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 February 28, 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.
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(Exact name of small business issuer as
specified in its charter)
California 95-3627099
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23263 Madero, Suite C, Mission Viejo, California 92691
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(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 March 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 February 28, 1998
and May 31, 1997 1
Statements of Operations for the Three
Months Ended February 28, 1998
and February 28, 1997 2
Statements of Operations for the Nine
Months Ended February 28, 1998
and February 28, 1997 3
Statements of Cash Flows for the Nine
Months Ended February 28, 1998
and February 28, 1997 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
February 28, May 31,
1998 1997
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ASSETS
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Current assets:
Cash $ 544,964 $ 561,511
Accounts receivable, net 301,984 285,412
Inventories (note 2) 410,272 264,700
Prepaid expenses 24,811 21,386
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Total current assets 1,282,031 1,133,009
Note Receivable 8,546 10,886
Plant and equipment, net 19,055 17,321
Other assets 24,294 35,406
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$ 1,333,926 $ 1,196,622
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 145,088 $ 76,807
Accrued expenses 57,498 65,907
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Total current liabilities 202,586 142,714
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Shareholders' equity:
Common stock, no par value, authorized
50,000,000 shares; issued and outstanding
1,418,400 shares 2,383,385 2,383,385
Accumulated deficit (1,252,045) (1,329,477)
----------- -----------
Total shareholders' equity 1,131,340 1,053,908
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$ 1,333,926 $ 1,196,622
=========== ===========
See accompanying notes to financial statements.
1
DYNATEM, INC.
STATEMENTS OF OPERATIONS
Three months ended February 28, 1998 and 1997
1998 1997
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Net Sales $ 478,739 $ 770,880
Cost of Sales 269,775 514,539
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Gross profit 208,964 256,341
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Operating expenses:
Selling, general and administrative 139,732 194,807
Research and development 44,565 38,116
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Total operating expenses 184,297 232,923
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Operating income 24,667 23,418
Other income, net 108,735 8,729
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Net income $ 133,402 $ 32,147
========== ==========
Earnings per share (note 3) $ .09 $ .02
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Weighted average shares outstanding
(note 3) 1,418,400 1,418,400
========== ==========
See accompanying notes to financial statements
2
DYNATEM, INC.
STATEMENTS OF OPERATIONS
Nine months ended February 28, 1998 and 1997
1998 1997
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Net Sales $1,303,892 $1,988,516
Cost of Sales 732,492 1,309,936
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Gross profit 571,400 678,580
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Operating expenses:
Selling, general and administrative 474,925 516,450
Research and development 139,886 112,897
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Total operating expenses 614,811 629,347
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Operating income (loss) (43,411) 49,233
Other income, net 121,643 17,954
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Net income (loss) before taxes 78,232 67,187
Provision for income taxes 800 800
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Net income (loss) $ 77,432 $ 66,387
========== ==========
Income (loss) per share (note 3) $ .05 $ .05
========== ==========
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 Nine months ended February 28, 1998 and 1997
1998 1997
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Cash flows from operating activities:
Net income $ 77,432 $ 66,387
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 9,085 11,541
Change in assets and liabilities:
(Increase) in receivables (16,572) (24,308)
(Increase) in inventories (145,572) (33,769)
(Increase) in prepaid expenses (3,425) (4,319)
Increase in accounts payable 68,281 84,809
Decrease in accrued expenses (8,409) (13,706)
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Total adjustments (96,612) 20,248
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Net cash provided by (used in)
operating activities (19,180) 86,635
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Cash flows from investing activities:
Increase (decrease) in other assets 11,112 (870)
Purchases of property & equipment (10,819) (7,099)
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Net cash used in investing activities 293 (7,969)
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Cash flows from financing activities:
Repayment of notes receivable 2,340 (940)
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Net increase (decrease) in cash (16,547) 77,726
Cash, beginning balance 561,511 532,918
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Cash, ending balance $ 544,964 $610,644
========= ========
Supplemental disclosures of
cash flow information:
Cash paid during the nine months for:
Taxes $ 800 $ 800
========= ========
See accompanying notes to financial statements.
4
DYNATEM, INC.
Notes to Financial Statements
(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 February 28, 1998 and the results of operations and cash
flows for the three and nine months ended February 28, 1998 and February
28, 1997, 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
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:
February 28, 1998 May 31, 1997
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Finished Goods $167,995 $ 55,786
Work-in-process 33,262 46,071
Raw Materials 209,015 162,843
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$410,272 $264,700
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(3) Income Per Share
----------------
Income 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 is not included in the computation
of net income per share because the effect would not impact per share
information or would be antidilutive.
(4) Foreign Currency transactions
-----------------------------
For the three-month and nine-month periods ended February 28, 1998 and
1997, transaction gains and losses are not material to the financial
statements taken as a whole.
5
DYNATEM, INC.
Notes to Financial Statements
(5) Income taxes
------------
Income tax expense for the three-month and nine-month periods ended
February 28, 1998 and 1997 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 the federal and state tax purposes of approximately
$1,545,000 and $12,780 at May 31, 1997, respectively, which, if not
utilized to offset future taxable income, will expire through 2006.
(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 financial statements issued for periods ending after
December 15, 1997; early implementation is not permitted. The Company does
not expect that the implementation of SFAS 128 will require significant
revision of prior disclosures.
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 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 significant
revision of prior disclosures.
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
6
DYNATEM, INC.
Notes to Financial Statements
that statement. The Company does not expect that the implementation of SFAS
130 will have a material effect upon the Company's financial statements.
In June 1997, SFAS No. 131 ("SFAS 131"), "Disclosure 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.
7
Item 2. Management's Discussion and Analysis or Plan of Operation
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Net sales for the three months ended February 28, 1998, decreased 37.9% to
$478,739 over net sales of $770,880 in the same period a year ago. The
termination of the Company's distribution relationship with or Industrial
Computers in April 1997, resulted in a reduction of sales of or distributed
products of $314,268 offset by an increase of Dynatem product sales of $22,127,
for a net decrease of $292,141. For the nine months ended February 28, 1998,
net sales were $1,303,892, $684,624 lower than the corresponding period in the
previous fiscal year, for a decrease of 34.4%. The net decrease in total net
sales was the result of a loss in or product sales of $1,068,008 offset by an
increase in Dynatem product net sales of $383,384.
Cost of sales for the three months ended February 28, 1998, was $269,775 or
56.3% of net sales and compares to $514,539 or 66.8% of net sales in the same
period a year ago. For the nine months ended February 28, 1998, cost of sales
of $732,492 represented 56.2% of net sales and compares to $1,309,936
representing 65.9% of net sales for the same period a year ago. The three-month
and nine-month decrease of cost of sales as a percentage of net sales is the
result of lower cost of sales of the Dynatem products that earn higher margins
as compared to the or distributed products.
Selling, general and administrative expenses for the three-month and nine-month
periods ended February 28, 1998, were $139,732 and $474,925, a 28.3% and 8.0%
lower cost than the corresponding periods a year ago. The decrease was the
result of the cost reduction program initiated primarily in the area of
selling, advertising and administrative expenses of the Company.
Research and development expenses for three-month and nine-month periods ended
February 28, 1998, were $44,565 and $139,886 as compared to $38,116 and $112,897
the same period a year ago. As a percentage of net sales these amounts represent
9.3% and 10.7%, respectively. The Company continued to expand the use of
internal design engineers to optimize its ability to schedule the completion of
its products on a more timely basis and to obtain more competitive costs
consistent with its cost reduction program.
For the three months ended February 28, 1998, the Company has received and
recognized miscellaneous income of $101,000 from or Industrial Computers which
relates to previous services provided by the Company to or in 1997.
For the three-month and nine-month period ended February 28, 1998, net earnings
reflect net profits of $133,402 and $77,432 respectively, compared to net
profits of $32,147 and $66,387, for the same periods ended February 28, 1997.
Net earnings for the periods above were the result of factors explained in the
preceding paragraphs.
8
The Company does not expect to pay significant income taxes due to its
utilization of net operating loss carryforwards which will expire through the
year 2006.
At February 28, 1998, the Company's working capital was $1,079,445 and its
current ratio was 6.3:1 compared to $990,295 and a ratio of 7.9.1 as of May 31,
1997. Management believes that the Company's existing working capital and cash
flows from operations will be sufficient to meet its working capital needs.
9
PART II. OTHER INFORMATION
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Items 1 through 6 have been omitted because there is nothing material to report
and there has been no report on Form 8-K during the quarter ended February 28,
1998.
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.
March 23, 1998 By: /s/ Eileen DeSwert
--------------------------------
Eileen DeSwert
President and Chief
Executive Officer
March 23, 1998 By: /s/ Belen Ramos
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Belen Ramos
Chief Financial Officer
10
EXHIBIT INDEX
EXHIBIT
NUMBER
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(27) Financial Data Schedule