<PAGE>
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 QUARTER ENDED: MARCH 31, 1996
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 March
31, 1996, were 943,321. The aggregate market value of voting stock held by non
affiliates of the Company at April 30, 1996 was $2,234,600.
Transitional small business disclosure format. Yes No X
--- ---
<PAGE>
PART 1. - FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS
Reference is made to the attached Unaudited Consolidated Financial
Statements for the first quarter and results of calendar year 1996 and 1995.
These Financial Statements are hereby incorporated by reference. (See
Exhibit 1) The information for the Company's first quarter ended March 31,
1996 and 1995 is unaudited, but in the opinion of management reflects all
adjustments which are necessary for a fair presentation of operations for
such periods.
2
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the first quarter of calendar year 1996 ending on March
31, 1996 were $2,164,791. Total revenues for the first quarter of calendar year
1995 ending on March 31, 1995 were $2,129,811. This represents a $34,980 (2%)
increase in revenues for the quarter ended March 31, 1996 compared to March 31,
1995. The telephone accessories products experienced a overall decrease in
sales. Specifically, the Softalk product experienced a decrease of $109,174
(22%) over the same period for the prior year while the Mini-Softalk had a
decrease of $5,357 (5%). The Twisstop product experienced a decrease of
$16,521 (4%) as a result of reduced sales to volume wholesalers. Sales to
wholesalers are expected to rise in fiscal year 1996. TwistCord sales increased
by $38,966 (128%). The Universal Softalk registered a sales decrease of $59,575
(42%) for the three month period ending March 31, 1996 over the same period for
the prior calendar year. The Universal Softalk is currently marketed to AT&T on
an exclusive basis. The Softalk II product experienced sales increases of
$96,991 (56%). The Company introduced the Value Pack product in early 1996.
The Value Pack includes a Softalk II, TwistCord and Twisstop in a retail
package. The Value Pack experienced sales of $5,671 in the first quarter of
1996. Hardware products experienced an overall increase in sales of $177,570
(31%) over the same period for the prior year principally caused by a increase
in Sofstop sales of $20,461 (58%), an increase in Cover-Up sales of $17,201
(21%), an increase in Expand-A-Shelf sales of $96,812 (38%), an increase in Mini
Expand-A-Shelf sales of $10,658 (53%) and an increase in Wedge sales of $8,405
(26%). The Mega Expand-A-Shelf and miscellaneous and discontinued hardware
products decreased $4,222 (3%), and $4,867 respectively. The Company introduced
the Expandable Bookshelf in early 1996 and experienced sales of $33,122. The
miscellaneous product lines increased by $35,158 as the Company continued its
sales efforts with the Erasable Boards, Fuji Film, and contract packaging for
AT&T. The Company has been informed that AT&T will discontinue it's contract
packaging and the Company has decided to discontinue the Fuji Film line. The
Company has made the decision to discontinue its marketing efforts with the Fuji
Novel line of dry cell batteries. Sales of the batteries have decreased by
$128,749 (74%) over the three month period of the previous year.
The Company experienced a net loss of $112,316 in the first quarter of
calendar year 1996. For the first quarter of the prior year the company
experienced a net loss of $89,525. The decrease in profitability is largely due
to the decline of sales in the higher margin telephone accessory products and a
rapid and substantial increase in freight costs and the cost of plastics. The
Company also had a significant increase in selling costs and interest expense.
The Company also recognized a loss from investment in affiliate.
3
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The Company has not paid taxes for several years due to a net loss carry
forward, which is no longer available. The hardware and other segment profits
of the Company are of a lesser amount than the telephone accessory products.
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities is 1.35 at March 31,
1996 as compared to 1.38 as of December 31, 1995 calendar year-end 1995 audit
date. The current assets at March 31, 1996 were $3,082,213 compared to
$3,204,336 at December 31, 1996. The current liabilities of the company at
March 31, 1996 were $2,280,497 compared to $2,318,859 at December 31, 1995.
For the three month period ending March 31, 1996 the company experienced
an increase in their cash position of $18,817. For the three month period
ending March 31, 1995 the company experienced a $234,962 decrease in cash.
The cash increase for the three month period ending March 31, 1996 was a
result of cash being provided by operating activities in excess of cash outflow
from operations of $100,135, cash being provided by net borrowings $400,096, and
cash being used by investing activities $481,414.
At March 31, 1996, the stockholders' equity was $2,676,985. At December 31,
1995 the stockholders' equity was $2,782,641.
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 March 31, 1996, and March 31, 1995.
(b) Reports on Form 8-K.
Form 8-K filed on February 27, 1996.
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 17th day of May, 1995.
DYNATEC INTERNATIONAL, INC.
/s/ DONALD M. WOOD
---------------------------------------
Donald M. Wood
President-Chief Executive Officer
/s/ DAVID J. WHITE
---------------------------------------
David J. White,
Vice-President - Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT 1
---------
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
1
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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 .... 7
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS.......................... 9
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS..................... 12
UNAUDITED CONSOLIDATED COSTS OF SALES (SCHEDULE 1)....................... 24
UNAUDITED CONSOLIDATED COST OF GOODS MANUFACTURED (SCHEDULE 2)........... 25
UNAUDITED CONSOLIDATED EXPENSES (SCHEDULE 3)............................. 26
2
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The information for the Company's first quarter ended March 31, 1996 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
period. 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
March 31, 1996 and December 31, 1995
AUDITED
CALENDAR
UNAUDITED YEAR-END
ASSETS MARCH 31 DECEMBER 31
1996 1995
---------- ------------
CURRENT ASSETS
Cash $ 337,740 $ 318,923
Receivables
Trade accounts (net of allowance of
$8,730 at March 31, 1996 and
$12,629 at December 31, 1995) 1,048,538 1,318,792
Employee advances 2,733 3,838
Accounts Receivable-related parties
(Note 12) 70,660 83,781
Accounts Receivable- unconsolidated affiliate
(Note 11) 149,352 --
Inventory (Note 2) 1,287,462 1,257,180
Prepaid expenses 179,478 213,228
Unamortized debt issue costs 6,250 8,594
---------- ----------
TOTAL CURRENT ASSETS 3,082,213 3,204,336
PROPERTY AND EQUIPMENT (Note 3) 2,456,008 2,123,671
OTHER ASSETS
Deposits 41,108 29,825
Deferred tax asset 62,713 57,181
Note receivable-related party (Note 12) 150,000 150,000
Prepaid Royalties-related party (Note 12) 71,555 71,555
License, patents and agreements (Note 5) 408,419 433,861
---------- ----------
TOTAL OTHER ASSETS 733,795 742,422
---------- ----------
TOTAL ASSETS $6,272,016 $6,070,429
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
3
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AUDITED
CALENDAR
UNAUDITED YEAR-END
LIABILITIES AND EQUITY MARCH 31 DECEMBER 31
1996 1995
---------- ------------
CURRENT LIABILITIES
Short-term notes payable (Note 5) $ 788,898 $ 688,899
Current portion of long-term debt (Note 6) 816,369 810,628
Current portion of capital lease obligations (Note 7) 30,466 31,514
Accounts payable 402,980 457,286
Accrued expenses 100,480 138,726
Accrued advertising 98,933 150,000
Accrued royalties payable 6,332 12,077
Accrued royalties - related parties (Note 12) 24,260 -
Income taxes - current 11,779 29,729
---------- ----------
TOTAL CURRENT LIABILITIES 2,280,497 2,318,859
LONG-TERM LIABILITIES
Construction in progress obligations (Note 3) 1,162,441 861,744
Long-term debt (Note 6) 5,107 6,737
Capital lease obligations (Note 7) 85,539 89,203
Deferred income taxes 11,245 11,245
Minority interest in affiliate (Note11) 50,202 -
---------- ----------
TOTAL LIABILITIES 3,595,031 3,287,788
STOCKHOLDERS' EQUITY
Common stock, $.01 par value (Note 10)
Authorized 100,000,000 shares
Issued 943,321 shares at March 31, 1996
941,219 shares at December 31, 1995 9,433 9,412
Additional paid-in capital 2,705,880 2,699,238
Retained earnings (38,328) 73,991
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,676,985 2,782,641
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $6,272,016 $6,070,429
---------- ----------
---------- ----------
4
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month Periods Ended
March 31, 1996 and 1995
THREE MONTHS THREE MONTHS
ENDED MARCH 31 ENDED MARCH 31
1996 1995
-------------- --------------
REVENUE
Sales - products $ 2,164,791 $ 2,127,018
Other - 2,793
------------ ------------
TOTAL REVENUE 2,164,791 2,129,811
COST OF SALES
Products (Schedule 1) 1,278,860 1,286,916
Royalties (Note 13) 56,893 64,673
------------ ------------
TOTAL COST OF SALES 1,335,753 1,351,589
GROSS PROFIT 829,038 778,222
EXPENSES
Selling expenses (Sch 3) 472,788 443,253
General & adm exp (Sch 3) 375,591 387,857
Bad debts 16,000 6,000
------------ ------------
TOTAL EXPENSES 864,379 837,110
------------ ------------
OPERATING INCOME/(LOSS) (35,341) (58,888)
------------ ------------
OTHER INCOME/(EXPENSE)
Interest Income 6,684 -
Research and Development (8,754) (1,768)
Consulting Income (Note 11) 16,667 -
Loss from affiliate (Note 11) (50,202) -
Interest expense (41,070) (28,869)
------------ ------------
TOTAL OTHER INCOME/(EXPENSE) (76,675) (30,637)
------------ ------------
Income/(loss) from
Continuing Operations (112,016) (89,525)
The accompanying notes are an integral part of these financial statements.
5
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DISCONTINUED OPERATIONS
Gain (Loss) from discontinued
operations - -
------------ -----------
Income/(loss) before
income taxes (112,016) (89,525)
------------ -----------
INCOME TAX EXPENSE
Income tax expense
(Note 8) 300 -
------------ -----------
NET INCOME/(LOSS) $ (112,316) $ (89,525)
------------ -----------
------------ -----------
Earnings/ (loss) per share:
Continuing Operations (.12) (.10)
Discontinued Operations - -
------------ -----------
NET EARNINGS/
(loss) PER SHARE $ (.12) $ (.10)
------------ -----------
------------ -----------
6
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DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Month Periods Ended March 31, 1996 and 1995
THREE MONTH PERIOD ENDING MARCH 31, 1996
----------------------------------------
FREE TOTAL
RESTRICTED TRADING SHARES
SHARES SHARES ISSUED
---------- ------- -------
BALANCE DECEMBER 31, 1995 385,630 555,589 941,219
Shares issued for rights
& non-compete 2,102 - 2,102
Restricted shares free
trading (1,100) 1,100 -
Net Income (March 31, 1996) - - -
---------- ---------- ----------
---------- ---------- ----------
BALANCE MARCH 31, 1994 386,632 556,689 943,321
---------- ---------- ----------
---------- ---------- ----------
THREE MONTH PERIOD ENDING MARCH 31, 1995
----------------------------------------
FREE TOTAL
RESTRICTED TRADING SHARES
SHARES SHARES ISSUED
---------- ------- -------
BALANCE DECEMBER 31, 1994 331,481 548,797 880,278
Stock relinquished to
purchase options - (2,997) (2,997)
Restricted shares free
trading (2,613) 2,613 -
Shares issued pursuant to
stock option agreements 10,000 - 10,000
Shares issued for rights
and non-compete 2,102 - 2,102
Net Income (March 31, 1995) - - -
---------- ---------- ----------
BALANCE MARCH 31, 1995 $ 340,970 $ 548,413 $ 889,383
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
7
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ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
---------- ------------ ----------- -------------
$ 9,412 $ 2,699,238 $ 73,991 $ 2,782,641
21 6,642 - 6,663
- - - -
- - (112,319) (112,319)
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
$ 9,433 $ 2,705,880 $ (38,328) $ 2,676,985
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
8,803 2,667,668 26,078 2,702,549
(30) (3,625) - (3,655)
- - - -
100 (20) - 80
21 15,602 - 15,623
- - (89,525) (89,525)
---------- ------------ ----------- -------------
$ 8,894 $ 2,679,625 $ (63,447) $ 2,625,072
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
8
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DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Month Periods Ended March 31, 1996 and 1995
MARCH 31 MARCH 31
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash received from
customers $ 2,777,143 $ 2,423,022
Cash paid to suppliers
& employees (2,618,699) (2,348,028)
Interest paid (40,059) (30,864)
Income taxes paid (18,250) -
----------- -----------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 100,135 44,130
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
License, Patents,
Rights expenditures - (250,000)
Received from related parties 13,121 16,994
Stock issuance for rights
and non-compete 6,664 15,623
Purchase of stock options - (3,575)
Capital expenditures (28,852) (119,325)
Minority Interest in affiliate 50,202 -
Construction in Progress (373,197) -
Advances to affiliate (149,352) -
----------- -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (481,414) (340,283)
9
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CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (payments)
under line of credit
agreements 100,000 (65,276)
Net (payments) borrowings
under capital lease
obligations (4,712) (6,195)
Net (payments) borrowings
on long-term debt 4,111 132,662
Net short-term (payments)
borrowings
Net borrowings (payments)
on construction obligations 300,697 -
----------- -----------
NET CASH (USED) BY
FINANCING ACTIVITIES 400,096 61,191
NET INCREASE (DECREASE)
IN CASH 18,817 (234,962)
CASH AT BEGINNING OF
PERIOD 318,923 378,121
CASH AT END OF PERIOD $ 337,740 $ 143,159
----------- -----------
----------- -----------
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capital acquisitions financed by:
Accounts payable 28,852 119,325
Issuance of debt - -
Capital lease obligations - -
10
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DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Month Periods Ended March 31, 1996 and 1995
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
MARCH 31 MARCH 31
1996 1995
--------- --------
Net Income (loss) $(112,316) $(89,525)
Adjustments to reconcile
net (loss) to net cash
provided by operating
activities:
Depreciation 69,709 59,705
Amortization 25,442 22,556
Provisions for losses
on accounts receivable (3,899) (182)
Change in assets & liabilities:
Decrease (increase) in
accounts receivable 274,153 226,519
Decrease (increase) in
Employee advances 1,105 -
Decrease (increase) in
inventory (30,282) (50,911)
Decrease (increase) in
prepaids 33,750 (52,715)
Decrease (increase) in
prepaid royalties - 71,713
Decrease (increase) in
deposits (11,283) -
Decrease (increase) in
debt issue costs 2,344 (4,375)
Decrease (increase) in
prepaids-related - (19,281)
Decrease (increase) in
other assests (5,534) 43
Increase (decrease) in
royalties payable (5,745) (5,063)
Increase (decrease) in
royalties payable-
related 24,260 15,183
Increase (decrease) in
accounts payable (54,306) (66,166)
Increase (decrease) in
accrued expenses (38,246) (23,039)
Increase (decrease) in
income tax payable (17,950) (3,306)
Increase (decrease) in
accrued advertising (51,067) (17,453)
Increase (decrease) in
accrued commissions - (19,573)
TOTAL ADJUSTMENTS $ 212,451 $133,655
--------- --------
NET CASH PROVIDED
(USED) BY OPERATING
ACTIVITIES $ 100,135 $ 44,130
--------- --------
--------- --------
The accompanying notes are an integral part of these financial statements.
11
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DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
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 and Rule 10-01 of Regulation S-X.
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 March 31, 1996 and 1995 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Form 10-KSB for the period ended December 31, 1995.
NOTE 2 - INVENTORY
Inventory as of March 31, 1996 and December 31, 1995 is summarized
as follows:
MARCH 31 DECEMBER 31
1996 1995
---------- -----------
Raw $ 379,950 $ 390,490
Finished 907,512 866,690
---------- ----------
$1,287,462 $1,257,180
---------- ----------
---------- ----------
Valued at lower of cost or market:
MARCH 31 DECEMBER 31
1996 1995
---------- -----------
LIFO basis $1,287,462 $1,257,180
12
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NOTE 2 - INVENTORY (CONTINUED)
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 inventories exceeded the carrying amount by
approximately $30,000 at March 31, 1996.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 1996 and December 31, 1995 are
detailed in the following summary:
NET BOOK VALUE
---------------------------
ACCUMULATED MARCH 31 DECEMBER 31
COST DEPRECIATION 1996 1995
---------- ------------ ---------- -----------
Equipment $2,007,469 $1,390,894 $ 616,575 $ 653,992
Leasehold impr. 132,919 122,418 10,501 12,795
Office equip. 259,676 140,607 119,069 107,984
Signs 8,187 8,187 - -
Vehicles 68,355 34,873 33,482 37,152
Capital leases 148,405 62,977 85,428 93,989
Land 626,153 - 626,153 624,949
Construction
in progress 964,800 - 964,800 592,810
---------- ---------- ---------- ----------
$4,215,964 $1,759,956 $2,456,008 $2,123,671
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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 March 31, 1996 amounted to $69,709 ($59,705 for
March 31, 1995).
Rental expense charged to operations for the three month periods
ending March 31, 1996 and 1995 is summarized below:
03-31-96 03-31-95
-------- --------
Gross rental expense $ 35,165 $ 33,308
Construction-in-progress is related to the consturction of an office,
warehouse, and distribution facility for the Company. Total cost of
the land and building is estimated to be $2,512,320 with completion in
June 1996. At March 31, 1996, $964,800 had been expended including
capitalized interest.
During the first quarter of 1996, the Company entered into a
construction mortgage loan for $1,815,592 with a variable rate of
interest of 1.75% over the lender's index. The loan terms
13
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require the Company to pay five consecutive monthly interest
payments beginning April 1, 1996, and a principal payment of
$615,592 on August 1, 1996 at which time the loan becomes an
installment mortgage loan. The mortgage loan requires the Company
to make monthly payments of principal and interest of $11,581
beginning September 1, 1996 through August 1, 2016.
Concurrent with the August 1, 1996 payment of $615,592, the Company
expects to receive a Small Business Administration mortgage loan in
the amount of $1,000,000. The consummation of the SBA loan is subject
to the completion of the building and other normal SBA requirements.
Management believes these requirements will be met. Ultimate terms of
the loan are not currently determinable but are expected to be
approximately 7.5% interest with monthly payments of approximately
$8,000 - 9,000 over 20 years.
Accordingly, final financing of the land and building is expected to
be as follows:
MONTHLY
AMOUNT RATE YEARS PAYMENT
---------- ---- ----- ---------
Bank $1,200,000 10.5 20 $ 11,891
SBA 1,000,000 7.5 20 8,056
Company equity 342,320 - - -
$2,452,320
----------
----------
The loan is secured by real estate in Salt Lake City and Park City, UT
and the personal guaranty of the CEO and director, Don Wood.
Construction-in-progress obligations of $1,162,441 consist of amounts
payable on the construction contract with the bank. The entire amount
is to be refinanced as part of the Bank and SBA loans described above.
14
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DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1996 and 1995
NOTE 4 - LICENSE, PATENTS AND AGREEMENTS
These agreements represent amounts paid for the rights to manufacture,
produce, sell and market various products. In March 1995, the Company
purchased the rights and customer list for the doorstop product line
from All R Prodx, Inc. for $100,000. In addition, a five year non-
competition agreement was entered into with All R Prodx, Inc. and its
shareholder for $150,000. At December 31, 1995, management began
discontinuing sales and distribution of Fuji battery products. The
majority of said costs are associated with agreements for the
telephone accessory lines. 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 March 31, 1996 amounted to
$25,442 ($22,556 for 1995).
NOTE 5 - SHORT-TERM NOTES PAYABLE
Short-term notes payable as of March 31, 1996 and December 31, 1995,
are detailed in the following summary:
MARCH 31 DECEMBER 31
1996 1995
--------- -----------
Revolving line of credit up to $1,500,000
with a bank; interest payable monthly at 1.0% over
prime; secured by receivables, inventory and
the personal guarantee of Don Wood, CEO and
director; due November 30, 1996. $1,203,339 $1,103,340
Less construction in progress obligations: (414,441) (414,441)
---------- ----------
$ 788,898 $ 688,899
Under the terms of the bank lines of credit the Company is required to
maintain certain financial covenants and ratios. The bank may withdraw the
lines-of-credit upon default by the Company of various provisions in the
line-of-credt agreement. At March 31, 1996 the Company had a ratio of
current assets to current liabilities of 1.35 to 1 which is not in
compliance with the provisions requiring a minimum ratio of 1.5 to 1.
Pertinent data regarding aggregate short-term borrowings is as follows:
MARCH 31 DECEMBER 31
1996 1995
---------- -----------
Maximum outstanding $1,203,339 $1,103,340
Average outstanding 1,086,672 897,022
Weighted average interest rate
for the three month periods 9.33% 10.15%
15
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NOTE 6 - LONG-TERM DEBT
Long-term notes payable as of March 31, 1996 and December 31, 1995,
are detailed in the following summary:
MARCH 31 DECEMBER 31
1996 1995
-------- -----------
Note payable to financing company
due in monthly installments of
$588 with interest at 8.5%; due
December 1997. 11,421 12,915
Revolving line of credit payable to
a bank, interest at prime plus 1.0%
amortized over 60 months. 704,490 692,085
Note payable to a company due in
quarterly installments of $15,908
with interest at 8.0% due
December 1996. 60,575 60,575
Note payable to a company due in
a lump sum of $25,000;
due March 1997 or sooner
based on product sales; interest at
8% unsecured. 25,000 25,000
Note payable to an individual in
quarterly installments of stock of the
Company through December 22, 1996;
no interest; unsecured. 19,990 26,790
--------- ---------
Total long-term debt 821,476 817,365
Less: current portion (816,369) (810,628)
--------- ---------
Total long-term debt excluding
current portion $ 5,107 $ 6,737
--------- ---------
--------- ---------
16
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1996 and 1995
NOTE 6 - LONG-TERM DEBT (CONTINUED)
Aggregate maturities are as follows:
THREE MONTHS ENDING MARCH 31, 1997 $ 816,369
1998 5,107
1999 -
2000 -
2001 -
Later -
---------
Total long-term debt $ 821,476
---------
---------
17
<PAGE>
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
March 31, 1996 and December 31, 1995.
MARCH 31 DECEMBER 31
1996 1995
--------- -----------
Equipment $ 148,405 $ 148,405
Less: Accumulated depreciation (62,977) (54,416)
--------- ---------
Net property under capital lease $ 85,428 $ 93,989
--------- ---------
--------- ----------
At March 31, 1996, the Company is liable under the terms of
non-cancelable leases for the following minimum lease commitments:
CAPITAL OPERATING
LEASES LEASES
--------- ---------
Year Ended March 31:
1997 $ 39,111 $ 128,940
1998 58,089 -
1999 32,969 -
2000 - -
2001 - -
Later years - -
--------- ---------
Total minimum lease payments $ 130,169 $ 128,940
Less: Interest (14,164) ---------
--------- ---------
Present value of net minimum
lease payments $ 116,005
Less: Current portion (30,466)
---------
Capital lease obligations
payable long-term $ 85,539
---------
---------
NOTE 8 - INCOME TAX EXPENSE
The provisions for taxes on earnings from continuing operations
consisted of the following:
03-31-96 03-31-95
-------- --------
Current
Federal $ - $ -
State 300 -
--------- --------
300 -
--------- --------
--------- --------
18
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1996 and 1995
NOTE 9 - MAJOR CUSTOMERS
Sales to major customers for the three months ended March 31, 1996 are
summarized as follows:
PERCENT OF:
------------------------
SALES SEGMENT COMPANY WIDE
CUSTOMER DOLLARS REVENUES REVENUES
-------- ------- -------- ------------
AT&T $ 100,410 8% 5%
United Stationers 129,800 10% 6%
S.P. Richards 178,180 14% 8%
National Hardware 105,081 14% 5%
Gemini Industries 143,800 11% 7%
NOTE 10 - COMMON STOCK
During the first three months of calendar year 1995 the company issued
10,000 shares of stock pursuant to the Dynatec International, Inc.
incentive stock option plans of 1987 and 1989. On February 22, 1995,
the company completed the acquisition of all of the doorstop business,
and some of the doorstop inventory of All R Prodx, Inc. a Utah
corporation. As part of this transaction the company signed an
agreement to issue 16,818 shares in eight equal quarterly
installments. Pursuant to this agreement, the Company issued 2,102
shares of stock in March 1996.
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.
19
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1996 and 1995
NOTE 11 - UNCONSOLIDATED AFFILIATE AND MINORITY INTEREST
The account receivable from unconsolidated affiliate at March 31, 1996
is calculated as follows:
MARCH 31
1996
---------
Cash Advances $ 110,000
Expenses paid on behalf of WiTec 22,685
Consulting income receivable 16,667
---------
Net receivable $ 149,352
---------
---------
Minority interest in affiliate is calculated as follows:
MARCH 31
1996
---------
Total:
Sales $ 33,075
Direct Expenses 29,848
---------
Gross Profit $ 3,227
Selling Expenses 39,336
General and Administrative 68,478
---------
Net Income (Loss) $(104,587)
Dynatec Share:
Net Income (Loss) $ (50,202)
Current Assets $ 237,370
Property and Equipment (Net) 43,019
Other Assets 5,794
---------
Total Assets $ 286,183
Current Liabilities $ 290,770
Paid in Capital - others 100,000
Interest of others (54,385)
Dynatec equity (deficit) (50,202)
On January 12, 1996, WiTec International, L.L.C., (WiTec) a Utah
limited liability company was formed for the purpose of manufacturing
and marketing consumer products including headsets, amplifiers and
other phone accessories. Initial members of WiTec include Dynatec
International,
20
<PAGE>
Inc. and Muito Bem Ltd. (The Dynatec Group) and Weiser
Telecommunications, Inc. and Margaret Weiser (the Weiser Group).
The president of the Company is the beneficial owner of Muito
Bem Ltd.
Dynatec holds a forty eight percent (48%) profit or loss interest in
WiTec. At March 31, 1996 Dynatec's share of the WiTec loss was
$50,202. As of March 31, 1996 the Company had loaned cash to WiTec in
the amount of $110,000 and had paid expenses on its behalf of $22,686.
Dynatec also has accrued $16,667 in consulting income due from WiTec
pursuant to a contract providing the Company with a $200,000 per year
consulting contract from WiTec. The amounts owed to Dynatec at March
31, 1996 under the agreements mentioned above totalled $149,352.
WiTec may be merged into Dynatec, at Dynatec's option, after the
conclusion of calendar year 1997 in order to take advantage of
Dynatec's banking relationships and credit lines, and to facilitate
raising capital in the public markets.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company's subsidiary, Softalk, Inc. maintains a royalty agreement
for patent and trade-mark rights on telephone accessories from WAC
Research, a Utah corporation. Don Wood, CEO and director of the
Company is the beneficial owner of one-half of WAC Research. Prepaid
royalties owed to the Company amounted to $71,555 at March 31, 1996.
During the first three months of calendar year 1995 the Company paid
the personal credit card bills for a member of the Board of Directors.
The amount is generally paid back to the Company the next month. At
March 31, 1995 the amount owed to the company was $10,896. The
Company discontinued this practice in 1996.
During 1995, the Company sold all rights and interest in various
products to WAC Research for $150,000 in the form of a demand note
bearing 8% interest. The entire balance of the note along with
accrued interest of $2,000 remains outstanding at March 31, 1996.
As part of the transaction, inventory was sold at cost for $38,441 at
June 30, 1995. Sales of these products and purchases of additional
inventory by WAC Research are performed through the Company and the
outstanding receivable is adjusted as required. The outstanding
receivable due from WAC Research at March 31, 1996 is $13,362.
At March 31, 1996, WAC Research owed the Company $55,298 for travel
and various other expenses paid by the Company on behalf of WAC
Research.
21
<PAGE>
NOTE 13 - ROYALTIES
The following is a summary of royalties for the three month periods
ended March 31, 1996 and 1995.
TERMS 1996 1995
--------------- ------- -------
WAC Research
Telephone accessories 5% of net sales. $39,983 $43,496
Hardware products (Same) 2,613 1,686
Other Entities
Hardware products 1% of net sales 4,894 11,652
Hardware products 10% of net sales 9,486 7,886
Miscellaneous products (83) (47)
------- -------
$56,893 $64,673
------- -------
------- -------
NOTE 14 - 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 March 31, 1996, the Company had outstanding
letters of credit in the amount of $60,620 for the future purchases
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. Concentration 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 excess of
the FDIC insurance limit.
22
<PAGE>
NOTE 15 - SEGMENT REPORTING
A summary of information about the Company's operations by segment
follows:
MARCH 31 MARCH 31
1996 1995
---------- ---------
Revenues:
Telephone accessories $1,265,645 $1,314,644
Hardware products 744,368 566,798
Batteries 44,628 173,377
Other segments 110,150 74,992
---------- ----------
Total $2,164,791 $2,129,811
---------- ----------
---------- ----------
Operating income (loss):
Telephone accessories $ (20,851) $ 89,053
Hardware products (12,016) (63,347)
Batteries (707) (41,520)
Other segments (1,767) (43,074)
---------- ----------
Total $ (35,341) $ (58,888)
---------- ----------
---------- ----------
Identifiable assets:
Telephone accessories $5,720,159 $3,347,622
Hardware products 453,255 547,589
Batteries 34,064 519,024
Other segments 64,538 119,359
---------- ----------
Total $6,272,016 $4,533,594
---------- ----------
---------- ----------
Depreciation and amortization:
Telephone accessories $ 56,140 $ 48,371
Hardware products 32,351 22,619
Batteries 1,903 8,288
Other segments 4,757 2,983
---------- ----------
Total $ 95,151 $ 82,261
---------- ----------
---------- ----------
Capital expenditures:
Telephone accessories $ 21,698 $ 1,333
Hardware products 7,154 15,750
Batteries - 2,341
Other segments - 99,901
---------- ----------
Total $ 28,852 $ 119,325
---------- ----------
---------- ----------
23
<PAGE>
Schedule 1
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED COST OF SALES
For the Three Month periods ended March 31, 1996 and 1995
THREE MONTHS ENDED
-------------------------
MARCH 31 MARCH 31
1996 1995
---------- ----------
COST OF SALES - PRODUCTS
Beginning inventory finished $ 866,690 $ 999,712
Cost of goods manufactured
(Schedule 2) 1,294,365 1,290,102
Amortization 25,317 22,432
Less ending inv.-finished (907,512) (1,025,330)
---------- ----------
TOTAL COST OF SALES-PRODUCT $1,278,860 $ 1,286,916
---------- -----------
---------- -----------
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
Schedule 2
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED COST OF GOODS MANUFACTURED
For the Three month periods ended March 31, 1996 and 1995
THREE MONTHS ENDED
-------------------------
MARCH 31 MARCH 31
1996 1995
---------- ----------
COST OF GOODS MANUFACTURED
Beginning inventory-raw $ 390,490 $ 281,369
Materials - raw 1,015,133 985,784
Freight in 61,207 40,611
Depreciation 47,069 40,799
Labor 137,825 225,813
Repairs & maintenance 6,994 6,512
Miscellaneous - direct 15,597 15,876
Less: ending inventory-raw (379,950) (306,662)
---------- ----------
TOTAL COST OF GOODS
MANUFACTURED $1,294,365 $1,290,102
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
Schedule 3
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED EXPENSES
For the Three month periods ended March 31, 1996 and 1995
THREE MONTHS ENDED
-------------------------
MARCH 31 MARCH 31
1996 1995
---------- ----------
SELLING EXPENSES
Advertising $ 34,895 $ 32,500
Commissions 133,394 120,011
Depreciation - selling 12,230 11,632
Freight out 89,236 96,575
Miscellaneous 1,208 6,668
Promotions & Literature 41,384 24,565
Salaries-sales 115,145 95,869
Travel & entertainment 45,296 55,433
-------- --------
TOTAL SELLING EXPENSES $472,788 $443,253
-------- --------
-------- --------
GENERAL & ADMINISTRATIVE EXPENSES
Corporate expense $ 46,376 $ 48,069
Depreciation & amortization office 10,535 7,397
Insurance 46,782 48,111
Legal & accounting 35,308 25,518
Miscellaneous 4,308 5,703
Office Expense 23,385 30,278
Payroll Taxes 45,156 43,996
Rent 35,165 33,308
Salaries-office & officers 100,291 114,269
Taxes 2,902 4,526
Telephone 12,614 13,205
Utilities 12,769 13,477
-------- --------
TOTAL GENERAL &
ADMIN EXPENSE $375,591 $387,857
-------- --------
-------- --------
The accompanying notes are an integral part of these financial statements.
26
