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, 1997.
[_] 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.
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(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 92691
- ------------------------------------------------------
(Address of principal executive offices)
(714) 855-3235
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(Issuer's telephone number)
Not Applicable
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(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, 1997, 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 November 30, 1997
and May 31, 1997 1
Statements of Operations for the Three
Months Ended November 30, 1997
and 1996 2
Statements of Operations for the Six
Months Ended November 30, 1997
and 1996 3
Statements of Cash Flows for the Six
Months Ended November 30, 1997
and 1996 4
Notes to Financial Statements 5,6,7
Item 2. Management's Discussion and Analysis or
Plan of Operation 8,9
Part II. Other Information 10
DYNATEM, INC.
BALANCE SHEETS
November 30, May 31,
1997 1997
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ASSETS
------
Current assets:
Cash and cash equivalents $ 578,773 $ 561,511
Accounts receivable, less allowance
for doubtful accounts 297,670 285,412
Inventories (note 2) 434,724 264,700
Prepaid expenses 3,464 21,386
----------- -----------
Total current assets 1,314,631 1,133,009
Note Receivable 9,196 10,886
Plant and equipment, net 20,913 17,321
Other assets 33,827 35,406
----------- ------------
$ 1,378,567 $ 1,196,622
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 331,449 $ 76,807
Accrued expenses 49,180 65,907
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Total current liabilities 380,629 142,714
----------- -----------
Shareholders' equity:
Common stock, no par value, authorized
50,000,000 shares; issued and
outstanding 1,418,400 shares at
November 30, 1997 and May 31, 1997 2,383,385 2,383,385
Accumulated deficit (1,385,447) (1,329,477)
----------- -----------
Total shareholders' equity 997,938 1,053,908
----------- -----------
$ 1,378,567 $ 1,196,622
=========== ===========
See accompanying notes to financial statements.
1
DYNATEM, INC.
STATEMENTS OF OPERATIONS
Three months ended November 30, 1997 and 1996
1997 1996
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Net Sales $ 488,171 $ 853,304
Cost of Sales 258,561 579,387
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Gross profit 229,610 273,917
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Operating expenses:
Selling, general and administrative 170,327 168,619
Research and development 51,941 37,214
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Total operating expenses 222,268 205,833
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Operating income 7,342 68,084
Other income, net 6,113 5,834
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Net income $ 13,455 $ 73,918
========= =========
Income per share (note 3) $ .01 $ .05
========= =========
Weighted average shares outstanding
(note 3) 1,418,400 1,418,400
========= =========
See accompanying notes to financial statements
2
DYNATEM, INC.
STATEMENTS OF OPERATIONS
Six months ended November 30, 1997 and 1996
1997 1996
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Net Sales $ 825,153 $1,217,636
Cost of Sales 462,717 795,397
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Gross profit 362,436 422,239
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Operating expenses:
Selling, general and administrative 335,193 321,643
Research and development 95,321 74,781
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Total operating expenses 430,514 396,424
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Operating income (loss) (68,078) 25,815
Other income, net 12,908 9,225
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Income (loss) before income taxes (55,170) 35,040
Provision for income taxes 800 800
--------- ----------
Net income (loss) $ (55,970) $ 34,240
========= ==========
Income (loss) per share (note 3) $ ( .04) $ .02
========= ==========
Weighted average shares outstanding
(note 3) 1,418,400 1,418,400
========= ==========
See accompanying notes to financial statements
3
DYNATEM, INC.
STATEMENTS OF CASH FLOWS
For Six months ended November 30, 1997 and 1996
1997 1996
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (55,970) $ 34,240
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 5,937 7,855
Change in assets and liabilities:
Increase in receivables (12,258) (65,020)
Increase in inventories (170,024) (49,691)
Decrease in prepaid expenses 17,922 16,408
Increase in accounts payable 254,642 74,612
Decrease in accrued expenses (16,727) (12,267)
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Total adjustments 79,492 (28,103)
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Net cash provided by operating activities 23,522 6,137
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Cash flows from investing activities:
Increase (decrease) in other assets 1,579 (7,239)
Purchases of property & equipment (9,529) (7,389)
--------- --------
Net cash used in financing activities (7,950) (14,628)
--------- --------
Cash flows from financing activities:
Repayment of notes receivable 1,690 1,040
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Net increase (decrease) in cash 17,262 (7,451)
Cash, beginning balance 561,511 532,918
--------- --------
Cash, ending balance $ 578,773 $525,467
========= ========
Supplemental disclosures of
cash flow information:
Cash paid during the quarter for:
Taxes $ - $ -
========= ========
See accompanying notes to financial statements.
4
DYNATEM, INC.
Notes to Financial Statements
(1) Interim Accounting Policy
-------------------------
In the opinion of the Company's management, the accompanying unaudited
statements include only normal, recurring adjustments necessary for a fair
presentation of the Company's financial position and the results of
operations and cash flows for the three and six months ended November 30,
1997 and 1996. 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 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
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A summary of inventories follows:
November 30, 1997 May 31, 1997
----------------- ------------
Finished Goods $203,978 $ 55,786
Work-in-process 37,975 46,071
Raw Materials 192,771 162,843
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$434,724 $264,700
======== ========
(3) Income (loss) Per Share
-----------------------
Income (loss) per common share is computed based on the weighted average
number of common shares outstanding during the periods presented. The
potential exercise of stock options and warrants are not included in the
computation of net income (loss) per share because their effect would not
impact per share information or would be antidilutive.
5
DYNATEM, INC.
Notes to Financial Statements
(4) Income Taxes
------------
Income tax expense for the six months ended November 30, 1997 and 1996 are
not considered material due to the utilization of net operating loss
carryforwards.
Significant deferred tax assets of the Company consist of the net operating
loss carryforwards for federal and state tax purposes of approximately
$1,545,308 and $12,780 at November 30, 1997, respectively, which, if not
utilized to offset future taxable income, will expire through 2006.
(5) Foreign Currency Transactions
-----------------------------
For the three months and six months ended November 30, 1997 and 1996,
transactions gains and losses are not material to the financial statements
taken as a whole.
(6) New Disclosure Standards
------------------------
In February 1997, Statement of Financial Standards ("SFAS") No. 128 ("SFAS
128"), "Earnings per Share" was issued which establishes new standards for
computing and presenting earnings per share ("EPS"). Specifically, SFAS
128: (a) eliminates the presentation of primary EPS and replaces it with
basic EPS, (b) eliminates the modified treasury stock method and the three
percent materiality provision and (c) revised the contingent share
provision and the supplemental EPS data requirements. SFAS 128 is effective
for financial statements issued for periods ending after December 15, 1997;
early implementation is not permitted. The effect of adopting SFAS 128 has
not yet been determined by management of the Company.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129 ("SFAS 129"), "Disclosure of Information about Capital Structure." SFAS
129 requires companies to disclose descriptive information about securities
that is not necessarily related to the computation of earnings per share.
It also requires disclosure of information about the liquidation
preferences of preferred stock and redeemable stock. SFAS 129 is effective
for financial statements for periods ending December 15, 1997. The Company
does not expect that the implementation of SFAS 129 will require
signification revision
6
DYNATEM, INC.
of prior disclosures. The effect of adopting SFAS 129 has not yet been
determined by management of the Company.
Notes to Financial Statements
In June 1997, SFAS No. 130 ("SFAS 130"), "Comprehensive Income" was issued
which becomes effective in 1998 and requires reclassification of earlier
financial statements for comparative purposes. SFAS 130 requires that
changes in the amounts of certain items, including foreign currency
translation adjustments and gains and losses on certain securities, be
shown in the financial statements. SFAS 130 does not require a specific
format for the financial statement in which comprehensive income is
reported, but does require that an amount representing total comprehensive
income be reported in that statement. The Company does not expect that the
implementation of SFAS 130 will have a material effect upon the Company's
financial statements. The effect of adopting SFAS 130 has not yet been
determined by management of the Company.
In June 1997, SFAS No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information" was issued. This statement will change
the way public companies report information about segments of their
business in their annual financial statements and requires them to report
selected segment information in their quarterly reports issued to
shareholders. It also requires entity-wide disclosures about the products,
services an entity provides, the material countries in which it holds
assets and reports revenues, and its major customers. SFAS 131 is
effective for fiscal years beginning after December 15, 1997. The Company
does not expect that the implementation of SFAS 131 will have a material
effect upon the Company's financial statements. The effect of adopting
SFAS 131 has not yet been determined by management of the Company.
7
Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
Revenue for the three months ended November 30, 1997, was $488,171, $365,133
lower than the same period a year ago, a decrease of 43%. For the six months
ended November 30, 1997, net sales were $825,153, $392,483 lower than the
corresponding period in the previous fiscal year, a decrease of 32%.
For the three month-period ended November 30, 1997, the termination of the
Company's distribution relationship with or Industrial products in April 1997,
resulted in a reduction of sales of or distributed products of $629,635 offset
by an increase of Dynatem product sales of $264,502 for a net decrease of
$365,133. For the six months ended November 30, 1997, the net decrease in
total net sales of $392,483 was the result of a loss in or product sales of
$749,793 offset by an increase in Dynatem product net sales of $357,310.
Cost of sales for the three months ended November 30, 1997, was $258,561 or
53% of net sales and compares to $579,387 or 68% of net sales in the same
period a year ago. For the six months ended November 30, 1997, cost of sales
of $462,717 represented 56% of net sales as compared to $795,397 representing
65% of net sales the same period a year ago. The decrease in the cost of
sales as a percentage of net sales of this period versus last year is the
result of higher margins from sales of the Company's own manufactured products
versus sales of the or distributed products.
Operating costs for the six-month period ended November 30, 1997, were
slightly higher than the corresponding period a year ago. The increase was
due for the most part to research and development expenses for the Company's
own proprietary products, particularly, the Pentium VMEbus DPCI board and its
accompanying transition module and some advertising expenses.
The three-month and six-month periods ended November 30, 1997, reflect net
earnings of $13,455 and net loss of $55,970 respectively, compared to net
earnings of $73,918 and $34,240 for the corresponding periods a year ago. The
change of net earnings is attributed to lower revenues as mentioned in the
preceding paragraph.
At November 30, 1997, the Company had a current ratio of 3.5:1 compared to
7.9:1 as of May 31, 1997. Management believes its present working capital
will be sufficient for the Company's existing operating activities. Management
will continue to develop products internally and will consider additional
expansion through an acquisition or strategic alliance.
The increase in inventory is due to the Company's receipt from an outside
manufacturer of approximately one hundred four pre-assembled Pentium boards
during the months of October and November. The sales of these boards await the
completion of our customers' order specifications for final configurations.
Accounts Payable rose by approximately $183,000 in accordance with the
expansion of stock.
8
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders
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On October 10, 1997, the Company held its annual meeting of shareholders. In
addition to the election of directors, the shareholders approved the
appointment of the accounting firm of Corbin & Wertz as its independent
auditors for the fiscal year ending May 31, 1998. There were 968,534 votes
cast in favor of the appointment and no votes were withheld or voted against
such appointment.
The tabulation of the votes cast for and against each director are set forth
opposite their names below.
Directors Yes No
--------- --- --
Robert Anslow 968,534 0
Harry Cavanaugh 968,534 0
Eileen DeSwert 968,534 0
Richard Jackson 968,534 0
Costis Toregas 968,534 0
Charles Spear 968,534 0
9
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.
/s/ EILEEN DeSWERT
January 08, 1998 By: _____________________________
Eileen DeSwert
President and Chief
Executive Officer
/s/ BELEN RAMOS
January 08, 1998 By: _____________________________
Belen Ramos
Chief Financial Officer
10