements.
3
DYNATEM, INC.
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Notes to Financial Statements
(1) Interim Accounting Policy
-------------------------
In the opinion of the Company's management, the accompanying unaudited
statements include all adjustments including only normal recurring
adjustments necessary for a fair presentation of the financial position
of the Company as of August 31, 1998, and the results of operations and
cash flows for the three months ended August 31, 1998 and 1997. Although
the Company believes that the disclosures in these financial statements
are adequate to make the information presented not misleading, certain
information and footnote information normally included in financial
statements prepared in accordance with generally accepted accounting
principles 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) Inventories
-----------
A summary of inventories follows:
August 31, 1998 May 31, 1998
--------------- ------------
Finished Goods $176,467 $195,959
Work-in-process 50,868 71,251
Raw Materials 161,870 153,375
-------- --------
$389,205 $420,585
======== ========
(3) Earnings (loss) Per Share
-------------------------
Earnings (loss) per common share is computed based on the weighted
average number of common shares outstanding during the period presented.
The potential exercise of stock options and warrants are not included in
the computation of net income (loss) per share because the effect would
not impact per share information or would be antidilutive.
(4) Foreign Currency Transactions
-----------------------------
For the three months ended August 31, 1998 and 1997, transactions gains
and losses are not material to the financial statements taken as a
whole.
4
DYNATEM, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
Revenue for the first quarter ended August 31, 1998, decreased by 3% to $325,421
compared to $336,982 in the same period of the prior fiscal year. The marketing
of the new PC compatible to the VMEbus module has been delayed due to the slow
process of design-ins by various customers.
Cost of sales for the three months ended August 31, 1998, was $188,298 or 58% of
net sales and compares to $204,156 or 61% of net sales in the same period a year
ago. The decrease in cost of sales as a percent of net sales was the result of
a lower cost of sales of the Dynatem product which generates higher margins.
Operating expenses for the three months ended August 31, 1998, decreased by 18%
to $135,002 compared to $164,866 in the same period a year ago. The decrease is
due to the reduced advertising and promotional expenses for this quarter.
Research and development expenses were $46,510 and $43,380 for the three months
ended August 31, 1998, and 1997, respectively. Research and development expenses
relate to the continued development of new VME products such as the DPCI boards
and the D2070 boards. The Company, however, is continuing to utilize outside
engineering to expedite product development.
Income tax expense for the three months ended August 31, 1998, and 1997, are
not considered material due to losses incurred during such periods. Significant
deferred tax assets of the Company which have been fully reserved, consist of
its net operating loss carryforwards of approximately $1,520,000 for Federal tax
reporting purposes, which, if not utilized to offset future taxable income, will
expire through 2006.
The results of operations for the three months ended August 31, 1998 and 1997,
reflect net losses of $39,426 and $69,425, respectively. The decrease in net
earnings was the result of a lower sales revenue during the quarters ended
August 31, 1998 and 1997.
The Company continues to believe that the cash flow generated from operations
plus existing working capital reserves will be sufficient to meet its short-term
working capital needs over the next 12 months.
5
DYNATEM, INC.
The Company has initiated a program to evaluate the impact of the "Year 2000"
situation on its operations. This program is a three-phase process which will
include the following:
1.) Communication with all customers who have received a product, either
software or hardware, which may or may not be compliant with Year 2000.
Subsequently, based on the amount and extent of the corrections needed, the
Company will evaluate the impact such corrections will have on the Company.
2.) The Company is now in the process of advising its vendors to report on
their compliance or non-compliance with the Year 2000 requirements.
Subsequently, based on their responses, the Company will evaluate the impact any
necessary action will have on the Company.
3.) The Company is currently evaluating its own telecommunication, financial
accounting and administrative systems that require compliance to Year 2000.
While the Company knows that certain aspects of these systems are not compliant
with the Year 2000 requirements, the materiality of the conversion of these
systems to compliance with Year 2000 cannot be determined at this time.
At August 31, 1998, the Company had a current ratio of 6.2:1 compared to a ratio
of 8.1:1 at May 31, 1998. The decrease is due to a lower sales revenue and a net
loss of $39,678 for the period ending August 31, 1998. The net worth for the
Company at August 31, 1998, was $1,077,993 compared to $1,117,419 at May 31,
1998.
6
DYNATEM, INC.
PART II. OTHER INFORMATION
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SIGNATURES
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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.
October 09, 1998 By: /s/ EILEEN DESWERT
----------------------------------
Eileen DeSwert, President and
Chief Executive Officer
October 09, 1998 By: /s/ BELEN RAMOS
----------------------------------
Belen Ramos, Chief Financial
Officer
7
EXHIBIT INDEX
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Exhibit Number
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(27) Financial Data Schedule
8