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, 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
- ------------------------------- -------------------
(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)
(949) 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
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On December 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
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DYNATEM, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets at November 30, 1998
and May 31, 1998 1
Statements of Operations for the Three
Months Ended November 30, 1998
and 1997 2
Statements of Operations for the Six
Months Ended November 30, 1998
and 1997 3
Statements of Cash Flows for the Six
Months Ended November 30, 1998
and 1997 4
Notes to Financial Statement 5,6
Item 2. Management's Discussion and Analysis or
Plan of Operation 7,8
Part II. Other Information 9,10
DYNATEM, INC.
BALANCE SHEETS
NOVEMBER 30, MAY 31,
1998 1998
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ASSETS
- ------
Current assets:
Cash and cash equivalents $ 514,825 $ 600,525
Accounts receivable, net of allowance
for doubtful accounts of $12,825
and $9,825 215,884 192,125
Inventories 383,675 420,585
Prepaid expenses and other 8,762 17,330
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Total current assets 1,123,146 1,230,565
Note Receivable 6,856 7,766
Property and equipment, net 25,972 16,132
Other assets 40,919 15,533
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$1,196,893 $1,269,996
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 102,195 $ 112,065
Accrued expenses 59,526 40,512
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Total current liabilities 161,721 152,577
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Shareholders' equity:
Common stock, no par value, 50,000,000
shares authorized; 1,418,400 shares
issued and outstanding 2,383,385 2,383,385
Accumulated deficit (1,348,213) (1,265,966)
----------- -----------
Total shareholders' equity 1,035,172 1,117,419
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$ 1,196,893 $ 1,269,996
=========== ===========
See accompanying notes to financial statements.
1
DYNATEM, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 1998 AND 1997
1998 1997
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Net Sales $ 368,031 $ 488,171
Cost of Sales 206,176 258,561
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Gross profit 161,855 229,610
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Operating expenses:
Selling, general and administrative 162,526 170,327
Research and development 48,436 51,941
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Total operating expenses 210,962 222,268
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Operating income (loss) ( 49,107) 7,342
Other income, net 7,087 6,113
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Net income (loss) before taxes ( 42,020) 13,455
Provision for income taxes 800 -
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Net income (loss) ($ 42,820) $ 13,455
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Income (loss) per share ($ .03) $ .01
=========== ==========
Weighted average shares outstanding 1,418,400 1,418,400
=========== ==========
See accompanying notes to financial statements
2
DYNATEM, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1998 AND 1997
1998 1997
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Net Sales $ 693,451 $ 825,153
Cost of Sales 394,476 462,717
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Gross profit 298,975 362,436
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Operating expenses:
Selling, general and administrative 297,526 335,193
Research and development 94,946 95,321
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Total operating expenses 392,472 430,514
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Operating loss ( 93,497) ( 68,078)
Other income, net 12,050 12,908
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Loss before income taxes ( 81,447) ( 55,170)
Provision for income taxes 800 800
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Net loss ($ 82,247) ($ 55,970)
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Loss per share ($ .06) ($ .04)
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Weighted average shares outstanding
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, 1998 AND 1997
1998 1997
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Cash flows from operating activities:
Net loss ($ 82,247) ($ 55,970)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,478 5,937
Changes in operating assets and
liabilities:
Accounts receivables (23,759) (12,258)
Inventories 36,910 (170,024)
Prepaid expenses 8,568 17,922
Accounts payable ( 9,870) 254,642
Accrued expenses 19,014 ( 16,727)
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Total adjustments 35,341 79,492
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Net cash provided by (used in) operating
activities (46,906) 23,522
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Cash flows from investing activities:
Other assets (25,386) 1,579
Purchases of property & equipment (14,318) (9,529)
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Net cash used in investing activities (39,704) (7,950)
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Cash flows from financing activities:
Repayment of notes receivable 910 1,690
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Net increase (decrease) in cash and
cash equivalents (85,700) 17,262
Cash and cash equivalents, beginning balance 600,525 561,511
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Cash and cash equivalents, ending balance $ 514,825 $ 578,773
========= =========
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Taxes $ 800 $ -
========= =========
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,
1998 and 1997. 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, 1998 May 31, 1998
----------------- ------------
Finished Goods $164,643 $153,375
Work-in-process 41,830 71,251
Raw Materials 177,202 195,959
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$383,675 $420,585
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(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, 1998 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 purposes of approximately
$1,565,400 at November 30, 1998, which, if not utilized to offset future
taxable income, will expire through 2005.
(5) Foreign Currency Transactions
-----------------------------
For the three months and six months ended November 30, 1998 and
1997,transactions gains and losses are not material to the financial
statements taken as a whole.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
Revenue for the three months ended November 30, 1998, decreased by 25% to
$368,031 compared to $488,171 in the same period of the prior year. For the six
months ended November 30, 1998, net sales decreased by 16% to $693,451 compared
to $825,153 of the same period a year ago.
For the three-month and six-month period ended November 30, 1998, the net
decrease in total net sales of $120,140 and $131,702 respectively, is due to the
phase out of distributed products in favor of our own designs which represents
potentially increased margins and growth in the future.
Cost of sales for the three months ended November 30, 1998, was $206,176 or 56%
of net sales and compares to $258,561 or 53% of net sales in the same period a
year ago. The increase is due to a change in the mix of product sales for the
quarter. For the six months ended November 30, 1998, cost of sales of $394,476
represented 57% of net sales as compared to $462,717 representing 56% of net
sales the same period a year ago.
Operating expenses for the six-month period ended November 30, 1998, decreased
by 9% to $392,472 compared to $430,514 in the same period of the prior year. The
decrease is due primarily to reduced advertising and promotional expenses as
part of the Company's ongoing cost cutting program initiated by management.
The three-month and six-month periods ended November 30, 1998, reflect net
losses of $42,820 and $82,247, respectively, compared to net income of $13,455
and net loss of $55,970 for the corresponding periods a year ago. The change of
net income is attributed to lower revenues as mentioned in the preceding
paragraph.
The Company has initiated a program to evaluate the impact of the "Year 2000"
situation on its operations. This program has developed into a four-phase
process which includes the following procedures:
1.) The Company has established communication with all customers who have
received a product, either software or hardware, which may or may not be
compliant with the Year 2000. This communication has been exhibited in the form
of a webpage identified as www.dynatem.com/y2k_issues.html. Those customers who
are concerned with our own compliance have been referred to this page. As of
this date, there has been no significant concern expressed by our customers.
7
2.) The Company has advised its vendors to report on the progress of their
compliance with Year 2000 requirement. Currently, the Company is in the process
of receiving responses from its vendors and evaluating the impact it may have to
the Company. So far, the responses we have received demonstrate general
confidence by these vendors that they will be prepared for the Y2K requirement.
3.) The primary focus of Dynatem's VMEbus product line is embedded computer
hardware. The Company has made an effort to determine which software being used
by Dynatem customers might have problems related to Y2K compliance. The
operating systems employed by our CPU modules are supplied by a number of
software vendors and in this regard, we refer our customers to the web sites of
these vendors. These web sites define potential Y2K problem areas, advise if and
how the various versions of their software products deal with them, and suggest
ways of modifying the application code to best avoid potential problems. In some
cases, software patches are offered, and in other cases upgrading to a newer
revision is strongly recommended. So far, to date, there has been no significant
concern expressed by our customers.
4.) The Company is now in the process of initiating a computer upgrade
program for the Company's financial accounting and administrative systems in
order to better accommodate revised network software which will be compliant
with Year 2000 standards. The accounting department has already begun an
investigation into various financial system upgrades and expects to have a
decision on the implementation of this system by the end of the current fiscal
year.
At November 30, 1998, the Company had a current ratio of 6.9:1 compared to 8.1:1
as of May 31, 1998. The Company continues to believe that its present working
capital will be sufficient for the Company's existing operating activities. The
Company will continue to develop products internally and will consider
additional expansion through an acquisition or strategic alliance.
8
PART II. OTHER INFORMATION
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Items 1 through 3 and 5 have been omitted because there is nothing material to
report and there has been no report on Form 8-k during the quarter ended
November 30, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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On October 7, 1998, 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 are set forth
opposite their names below.
DIRECTORS YES NO
--------- --- ---
Robert Anslow 945,427 3,000
Harry Cavanaugh 945,427 3,000
Eileen DeSwert 945,427 3,000
Richard Jackson 945,427 3,000
Costis Toregas 945,427 3,000
Charles Spear 945,427 3,000
H. Richard Anderson 945,427 3,000
APPROVAL OF 1998 STOCK OPTION PLAN
The shareholders duly approved the Company's 1998 Stock Option Plan (the "Plan")
which authorizes the grant of options by the Board of 200,000 shares of the
Company's common stock to employees and directors of, and consultants to, the
Company. The Plan was approved by 933,727 votes and 14,700 votes either
abstained or voted against the approval of the Plan.
AMENDMENT OF THE BYLAWS
In connection with the qualification of the Plan by the California Department of
Corporations, it was required that the Bylaws of the Company be amended to
provide that directors of the Company may be removed with or without cause as
provided in the California Corporations Code (the "Amendment"). The Amendment
was approved by 933,727 votes and 14,700 votes either abstained or voted against
approval of the Amendment.
9
APPOINTMENT OF AUDITORS
The shareholders approved the appointment of the accounting firm of Corbin &
Wertz as its independent auditors for the fiscal year ending May 31, 1999. Such
appointment was approved by 947,227 votes and 1,200 votes either abstained or
voted against approval of the appointment.
ITEM 6(A). EXHIBITS
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See attached Exhibit Index.
10
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.
January 08, 1999 By: /s/ EILEEN DeSWERT
-----------------------------
Eileen DeSwert
President and Chief
Executive Officer
January 08, 1999 By: /s/ BELEN RAMOS
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Belen Ramos
Chief Financial Officer
11
EXHIBIT INDEX
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Exhibit Number
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3(a) Restated Articles of Incorporation of the Company(1)
3(b) Amended and Restated Bylaws of the Company
10 The Company's 1998 Stock Option Plan(2)
27 Financial Data Schedule
_________________
(1) Incorporated herein by reference to Exhibit 3(a) to the Company's Annual
Report on Form 10-KSB for the fiscal year ended May 31, 1997.
(2) Incorporated herein by reference to Exhibit A to the Company's Definitive
Proxy Statement filed September 17, 1998.
12