<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 1995
Commission file number: 0-12806
Dynatec International, Inc.
---------------------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0367267
------------------------------ ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1820 South 3594 West
Salt Lake City, UT 84104
------------------------------ ----------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone
number, including area code: (801) 973-9500
--------------
Indicate by check mark whether the issuer (1) has 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
----- -----
The number of shares outstanding of the issuer's common stock as of
September 30, 1995, were 939,116. The aggregate market value of voting stock
held by non affiliates of the Company at November 1, 1995 was $2,856,174.
<PAGE>
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Reference is made to the attached Unaudited Consolidated Financial
Statements for the first quarter and year-to-date results of fiscal year 1996
and 1995. These Financial Statements are hereby incorporated by reference. (See
Exhibit 1) The information for the Company's first quarter and year-to-date
results for the period ended September 30, 1995 and 1994 is unaudited, but in
the opinion of management reflects all adjustments which are necessary for a
fair presentation of operations for such periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the first quarter of fiscal year 1996 ending on
September 30, 1995 were $2,437,809. Total revenues for the first quarter of
fiscal year 1995 ending on September 30, 1994 were $2,108,614. This represents
an approximate eleven percent (11%) increase over first quarter of fiscal year
1995. The increase in revenues can be substantially attributed to increased
sales in the telephone accessories and hardware segments of the business.
During the first quarter of fiscal year 1996 ending September 30, 1995 the
company experienced telephone accessory sales of $1,464,721 compared to
$1,241,211 for the same period of the prior fiscal year. This represents an
increase of $223,510 or 15%. The Mini Softalk, Universal Softalk, and Softalk
II products increased by $8,126 (7%), $142,426 (274%), and $120,723 (133%)
respectively. Sales of the Softalk product declined by $113,377 (21%). The
telephone shoulder rest products collectively experienced a sales increases of
$49,348 (12%) and the Twist Cord product experienced an increase of $8,752
(31%). During the quarter the company introduced a Softalk Value Pack product.
The Value Pack includes a Softalk II and Twist Cord with Twisstop in a retail
package. It is the intention of the company to aggressively market the Value
Pack to the mass market. The Value Pack contributed sales of $7,517 to the
first quarter of fiscal year 1996.
During the first quarter of fiscal year 1996 ending September 30, 1995 the
hardware products line of the company experienced sales increases of $169,557
(28%) over the same period for the prior fiscal year. The Sofstop, and Coverup
products of the company experienced increases of
2
<PAGE>
$65,524 (96%) and $6,731 (7%) respectively. The Sofstop products have shown
increases mainly due to the addition of several large wholesalers of the product
to the customer base. The Wedge product showed a sales increase of $7,890
(28%). The Expand-A-Shelf, Mini Expand-A-Shelf and Mega Expand-A-Shelf products
showed a collective sales increase of $64,786 (17%). The Company introduced the
Expand-A-Shelf, Book Edition during the first quarter of fiscal year 1996 and
experienced sales of $29,391. The company expects the shelf sales to continue
to increase with the addition of the Expand-A-Shelf, Book Edition. Discontinued
products in the hardware line experienced sales decreases of $4,770.
The Company has been marketing the FUJI Novel line of batteries to the office
product industry for several years. During the first quarter of fiscal year
1996 ending on September 30, 1995, the company experienced a sales decline in
batteries of $94,572 (36%). The sales decline can be mainly attributed to the
decline in sales to Mexico from the same period for the prior fiscal year.
The Company has been marketing the Softalk Erasable Boards, Fuji Film and has
been contract packaging for AT&T. These sales have been accounted for in the
Miscellaneous products segment of the business. Erasable board sales increased
by $2,587 while Fuji Film and contract packaging decreased by $6,066 (41%) and
$45,821 (73%) respectively. The company has mostly packaged cellular telephone
accessory products for AT&T. AT&T is currently in the process of deciding
whether or not to continue with the cellular accessory product line.
The Company experienced net income of $54,761 for the first quarter of fiscal
year 1996 ended September 30, 1995. In the prior fiscal year quarter ended
September 30, 1994 the company had net income of $16,664.
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities is 1.58 at September 30,
1995 compared to 1.76 as of June 30, 1995. The current assets at the end of the
first quarter 1995 were $3,188,646 compared to $2,992,687 at June 30, 1995. The
current liabilities of the Company as of the end of the first quarter 1996 were
$2,014,334 compared to $1,702,061 at June 30, 1995. For the three month period
ending September 30, 1995 the Company experienced a increase in cash of
$109,121. The cash increase is attributed to an increase in cash flow from
operations and financing activities (borrowings) as well as a decrease in cash
flows from investing activities (capital purchases). At September 30, 1995 the
Company had made no commitments that could result in negative impact on the
liquidity and capital resources of the Company.
At September 30, 1995, the stockholders' equity was $2,784,378. At June
30, 1995, stockholders' equity was $2,698,371.
3
<PAGE>
PART II-OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit List.
Exhibit 1 - Unaudited Consolidated Financial Statements of the Company as
of September 30, 1995, and 1994.
(b) Reports on Form 8-K.
None
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on the 10th day of November, 1995.
DYNATEC INTERNATIONAL, INC.
/s/ Donald M. Wood
-----------------------------------------
Donald M. Wood
President-Chief Executive Officer
/s/ David J. White
-----------------------------------------
David J. White,
Executive Vice-President - Chief Financial
Officer
(Principal Financial and Accounting Officer)
<PAGE>
Exhibit 1
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and 1994
<PAGE>
C O N T E N T S
Page
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION. . . . . . . . . . . . 3
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS. . . . . . . . . . . . . . . . 5
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY . . . . . 6
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . . . 8
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . .10
UNAUDITED CONSOLIDATED COSTS OF SALES (SCHEDULE 1) . . . . . . . . . . . . . .19
UNAUDITED CONSOLIDATED COSTS OF GOODS MANUFACTURED (SCHEDULE 2). . . . . . . .20
UNAUDITED CONSOLIDATED EXPENSES (SCHEDULE 3) . . . . . . . . . . . . . . . . .21
2
<PAGE>
The information for the Company's first quarter ended September 30, 1995 is
unaudited, but in the opinion of management reflects all adjustments which are
necessary for a fair presentation of the results of operations for such periods.
Results for interim periods should not be considered as indicative of results
for a full year.
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, 1995 and June 30, 1995
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS Sept. 30 June 30
1995 1995
----------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash $ 374,683 $ 265,562
Receivables
Trade accounts (net of allowance of
$13,939 at Sept. 1995 and $13,188 at
June 1995) 1,346,244 1,030,874
Accounts receivable-
related parties (Note 12) 77,175 70,411
Note receivable-related Parties (Note 12) 43,500 43,500
Inventory (Note 2) 1,257,425 1,422,477
Prepaid expenses 58,644 138,768
Prepaid Income Taxes 30,350 18,595
Unamortized Debt issue costs 625 2,500
---------- ----------
TOTAL CURRENT ASSETS 3,188,646 2,992,687
PROPERTY AND EQUIPMENT (Note 3) 946,330 964,348
LAND (Note 3) 626,153 -
OTHER ASSETS
Deposits 14,032 14,033
Deferred Tax Asset 60,512 60,512
Note receivable-related parties (Note 12) 150,000 150,000
Prepaid royalties-related party 71,555 71,555
License, patents and agreements (Note 4) 555,802 590,859
---------- ----------
TOTAL OTHER ASSETS 851,901 886,959
---------- ----------
$5,613,030 $4,843,994
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
(Unaudited) (Audited)
LIABILITIES AND EQUITY Sept. 30 June 30
1995 1995
----------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Short-term notes payable (Note 5) 953,340 714,525
Current portion of long-term debt (Note 6) 197,926 270,993
Accounts payable 521,082 463,128
Accrued expenses 114,232 111,470
Accrued advertising 133,234 103,714
Current portion of capital lease obligations
payable (Note 7) 32,517 19,614
Accrued royalties payable 14,615 13,938
Accrued royalties payable - related parties 36,490 4,679
Income taxes - current 10,898 --
Deferred income taxes - current -- --
---------- ----------
TOTAL CURRENT LIABILITIES 2,014,334 1,702,061
LONG-TERM LIABILITIES
Notes payable (Note 6) 704,492 316,089
Capital lease obligations payable (Note 7) 93,049 110,696
Deferred income taxes 16,777 16,777
---------- ----------
TOTAL LIABILITIES 2,828,652 2,145,623
STOCKHOLDERS' EQUITY
Common stock, $.01 per value
Authorized 10,000,000 shares
Issued 939,116 shares at
September 30, 1995, 934,912
at June 30, 1995 9,392 9,349
Additional paid-in capital 2,710,417 2,679,214
Retained earnings (Deficit) 64,569 9,808
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,784,378 2,698,371
---------- ----------
$5,613,030 $4,843,994
---------- ----------
---------- ----------
</TABLE>
4
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month Periods Ended September 30, 1995 and 1995
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
REVENUE
Sales - products $2,434,458 $2,125,400
Other 3,351 63,214
---------- ----------
TOTAL REVENUE 2,437,809 2,188,614
COST OF SALES
Products (Schedule 1) 1,529,948 1,347,287
Royalties (Note 11) 74,489 68,763
---------- ----------
TOTAL COST OF SALES 1,604,437 1,416,050
---------- ----------
GROSS PROFIT 833,372 772,564
EXPENSES
Selling expenses (Schedule 3) 356,924 399,760
General & administrative expenses (Sch 3) 368,917 324,219
Research and Development 6,161 2,286
Bad debts 1,500 --
---------- ----------
TOTAL EXPENSES 733,502 726,265
OPERATING INCOME/(LOSS) 99,870 46,299
OTHER INCOME/(EXPENSE)
Interest expense (45,966) (25,664)
---------- ----------
TOTAL OTHER INCOME/(EXPENSES) (45,966) (25,664)
---------- ----------
Income/(loss) from continuing operations
before income taxes 53,904 20,635
Income tax expense (benefit) (Note 8) (857) 3,971
---------- ----------
NET INCOME/(LOSS) $ 54,761 $ 16,664
---------- ----------
---------- ----------
EARNINGS (LOSS) PER SHARE:
Continuing Operations $ .06 $ .02
---------- ----------
NET EARNINGS (LOSS)
PER SHARE $ .06 $ .02
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
For the Three Month Period Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
Free Total
Restricted Trading Shares
Shares Shares Issued
---------- --------- ---------
<S> <C> <C> <C>
BALANCE JUNE 30, 1994 331,784 524,494 874,278
Restricted shares free trading -- --
Net Income (Sept. 30, 1994) -- -- --
------- ------- -------
BALANCE SEPTEMBER 30, 1994 331,784 524,494 874,278
------- ------- -------
------- ------- -------
BALANCE JUNE 30, 1995 386,499 548,413 934,912
Shares issued for non-compete 4,204 -- 4,204
Restricted shares free trading (7,175) 7,175 --
Net Income (Sept. 30, 1993) -- -- --
------- ------- -------
BALANCE SEPTEMBER 30, 1995 383,528 555,588 939,116
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Month Periods Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
Additional Retained Total
Treasury Common Paid-in Earnings Treasury Stockholders'
Shares Stock Capital (Deficit) Stock Equity
-------- ------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JUNE 30, 1994 -- $ 8,743 $2,664,103 $ 5,176 $ -- $2,678,022
Restricted shares free trading
Net Income (Sept. 30, 1994) -- -- -- 16,664 -- 16,664
-------- ------- ---------- -------- -------- ----------
BALANCE SEPTEMBER 30, 1994 -- $ 8,743 $2,664,103 $ 21,840 $ -- $2,694,686
-------- ------- ---------- -------- -------- ----------
-------- ------- ---------- -------- -------- ----------
BALANCE JUNE 30, 1995 -- $ 9,349 $2,679,214 $ 9,808 $ -- $2,698,371
Shares issued for non-compete -- 43 31,203 -- -- 31,246
Restricted shares free trading -- -- -- -- -- --
Net Income (Sept. 30, 1995 -- -- -- 54,761 -- 54,761
-------- ------- ---------- -------- -------- ----------
BALANCE SEPTEMBER 30, 1995 -- $ 9,392 $2,710,417 $ 64,569 $ -- $2,784,378
-------- ------- ---------- -------- -------- ----------
-------- ------- ---------- -------- -------- ----------
</TABLE>
7
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
For the Three Month Periods Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash received from customers $ 2,388,005 $ 2,201,725
Cash paid to suppliers & employees (2,143,214) (1,961,539)
Interest paid (39,081) (23,807)
Income taxes paid (50) (26,801)
----------- -----------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 205,660 189,578
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of Land (626,153) --
Sale of Fixed Assets 8,060
License, Patents, Rights expenditure -- --
Capital Expenditures (51,039) (103,802)
Issuance of stock for non-compete and rights 31,246 --
----------- -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (645,946) (95,742)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (payments) under
line-of-credit agreement 238,815 (180,069)
Principal payments under capital lease
obligations (4,744) (13,087)
Borrowing (Payments) on long-term debt 315,336 (39,108)
----------- -----------
NET CASH (USED) BY
FINANCING ACTIVITIES 549,407 (232,264)
----------- -----------
NET INCREASE (DECREASE)
IN CASH 109,121 (138,428)
CASH AT BEGINNING OF PERIOD 265,562 341,209
----------- -----------
CASH AT END OF PERIOD $ 374,683 $ 202,781
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Three Month Periods Ended September 30, 1995 and 1994
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net Income $ 54,761 $ 16,664
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depreciation 69,055 51,992
Amortization 35,056 22,556
Provisions for losses on accounts receivable 751 (657)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (316,121) 90,971
(Increase) decrease in inventory 165,052 (153,704)
(Increase) decrease in prepaids 80,124 90,646
(Increase) decrease in accounts receivable related (6,764) 48,231
(Increase) decrease in prepaid royalties related -- 6,948
(Increase) decrease in prepaid taxes (11,755) --
(Increase) decrease in deposits -- 1,852
(Increase) decrease in debt issue costs 1,875 3,475
Increase (decrease) in royalties payable 677 (1,006)
Increase (decrease) in accounts payable trade 57,954 21,402
Increase (decrease) in accrued expenses 2,766 (36,543)
Increase (decrease) in accrued royalties related 31,811 (38,525)
Increase (decrease) in accrued commissions -- 46,380
Increase (decrease) in accrued advertising 29,520 41,726
Increase (decrease) in income taxes payable 10,898 (22,830)
----------- -----------
TOTAL ADJUSTMENTS 150,899 172,914
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $ 205,660 $ 189,578
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES: 1995 1994
----------- -----------
Non-cash investing & financing activities:
Capital Acquisitions financed by:
Accounts payable 51,039 11,568
Issuance of debt -- --
Capital lease obligations -- --
</TABLE>
9
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and 1994
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month periods ended
September 30, 1995 and 1994 are not necessarily indicative of the results
that may be expected for the year ended June 30, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the company's annual report on Form 10-KSB for the
period ended June 30, 1995.
NOTE 2 - INVENTORY
Inventory as of September 30, 1995 and June 30, 1995 is summarized as
follows:
<TABLE>
<CAPTION>
Sept. 30 June 30
LIFO 1995 1995
- - - ---- ---------- ----------
<S> <C> <C>
Raw $ 465,964 $ 329,795
Finished 791,461 1,092,682
---------- ----------
$1,257,425 $1,422,477
---------- ----------
---------- ----------
</TABLE>
Dynatec inventories are stated at the lower of cost or market, cost being
determined using the last-in, first-out (LIFO) method.
The current cost of LIFO inventories exceeded the carrying amount by
approximately $40,000 at September 30, 1995.
10
<PAGE>
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 1995 and June 30, 1995 are
detailed in the following summary:
<TABLE>
<CAPTION>
Net Book Value
--------------
Accumulated Sept. 30 June 30
Cost Depreciation 1995 1995
---------- ------------ -------- --------
<S> <C> <C> <C> <C>
Equipment 2,028,266 1,345,403 682,863 682,876
Leasehold imprv 132,919 117,692 15,227 17,552
Office equipment 215,402 113,756 101,646 103,544
Signs 8,187 8,187 -- --
Vehicles 68,355 27,532 40,823 33,816
Capital leases 186,386 80,615 105,771 126,560
---------- ---------- -------- --------
$2,639,515 $1,693,185 $946,330 $964,348
</TABLE>
Depreciation expense is computed principally on the straight line method in
amounts sufficient to write off the cost of depreciable assets over their
estimated useful lives. Depreciation for the three months ended September
30, 1995 amounted to $69,055 (51,992 in 1994).
During fiscal year 1995 the company obtained an option on an industrial
piece of property. The option was obtained with the purpose of purchasing
the land for construction of an office, warehouse and distribution facility
for the company. A limited liability company was formed by several members
of the management group at Dynatec with the intent to use the LLC to
purchase the land and construct the facility that would be leased to the
company. As the option was set to expire in August 1995, the company
exercised the option and purchased the land. Upon completion of the
building project it is anticipated that the land and corresponding
liability will be transferred to the limited liability company.
NOTE 4 -- LICENSE, PATENTS AND AGREEMENTS
These agreements represent amounts paid for the right to manufacture,
produce, sell, and market various products. The majority of said costs are
associated with agreements for the telephone accessory product line. In
September 1991 the Company entered into a non-competition and proprietary
information agreement with the former shareholders of Arnco Marketing, Inc.
the previous licensee of the Twisstop product. In July 1993 the Company
entered into a non-competition agreement with Fujima Corporation, the
former Fuji battery licensee. In March 1995, the company purchased the
rights and customer list for a doorstop poduct line from All R Prodx, Inc.
In addition, a five year non-competition agreement was entered into with
All R Prodx Inc. and its shareholder. Such costs are amortized on the
straight-line method in amounts sufficient to write off the costs over
their estimated economic lives. Most of these rights are non-exclusive.
Amortization for the three months ended September 30, 1995 amounted to
$35,056 ($22,556 for 1994).
11
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1995 and 1994
NOTE 5 - SHORT-TERM NOTES PAYABLE
Short-term notes payable as of September 30, 1995 and June 30, 1995,
are detailed in the following summary:
<TABLE>
<CAPTION>
Sept. 30 June 30
1995 1995
-------- -------
<S> <C> <C>
Revolving line-of-credit up to
$1,500,000 with a bank; to fund
accounts and inventory and support
letter of credit and general business
expenses, interest payable monthly
at one percent (1.0%) over prime;
secured by receivables, inventory and
equipment; due November 15, 1995. 953,340 714,525
-------- --------
$953,340 $714,525
-------- --------
-------- --------
</TABLE>
Pertinent data regarding aggregate short-term borrowings is as
follows:
<TABLE>
<CAPTION>
Sept. 30 June 30
1995 1995
-------- --------
<S> <C> <C>
Maximum outstanding $953,340 $724,677
Average outstanding 866,130 591,061
Weighted average interest rate 9.75% 9.53%
</TABLE>
12
<PAGE>
NOTE 6 - NOTES PAYABLE
Long-term notes payable as of September 30, 1995 and June 30, 1995, are
detailed in the following summary:
<TABLE>
<CAPTION>
Sept. 30 June 30
1995 1995
---------- ---------
<S> <C> <C>
Revolving line of credit payable to
bank for purposes of equipment
financing; advances, to be amortized
over a period of 60 months due in
monthly installments of principal
plus interest at one percent (1%) over
prime; secured by equipment. 709,925 347,785
Note payable to a company; due in quarterly
installments of $15,908 with interest at 8%;
due December 22, 1996; unsecured. 74,984 89,110
Note payable to a company due upon gross
sales derived from the payee's key customer list
or March 22, 1997, whichever is earlier with
interest at 8%, unsecured. 25,000 25,000
Note payable to an individual; due in quarterly
installments of 2,102 shares of stock of the
company; due December 22, 1996; no interest;
unsecured. 78,131 109,377
Note payable to financing company due
in monthly installments of $588 with an
interest rate of 8.5%; due December 1997;
secured by vehicle. 14,378 15,810
--------- ---------
Total long-term debt 902,418 587,082
Less: Current portion (197,926) (270,993)
--------- ---------
Total long-term debt excluding
current portion $ 704,492 $ 316,089
--------- ---------
--------- ---------
</TABLE>
Aggregate maturities during the next five years are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year ended September 30, 1996 197,926
1997 204,813
1998 143,724
1999 141,985
2000 141,985
Later years 71,985
---------
Total long-term debt $ 902,418
---------
---------
</TABLE>
13
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1995 and 1994
NOTE 7 - LEASES
All non-cancelable leases with an initial term greater than one year have
been categorized as capital or operating leases in conformity with the
definitions in Financial Accounting Standards Board Statement No. 13,
"Accounting for Leases".
The following analysis represents property under capital lease at September
30, 1995 and June 30, 1995.
<TABLE>
<CAPTION>
Sept. 30 June 30
1995 1995
---------- ----------
<S> <C> <C>
Equipment $ 186,386 $ 213,776
Less: Accumulated depreciation (80,615) (87,216)
--------- ---------
Net property under capital lease $ 105,771 $ 126,560
--------- ---------
--------- ---------
</TABLE>
At September 30, 1995, the company is liable under the terms of non-
cancelable leases for the following minimum lease commitments:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ---------
<S> <C> <C>
Year Ended September 30:
1996 $ 29,833 $ 124,714
1997 53,621 51,965
1998 62,828 --
1999 -- --
2000 -- --
Later years -- --
--------- ---------
Total minimum lease payments $ 146,282 $ 176,669
Less: Interest (20,716) ---------
--------- ---------
Present value of net minimum
lease payments 125,566
Less: Current portion (32,517)
---------
Capital lease obligations
payable long--term $ 93,049
---------
---------
</TABLE>
14
<PAGE>
NOTE 8 - INCOME TAX EXPENSE
The provision for taxes on earnings from continuing operations consisted of
the following:
<TABLE>
<CAPTION>
Sept. 30 Sept.30
1995 1994
-------- -------
<S> <C> <C>
Current
Federal $ 8,203 $ 2,940
State 2,695 1,031
-------- -------
10,898 3,971
-------
-------
Less Tax benefit from prior year (11,755)
--------
Benefit (857)
</TABLE>
NOTE 9 - MAJOR CUSTOMER
Sales to major customers for the quarter ended September 30, 1995
recognized by the Company's wholly owned subsidiary, Softalk, Inc. are
summarized below:
<TABLE>
<CAPTION>
Percent of Revenues
------------------------------
Sales Telephone Hardware
Customer Recognized Total Accessories Products
----------------- ---------- ----- ----------- --------
<S> <C> <C> <C> <C>
AT&T Technologies 372,526 15% 25% --
United Stationers 201,108 8% 14% --
Gemini Industries 304,000 12% 21% --
S.P. Richards 466,332 19% 32% --
Associated Stationers 107,882 4% 7% --
National Hardware 173,259 7% -- 23%
</TABLE>
NOTE 10 - CONTINGENCIES AND LITIGATION
The Company known as P.I.E. Nationwide, Inc. filed a Chapter 7 bankruptcy
petition prior to June 1992. On June 19, 1992 the trustee of the estate of
Olympia Holding Corporation formerly known as P.I.E. Nationwide, Inc. filed
suit in the United states Bankruptcy Court Middle District of Florida,
Jacksonville Division against the Company. The plaintiff claims that P.I.E.
improperly undercharged the company for freight and therefore, claims the
Company owes P.I.E. approximately $4,500. The trustee has filed several
thousand similar claims against various companies. At present the Company
is defending itself and expects to prevail.
15
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1995 and 1994
NOTE 11 - ROYALTIES
The following ia a summary of royalties for the three month periods ended
September 30, 1995 and 1994.
<TABLE>
<CAPTION>
Terms 1995 1994
----- -------- --------
<S> <C> <C> <C>
WAC Research
Telephone accessories 5% of net sales $ 45,615 $ 37,021
Hardware products (same) 5,196 3,280
Other Entities
Hardware products 3% of net sales 12,989 10,159
Hardware Products 10% of net sales 10,689 9,873
Telephone Accessories 5% of net
sales to office
office products
industry -- 8,008
Miscellaneous -- 422
-------- --------
$ 74,489 $ 68,763
-------- --------
-------- --------
</TABLE>
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company's subsidiary, Softalk, Inc., maintains a royalty agreement for
patent and trade-mark rights on telephone accessories and a harware product
from WAC Research, a Utah corporation. The president of the Company is the
beneficial owner of one-half of WAC Research.
The Company pays the personal credit card bills for a member of the Board
of Directors on a month to month basis. The amount is generally paid back
to the Company the next month. At September 30, 1995 the amount owed to the
Company was $13,484.
During fiscal year 1995, the Company sold all rights and interest as well
as molds and inventory related to several products being discontinued by
the Company. These items were sold to WAC Research and WAC agreed to also
pay certain travel related expenses. The notes receivable to the Company
were written with an 8% interest rate and various due dates. The total of
the notes at September 30, 1995 was $256,170. Subsequent to September 30,
1995 WAC has reimbursed Dynatec a total of $40,000.
16
<PAGE>
NOTE 13 - FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
Letters of Credit are issued by the Company during the ordinary course of
business through their bank as required by certain vendor contracts. As of
September 30, 1995 the Company had approximately $60,000 in outstanding
letters of credit for the future purchase of inventory.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company provides credit to its customers in the normal course of business.
However, the Company performs ongoing credit evaluations of its customers
and maintains allowances for potential credit losses. Concentrations of
credit risk with respect to trade receivables is limited due to the
Company's large number of customers and their dispersion across many
geographies. The Company places its temporary cash investments with high
quality financial institutions. At times such investments may be in excess
of the FDIC insurance limit.
17
<PAGE>
NOTE 14 - SEGMENT REPORTING
A summary of information about the Company's operations by
segment follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revenues:
Telephone accessories $1,464,721 $1,241,211
Hardware products 767,809 598,252
Batteries 168,668 263,240
Other segments 36,611 85,911
---------- ----------
Total $2,437,809 $2,188,614
---------- ----------
---------- ----------
Operating income (loss):
Telephone accessories $ 150,820 $ 47,527
Hardware products (19,162) 13,985
Batteries (31,242) (10,591)
Other segments (546) (4,622)
---------- ----------
Total $ 99,870 $ 46,299
---------- ----------
---------- ----------
Identifiable assets:
Telephone accessories $4,545,542 $3,495,844
Hardware products 535,437 256,553
Batteries 427,699 497,554
Other segments 104,352 28,949
---------- ----------
Total $5,613,030 $4,278,900
---------- ----------
---------- ----------
Depreciation and amortization:
Telephone accessories $ 70,889 $ 65,358
Hardware products 26,417 9,190
Batteries 6,412 --
Other segments 393 --
---------- ----------
Total $ 104,111 $ 74,548
---------- ----------
---------- ----------
Capital expenditures:
Telephone accessories $ 9,040 $ 103,802
Hardware products 41,999 --
Batteries -- --
Other segments -- --
---------- ----------
Total $ 51,039 $ 103,802
---------- ----------
---------- ----------
</TABLE>
18
<PAGE>
Schedule 1
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED COSTS OF SALES
For the Three Months Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
COST OF SALES - PRODUCTS
Beginning inventory - finished $1,092,682 $ 858,691
Costs of goods manufactured (Schedule 2) 1,006,838 1,338,053
Purchases 105,207 20,787
Freight 81,751 90,998
Amortization 34,931 22,431
Less: ending inventory - finished (791,461) $ (983,673)
---------- ----------
$1,529,948 $1,347,287
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
Schedule 2
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED COSTS OF GOODS MANUFACTURED
For the Three Month Periods Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
COST OF GOODS MANUFACTURED
Beginning inventory - raw $ 329,795 $ 228,371
Materials - raw 860,040 1,098,275
Engineering -- 8,650
Freight 33,304 55,632
Depreciation 46,208 37,260
Labor 173,607 143,862
Repairs & maintenance 7,089 572
Miscellaneous - direct 22,759 22,524
Less: ending inventory - raw $ (465,964) $ (257,093)
---------- ----------
$1,006,838 $1,338,053
---------- ----------
---------- ----------
</TABLE>
20
<PAGE>
Schedule 3
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED EXPENSES
For the Three Month periods Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
SELLING EXPENSES
Advertising $ 37,500 $ 67,432
Commissions 123,327 118,697
Depreciation - selling 13,782 8,269
Miscellaneous 1,791 7,030
Promotions & Literature 30,918 44,172
Salaries - sales 116,727 99,927
Travel & entertainment 32,879 54,233
--------- ---------
$ 356,924 $ 399,760
--------- ---------
--------- ---------
GENERAL AND ADMINISTRATIVE EXPENSES
Corporate expense 73,526 44,724
Depreciation & Amortization - office 9,190 6,588
Insurance 40,019 43,685
Legal & Accounting 28,942 36,383
Miscellaneous 2,372 --
Office expense 19,754 26,207
Payroll taxes 32,133 26,439
Rent 35,117 28,984
Salaries - office & officers 100,851 86,826
Taxes 8,167 6,204
Telephone 11,581 10,762
Utilities 7,265 7,417
--------- ---------
$ 368,917 $ 324,219
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 374683
<SECURITIES> 0
<RECEIVABLES> 1346244
<ALLOWANCES> 0
<INVENTORY> 1257425
<CURRENT-ASSETS> 3188646
<PP&E> 1572483
<DEPRECIATION> 0
<TOTAL-ASSETS> 5613030
<CURRENT-LIABILITIES> 2014334
<BONDS> 0
<COMMON> 9392
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5613030
<SALES> 2434458
<TOTAL-REVENUES> 2437809
<CGS> 1604437
<TOTAL-COSTS> 2337939
<OTHER-EXPENSES> 45966
<LOSS-PROVISION> 1500
<INTEREST-EXPENSE> 45966
<INCOME-PRETAX> 53904
<INCOME-TAX> (857)
<INCOME-CONTINUING> 54761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54761
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
