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, 1999.
[ ] 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)
(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 November 30, 1999, 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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INDEX
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets at November 30, 1999
and May 31, 1999 1
Statements of Operations for the Three
Months Ended November 30, 1999
and November 30, 1998 2
Statements of Operations for the Six
Months Ended November 30, 1999
and November 30, 1998 3
Statements of Cash Flows for the Six
Months Ended November 30, 1999
and November 30, 1998 4
Notes to Financial Statements 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,
1999 1999
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ASSETS
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Current assets:
Cash $ 318,794 $ 434,091
Accounts receivable, net 214,692 188,384
Inventories (Note 2) 419,428 412,839
Prepaid expenses 5,901 20,629
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Total current assets 958,815 1,055,943
Note receivable 3,476 4,386
Property and equipment, net 19,345 24,086
Other assets 51,234 13,785
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$ 1,032,870 $ 1,098,200
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 193,821 $ 244,250
Accrued expenses 49,380 37,654
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Total current liabilities 243,201 281,904
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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 (1,593,716) (1,567,089)
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Total shareholders' equity 789,669 816,296
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$ 1,032,870 $ 1,098,200
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See accompanying notes to financial statements.
1
DYNATEM, INC.
STATEMENTS OF OPERATIONS
Three months ended November 30, 1999 and 1998
1999 1998
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Net sales $ 506,306 $ 368,031
Cost of sales 262,595 206,176
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Gross profit 243,711 161,855
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Operating expenses:
Selling, general and administrative 135,514 162,526
Research and development 52,606 48,436
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Total operating expenses 188,120 210,962
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Operating income (loss) 55,591 (49,107)
Other income, net 6,388 7,087
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Income (loss) before income taxes 61,979 $ (42,020)
Provision for income taxes 800 800
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Net income (loss) 61,179 (42,820)
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Basic and diluted income (loss) per share $ .04 $ (.03)
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Weighted average shares outstanding - basic 1,418,400 1,418,400
========== ==========
Weighted average shares outstanding - dilutive 1,438,800 1,418,400
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See accompanying notes to financial statements.
2
DYNATEM, INC.
STATEMENTS OF OPERATIONS
Six months ended November 30, 1999 and 1998
1999 1998
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Net sales $ 829,981 $ 693,451
Cost of sales 496,534 394,476
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Gross profit 333,447 298,975
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Operating expenses:
Selling, general and administrative 270,991 297,526
Research and development 97,753 94,946
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Total operating expenses 368,744 392,472
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Operating loss (35,297) (93,497)
Other income, net 9,470 12,050
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Net loss before taxes (25,827) (81,447)
Provision for income taxes 800 800
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Net loss $ (26,627) $ (82,247)
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Basic and diluted loss per share $ (.02) $ (.06)
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Weighted average shares outstanding - basic
and dilutive 1,418,400 1,418,400
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See accompanying notes to financial statements
3
DYNATEM, INC.
STATEMENTS OF CASH FLOWS
For Six months ended November 30, 1999 and 1998
1999 1998
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Cash flows from operating activities:
Net loss $ (26,627) $ (82,247)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 4,741 4,478
Changes in operating assets
and liabilities:
Accounts receivables (26,308) (23,759)
Inventories (6,589) 36,910
Prepaid expenses 14,728 8,568
Accounts payable (50,429) (9,870)
Accrued expenses 11,726 19,014
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Total adjustments (52,131) 35,341
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Net cash used in operating activities (78,758) (46,906)
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Cash flows from investing activities:
Other assets (37,449) (25,386)
Purchases of property & equipment - (14,318)
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Net cash used in investing activities (37,449) (39,704)
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Cash flows from financing activities:
Repayment of notes receivable 910 910
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Net decrease in cash and cash equivalents (115,297) (85,700)
Cash and cash equivalents, beginning balance 434,091 600,525
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Cash and cash equivalents, ending balance $ 318,794 $ 514,825
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Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Taxes $ 800 $ 800
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See accompanying notes to financial statements.
4
DYNATEM, INC.
Notes to Financial Statements
(1) Interim Accounting Policy
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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, 1999 and the results of operations and cash
flows for the three and six months ended November 30, 1999 and November
30, 1998, 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:
November 30, 1999 May 31, 1999
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Finished goods $ 75,695 $ 162,196
Work-in-process 22,298 34,013
Raw materials 321,435 216,630
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$ 419,428 $ 412,839
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(3) Income (loss) per share
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Basic income (loss) per share is computed based on the weighted average
number of shares outstanding for the period. Diluted income (loss) per
share is computed by dividing net income (loss) by the weighted average
share outstanding assuming all dilutive potential shares were issued.
Diluted weighted average shares for the three months ended November 30,
1999 includes common stock equivalents of 20,400.
(4) Foreign currency transactions
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For the three-month and six-month periods ended November 30, 1999 and
1998, 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
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Income tax expense for the three-month and six-month periods ended
November 30, 1999 and 1998 are not considered material due to the
existence of net operating loss carryforwards.
The Company had Federal and state net operating loss carryforwards of
$1,732,000 and $127,000 at May 31, 1999, which, if not utilized to
offset future taxable income, will expire through 2009.
6
DYNATEM, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation
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Net sales for the three months ended November 30, 1999, increased 37.6% to
$506,306 over net sales of $368,031 in the same period a year ago. For the six
months ended November 30, 1999, net sales were $829,981, $136,530 higher than
the corresponding period in the previous fiscal year, for an increase of 19.7%.
The increase in total net sales was due to one of our customers increasing its
demand for our DRC1 products.
Cost of sales for the three months ended November 30, 1999, was $262,595 or
51.9% of net sales and compares to $206,176 or 56.0% of net sales in the same
period a year ago. For the six months ended November 30, 1999, cost of sales of
$496,534 represented 59.8% of net sales and compares to $394,476 representing
56.9% of net sales for the same period a year ago. The three-month decrease of
cost of sales as a percentage of net sales is the result of lower cost of
production of the DRC1's. The six-month increase of cost of sales as a
percentage of net sales is the result of a mix of factors and the result of
lower sales prices in the previous quarter to preserve the Company's competitive
advantage.
Selling, general and administrative expenses for the three-month and six-month
periods ended November 30, 1999, were $135,514 and $270,991, as compared to
$162,526 and $297,526 over the same period a year ago. The overall 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 six-month periods ended
November 30, 1999, were $52,606 and $97,753 as compared to $48,436 and $94,946
over the same periods a year ago. The Company continues to expand the use of
internal design engineers to optimize its ability to schedule the completion of
its product on a more timely basis and to obtain more competitive costs
consistent with its cost reduction program.
For the three-month and six-month periods ended November 30, 1999, the
statements of operations reflect net income of $61,179 and net loss of $26,627
respectively, compared to net losses of $42,820 and $82,247, for the same
periods ended November 30, 1998.
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 2009.
At November 30, 1999, the Company's working capital was $715,614 and its current
ratio was 3.94:1 compared to $774,039 and a ratio of 3.75:1 as of May 31, 1999.
Management believes that the Company's existing working capital and cash flows
from operations will be sufficient to meet its working capital needs.
7
DYNATEM, INC.
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 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 the Company's compliance have been referred to this page. As
of this date, there has been no significant concern expressed by customers.
2.) The Company has advised its vendors to report on the progress of their
compliance with Year 2000 requirements. So far, the responses received
demonstrate general confidence by these vendors that they will be prepared for
the Year 2000.
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 the Company's CPU modules are supplied by a number
of software vendors and in this regard, customers are referred 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 to modify 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. To date, there has been no significant
concern expressed by 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 be
compliant with Year 2000. The approximate expense of expenditures already
incurred for these upgrades is $25,000. A forecast of an additional cost of
$30,000 is expected.
8
DYNATEM, INC.
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, 1999.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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On October 22, 1999, 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
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Robert Anslow 993,732 2,250
Harry Cavanaugh 993,732 2,250
Eileen DeSwert 993,732 2,250
Richard Jackson 993,732 2,250
Costis Toregas 993,732 2,250
Charles Spear 993,732 2,250
H. Richard Anderson 993,732 2,250
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, 2000. Such
appointment was approved by 995,182 votes and 800 votes either abstained or
voted against approval of the appointment.
Item 6(A). EXHIBITS
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See attached Exhibit Index.
9
DYNATEM, INC.
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 10, 2000 By: /s/ Eileen DeSwert
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Eileen DeSwert
President and Chief
Executive Officer
January 10, 2000 By: /s/ Belen Ramos
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Belen Ramos
Chief Financial Officer
10
EXHIBIT INDEX
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Exhibit
Number
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3(a) Restated Articles of Incorporation of the Company (1)
3(b) Bylaws of the Company (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 3(b) to the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter ended November 30, 1998.
11