<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: June 30, 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)
3820 W. Great Lakes Dr.
Salt Lake City, UT 84120
--------------------- --------
(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 June
30, 1996, were 945,423. The aggregate market value of voting stock held by non
affiliates of the Company at July 31, 1996 was $2,179,008.
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 second quarter and first six months of calendar years 1996
and 1995. These Financial Statements are hereby incorporated by reference.
(See Exhibit 1) The information for the Company's second quarter and first
six months of calendar years 1996 and 1995 ended June 30, 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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the second quarter of calendar year 1996 ending on
June 30, 1996 were $2,694,419. Total revenues for the second quarter of
calendar year 1995 ending on June 30, 1995 were $1,973,479. This represents
a $720,940 (37%) increase in revenues for the quarter ended June 30, 1996
compared to June 30, 1995. Total revenues for the six month period ended
June 30, 1996, were $4,895,210 compared to $4,103,290 for the six month
period ended June 30, 1995. This represents a $791,920 (19%) increase. The
telephone accessories products experienced a overall increase in sales. In
total, the telephone accessories line experienced sales of $3,130,393 for
the six month period ended June 30, 1996, in comparison to $2,529,024 for
the same six month period in the prior calendar year. This represents an
overall increase of $601,369 (24%). Specifically, the Softalk product
experienced a decrease of $123,564 (24%) over the same period for the prior
year while the Mini-Softalk had a decrease of $5,387 (3%). The Twisstop
product experienced an increase of $100,078 (14%) as a result of increased
sales to volume wholesalers. Sales to wholesalers are expected to rise in
calendar year 1996. TwistCord sales increased by $71,711 (115%). The
Universal Softalk registered a sales increase of $17,305 (6%) for the six
month period ending June 30, 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 $111,224 (31%).
Overall, the shoulder rest products (Softalk, Mini-Softalk, Universal,
Softalk II) had combined revenues for the six months ended June 30, 1996,
that were virtually equal to sales for the same combined products for the six
months ended June 30 1995. Management believes that Softalk and Mini-Softalk
sales will continue to decline while Universal and Softalk II sales will
continue to rise. Several large customers are replacing the Softalk and
Mini-Softalk with the Softalk II. 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 $431,110
in the first six months of 1996. Hardware products experienced an overall
increase in sales of $451,624 (41%) over the same period for the prior year.
This increase can be principally explained by an increase in Sofstop sales of
$65,949 (98%), an increase in Cover-Up and Hide-It sales of $73,870 (41%), an
increase in Expand-A-Shelf sales of $235,664 (47%), an increase in Mini
Expand-A-Shelf sales of $11,968 (31%) and an increase in Mega Expand-a-Shelf
sales of $1,072 (46%). The Wedge product increased $30,586 (41%). The
Company introduced the Expandable Bookshelf in early 1996 and experienced
sales of $42,014. The Company also introduced the Medicine Cabinet Organizer
which experienced sales of $4,470. The overall housewares business is
increasing as the company is adding new customers and expanding it's existing
line of products. The miscellaneous hardware products decreased in sales by
$13,969 as several hardware items have been discontinued since last year.
The miscellaneous product lines decreased by $93,465 as the Company is
winding down the sales of erasable boards and various other products, as well
as decreasing packaging revenues due to AT&T's decision to discontinue
3
<PAGE>
contract packaging with the Company. 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 $203,608 (82%) over the
same six month period of the previous year.
The Company experienced a net profit of $201,565 in the second quarter of
calendar year 1996, compared to a net profit of $73,255 for the same period of
the prior calendar year. For the comparative six month periods ended June 30,
1996 and 1995 the Company experienced a net profit of $89,250, compared to a
loss of $16,270. The increase in profitability for the six months can be
attributed to several factors including a revenue increase of $756,000, a
significant decline in selling expenses of approximately $165,000, and an
increase in other income of the Company.
The Company has not paid taxes for several years due to a net loss carry
forward, which is no longer available. For the six month period ended June 30,
1996, the Company recognized income tax expense of approximately $34,000, while
in 1995 the Company had an income tax benefit of $33,000.
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities is 1.31 at June 30, 1996
as compared to 1.38 as of the December 31, 1995 calendar year-end 1995 audit
date. The current assets at June 30, 1996 were $3,581,021 compared to
$3,204,336 at December 31, 1995. The current liabilities of the company at June
30, 1996 were $2,740,156 compared to $2,318,859 at December 31, 1995.
For the six month period ending June 30, 1996 the company experienced a
decrease in their cash position of $59,445. For the six month period ending
June 30, 1995 the company experienced a $112,559 decrease in cash. The cash
decrease for the six month period ending June 30, 1996 was a result of cash
being provided by operating activities in excess of cash outflow from operations
of $240,093, cash being provided by net borrowings $1,047,810 and cash being
used by investing activities in the amount of $1,347,348. A significant
portion of the borrowing and use of the borrowings was for the construction of a
new manufacturing, warehouse, and office facility. At June 30, 1996, the
stockholders' equity was $2,885,218. 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 June 30, 1996, and 1995.
(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 7 th day of August, 1996.
------
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)
5
<PAGE>
EXHIBIT 1
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
1
<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 ..... 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
<PAGE>
The information for the Company's six month period ended June 30, 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
June 30, 1996 and December 31, 1995
Audited
Unaudited Year-End
ASSETS June 30 December 31
1996 1995
----------- -----------
CURRENT ASSETS
Cash $ 259,478 $ 318,923
Receivables
Trade accounts (net of allowance of
$14,962 at June 30, 1996 and
$12,629 at December 31, 1995) 1,463,444 1,318,792
Employee advances 1,848 3,838
Accounts Receivable-related parties
(Note 12) 87,658 83,781
Accounts Receivable- unconsolidated affiliate
(Note 11) 409,875 --
Inventory (Note 2) 1,156,989 1,257,180
Prepaid expenses 197,823 213,228
Unamortized debt issue costs 3,906 8,594
----------- -----------
TOTAL CURRENT ASSETS 3,581,021 3,204,336
PROPERTY AND EQUIPMENT (Note 3) 3,011,404 2,123,671
OTHER ASSETS
Deposits 73,332 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) 78,104 71,555
License, patents and agreements (Note 4) 382,977 433,861
----------- -----------
TOTAL OTHER ASSETS 747,126 742,422
----------- -----------
TOTAL ASSETS $ 7,339,551 $ 6,070,429
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
Audited
Unaudited Year-End
LIABILITIES AND EQUITY June 30 December 31
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Short-term notes payable (Note 5) $ 1,088,900 $ 688,899
Current portion of long-term debt (Note 6) 767,722 810,628
Current portion of capital lease obligations (Note 7) 51,074 31,514
Accounts payable 592,789 457,286
Accrued expenses 107,540 138,726
Accrued advertising 75,000 150,000
Accrued royalties payable 15,037 12,077
Accrued royalties - related parties (Note 12) - -
Income taxes - current 42,094 29,729
----------- -----------
TOTAL CURRENT LIABILITIES 2,740,156 2,318,859
LONG-TERM LIABILITIES
Construction in progress obligations (Note 3) 1,531,079 861,744
Long-term debt (Note 6) 3,441 6,737
Capital lease obligations (Note 7) 91,315 89,203
Deferred income taxes 11,245 11,245
Minority interest in affiliate (Note 11) 77,097 -
----------- -----------
TOTAL LIABILITIES 4,454,333 3,287,788
STOCKHOLDERS' EQUITY
Common stock, $.01 par value (Note 10)
Authorized 100,000,000 shares
Issued 945,423 shares at June 30, 1996
941,219 shares at December 31, 1995 9,454 9,412
Additional paid-in capital 2,712,522 2,699,238
Retained earnings 163,242 73,991
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,885,218 2,782,641
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,339,551 $ 6,070,429
----------- -----------
----------- -----------
</TABLE>
4
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Month Periods Ended
June 30, 1996 and 1995
<TABLE>
Three Months Three Months Six Months Six Months
Ended June 30 Ended June 30 Ended June 30 Ended June 30
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE $2,694,419 $1,973,479 $4,859,210 $4,103,290
COST OF SALES
Products (Schedule 1) $1,511,752 991,411 2,790,613 2,278,327
Royalties (Note 13) 68,415 59,537 125,308 124,210
---------- ---------- ---------- ----------
TOTAL COST OF SALES 1,580,167 1,050,948 2,915,921 2,402,537
GROSS PROFIT 1,114,252 922,531 1,943,289 1,700,753
EXPENSES
Selling expenses (Sch 3) 474,569 669,239 947,356 1,112,492
General & adm exp (Sch 3) 387,923 355,228 763,512 743,085
Bad debts 7,000 7,500 23,000 13,500
---------- ---------- ---------- ----------
TOTAL EXPENSES 869,492 1,031,967 1,733,868 1,869,077
---------- ---------- ---------- ----------
OPERATING INCOME/(LOSS) 244,760 (109,436) 209,421 (168,324)
---------- ---------- ---------- ----------
OTHER INCOME/(EXPENSE)
Interest Income 6,531 5,306 13,215 5,306
Research and Development - 4,054 (8,755) 2,286
Consulting Income (Note 11) 49,999 - 66,667 -
Loss from affiliate (Note 11) (26,895) - (77,097) -
Interest expense (61,539) (30,824) (102,610) (59,693)
Gain (loss) on Sale of Asset 1,400 21,428 1,400 21,428
Miscellaneous Income 21,363 150,000 21,363 -
Gain on Sale of Product Rights - - - 150,000
---------- ---------- ---------- ----------
TOTAL OTHER INCOME
/(EXPENSE) (9,141) 149,964 (85,817) 119,327
---------- ---------- ---------- ----------
Income/(loss) from
Continuing Operations 235,619 40,528 123,604 (48,997)
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Month Periods Ended
June 30, 1996 and 1995
<TABLE>
Three Months Three Months Six Months Six Months
Ended June 30 Ended June 30 Ended June 30 Ended June 30
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
DISCONTINUED OPERATIONS
Gain (Loss) from discontinued
operations - - - -
-------- -------- -------- --------
Income/(loss) before
income taxes 235,619 40,528 123,604 (48,997)
-------- -------- -------- --------
INCOME TAX EXPENSE
Income tax expense (benefit)
(Note 8) 34,054 (32,727) 34,354 (32,727)
-------- -------- -------- --------
NET INCOME/(LOSS) $201,565 $ 73,255 $ 89,250 $(16,270)
-------- -------- -------- --------
-------- -------- -------- --------
Earnings/ (loss) per share:
Continuing Operations .21 .08 .09 (.02)
Discontinued Operations - - - -
-------- -------- -------- --------
NET EARNINGS/
(LOSS) PER SHARE $ .21 $ .08 $ .09 $ (.02)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
6
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Month Periods Ended June 30, 1996 and 1995
Six month period ending June 30, 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 4,204 - 4,204
Restricted shares free
trading (72) 72 -
Net Income (June 30, 1996) - - -
------- ------- -------
------- ------- -------
BALANCE JUNE 30, 1996 389,762 555,661 945,423
------- ------- -------
------- ------- -------
Six month period ending June 30, 1996
----------------------------------------
Free Total
Restricted Trading Shares
Shares Shares Issued
---------- ------- -------
BALANCE DECEMBER 31, 1994 331,481 548,797 880,278
Stock relinquished to
purchase options (15,971) (3,500) (19,471)
Restricted shares free
trading (3,116) 3,116 -
Shares issued pursuant to
stock option agreements 72,000 - 72,000
Shares issued for rights
and non-compete 2,105 - 2,105
Net Income (June 30, 1995) - - -
------- ------- -------
BALANCE JUNE 30, 1995 386,499 548,413 943,912
------- ------- -------
------- ------- -------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
------ ---------- -------- -------------
$9,412 $2,699,238 $ 73,991 $2,782,641
42 13,284 - 13,326
- - - -
- - 89,251 89,251
------ ---------- -------- ----------
------ ---------- -------- ----------
$9,454 $2,712,522 $163,242 $2,885,218
------ ---------- -------- ----------
------ ---------- -------- ----------
8,803 2,667,668 26,078 2,702,549
(195) 195 - -
- - - -
720 (4,251) - (3,531)
21 15,602 - 15,623
- - (16,270) (16,270)
------ ---------- -------- ----------
$9,349 $2,679,214 $ 9,808 $2,698,371
------ ---------- -------- ----------
------ ---------- -------- ----------
8
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three and Six Month Periods Ended June 30, 1996 and 1995
<TABLE>
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30 June 30 June 30 June 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash received from customers $ 2,711,334 $ 2,163,904 $ 5,488,473 $ 4,586,926
Cash paid to suppliers & employees (2,508,750) (1,935,321) (5,127,449) (4,263,776)
Interest paid (58,883) (24,843) (98,942) (55,707)
Income taxes paid (3,739) (26,297) (21,989) (26,297)
----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 139,962 177,443 240,093 241,146
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Assets - 10,320 - 10,320
License, Patents, Rights
expenditures - - - (250,000)
Received from related parties - (94,989) 13,122 (97,568)
Stock issuance for rights and
non-compete 6,663 - 13,326 15,623
Purchase of stock options - 44 - (3,531)
Capital expenditures (143,231) (159,798) (172,083) (279,123)
Minority Interest in affiliate 26,895 - 77,097 -
Construction in Progress (495,738) - (868,935) -
Advances to affiliate (260,523) - (409,875) -
----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (865,934) (244,423) (1,347,348) (604,279)
</TABLE>
9
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three and Six Month Periods Ended June 30, 1996 and 1995
<TABLE>
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30 June 30 June 30 June 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line
of credit agreements 300,000 89,848 400,000 24,572
Net (payments) borrowings under
capital lease obligations 29,384 51,453 24,676 45,258
Net (payments) borrowings on
long-term debt (50,312) 48,082 (46,201) 180,744
Net borrowings (payments)
on construction obligations 368,638 - 669,335 -
----------- ----------- ----------- -----------
NET CASH (USED) BY FINANCING ACTIVITIES 647,710 189,383 1,047,810 250,574
NET INCREASE (DECREASE) IN CASH (78,262) 122,403 (59,445) (112,559)
CASH AT BEGINNING OF PERIOD 337,740 143,159 318,923 378,121
CASH AT END OF PERIOD $ 259,478 $ 265,562 $ 259,478 $ 265,562
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capital acquisitions financed by:
Accounts payable 109,358 159,798 138,210 279,123
Issuance of debt - - - -
Capital lease obligations 33,873 - 33,873 -
</TABLE>
10
<PAGE>
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three and Six Month Periods Ended June 30, 1996 and 1995
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
<TABLE>
Three Months Ended Six Months Ended
-------------------------- -------------------------
June 30 June 30 June 30 June 30
1996 1995 1996 1995
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net Income (loss) $201,563 $ 73,255 $ 89,250 $ (16,270)
Adjustments to reconcile net (loss)
to net cash provided by operating
activities:
Depreciation 80,574 61,099 150,283 120,804
Amortization 25,442 35,116 50,884 57,672
Provisions for losses on accounts
receivable (6,232) (3,033) (9,131) (3,215)
Change in assets & liabilities:
Decrease (increase) in accounts
receivable (408,674) 176,014 (134,521) 402,533
Decrease (increase) in Employee advances 885 523 1,990 523
Decrease (increase) in inventory 130,473 (90,485) 100,191 (141,396)
Decrease (increase) in prepaids (18,345) 104,594 15,405 51,879
Decrease (increase) in prepaid
royalties (6,549) (71,555) (6,549) 158
Decrease (increase) in deposits (32,224) - (43,507) -
Decrease (increase) in debt
issue costs 2,344 1,875 4,688 (2,500)
Decrease (increase) in
prepaids-related (16,998) (58,954) (16,998) (78,235)
Decrease (increase) in other assets - (79,150) (6,736) (79,107)
Increase (decrease) in royalties
payable 8,705 (31,734) 2,960 (36,797)
Increase (decrease) in royalties
payable-related (24,260) (10,835) - 4,348
Increase (decrease) in accounts
payable 189,809 57,117 135,503 (9,049)
Increase (decrease) in accrued
expenses 7,067 (17,654) (30,984) (40,693)
Increase (decrease) in income
tax payable 30,315 20,083 12,365 16,777
Increase (decrease) in accrued
advertising (23,933) 11,167 (75,000) (6,286)
TOTAL ADJUSTMENTS $ (61,601) $104,188 $ 150,843 $ 257,416
--------- -------- --------- ---------
--------- -------- --------- ---------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $ 139,962 $177,443 $ 240,093 $ 241,146
--------- -------- --------- ---------
--------- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 and six month periods
ended June 30, 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 June 30, 1996 and December 31, 1995 is summarized as
follows:
June 30 December 31
1996 1995
---------- -----------
Raw $ 372,761 $ 390,490
Finished 784,228 866,690
---------- -----------
$1,156,989 $ 1,257,180
---------- -----------
---------- -----------
Valued at lower of cost or market:
June 30 December 31
1996 1995
---------- -----------
LIFO basis $1,156,989 $ 1,257,180
12
<PAGE>
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 $12,000 at June 30, 1996.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of June 30, 1996 and December 31, 1995 are
detailed in the following summary:
Net Book Value
------------------------
Accumulated June 30 December 31
Cost Depreciation 1996 1995
---------- ---------- ---------- -----------
Equipment $2,090,839 $1,442,543 $ 648,296 $ 653,992
Leasehold impr. 132,919 124,713 8,206 12,795
Office equip. 266,571 149,107 117,464 107,984
Signs 8,187 8,187 - -
Vehicles 76,555 32,786 43,769 37,152
Capital leases 182,278 75,300 106,978 93,989
Land 626,153 - 626,153 624,949
Construction
in progress 1,460,538 - 1,460,538 592,810
---------- ---------- ---------- -----------
$4,844,040 $1,832,636 $3,011,404 $ 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 six
months ended June 30, 1996 amounted to $150,283 ($120,804 for
June 30, 1995).
Rental expense charged to operations for the six month periods ending
June 30, 1996 and 1995 is summarized below:
06-30-96 06-30-95
-------- --------
Gross rental expense $ 82,134 $ 74,368
Construction-in-progress is related to the construction 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
July 1996. At June 30, 1996, $1,460,538 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
<PAGE>
require the Company to pay five consecutive monthly interest payments
beginning April 1, 1996, and a principal payment of $615,592 on
August 15, 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. The company is currently working with several
financial institutions to obtain favorable long-term financing.
Concurrent with the August 15, 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 have been met and that all
documents have been signed with the SBA. 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, Utah owned by
the company, the personal guaranty of the CEO and director, Donald M.
Wood, and personal real estate located in Park City, Utah, owned by
Mr. Wood.
Construction-in-progress obligations of $1,531,079 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
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 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 $62,500. The remainder 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 six months ended June
30, 1996 amounted to $50,884 ($57,672 for 1995).
NOTE 5 - SHORT-TERM NOTES PAYABLE
Short-term notes payable as of June 30, 1996 and December 31, 1995,
are detailed in the following summary:
<TABLE>
June 30 December 31
1996 1995
----------- -----------
<S> <C> <C>
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 Donald M. Wood, CEO and
director; due November 30, 1996. $ 1,503,340 $ 1,103,340
Less construction in progress obligations: (414,440) (414,441)
----------- -----------
$ 1,088,900 $ 688,899
</TABLE>
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-credit agreement. At June 30, 1996 the Company had a ratio of
current assets to current liabilities of 1.31 to 1 which is not in
compliance with the provisions requiring a minimum ratio of 1.5 to 1. The
bank, however, has temporarily waved this requirement pending permanent
long-term financing of the company's building (see Note 3). Assuming long-
term funding was completed as of June 30, 1996, the current ratio would be
approximately 1.5 to 1.
Pertinent data regarding aggregate short-term borrowings is as follows:
June 30 December 31
1996 1995
----------- ----------
Maximum outstanding $ 1,553,340 $1,103,340
Average outstanding 1,286,673 897,022
Weighted average interest rate
for the six month periods 9.25% 10.15%
15
<PAGE>
NOTE 6 - LONG-TERM DEBT
Long-term notes payable as of June 30, 1996 and December 31,
1995, are detailed in the following summary:
June 30 December 31
1996 1995
------- -----------
Note payable to financing company
due in monthly installments of
$588 with interest at 8.5%; due
December 1997. 9,892 12,915
Revolving line of credit payable to
a bank, interest at prime plus 1.0%
amortized over 60 months. 677,066 692,085
Note payable to a company due in
quarterly installments of $15,908
with interest at 8.0% due
December 1996. 45,878 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. 13,327 26,790
--------- ---------
Total long-term debt 771,163 817,365
Less: current portion (767,722) (810,628)
--------- ---------
Total long-term debt excluding
current portion $ 3,441 $ 6,737
--------- ---------
--------- ---------
16
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995
NOTE 6 - LONG-TERM DEBT (CONTINUED)
Aggregate maturities are as follows:
Twelve months ending June 30, 1997 766,056
1998 5,107
1999 -
2000 -
2001 -
Later -
--------
Total long-term debt $771,163
--------
--------
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
June 30, 1996 and December 31, 1995.
June 30 December 31
1996 1995
-------- -----------
Equipment $182,278 $148,405
Less: Accumulated depreciation (75,300) (54,416)
-------- --------
Net property under capital lease $106,978 $ 93,989
-------- --------
-------- --------
At June 30, 1996, the Company is liable under the terms of non-
cancelable leases for the following minimum lease commitments:
Capital Operating
Leases Leases
-------- ---------
Year Ended June 30:
1997 $ 62,087 $98,896
1998 72,931 -
1999 26,510 -
2000 - -
2001 - -
Later years - -
-------- -------
Total minimum lease payments $161,528 $98,896
Less: Interest (19,139) -------
-------- -------
Present value of net minimum
lease payments $142,389
Less: Current portion (51,074)
--------
Capital lease obligations
payable long-term $ 91,315
--------
--------
NOTE 8 - INCOME TAX EXPENSE
The provisions for taxes on earnings from continuing operations
consisted of the following:
06-30-96 06-30-95
-------- ---------
Current
Federal $28,174 $(32,727)
State 6,180 -
------- --------
34,354 (32,727)
------- --------
------- --------
18
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995
NOTE 9 - MAJOR CUSTOMERS
Sales to major customers for the six months ended June 30, 1996 are
summarized as follows:
Percent of:
-----------
Sales Segment Company Wide
Customer Dollars Revenues Revenues
-------- -------- -------- --------
AT&T $298,066 10% 6%
United Stationers 304,182 10% 6%
S.P. Richards 355,268 11% 7%
National Hardware 308,410 20% 6%
Gemini Industries 271,400 9% 5%
WalMart 230,104 15% 5%
Sams Club 433,412 14% 9%
NOTE 10 - COMMON STOCK
During the first six months of calendar year 1995 the company issued
72,000 shares of stock pursuant to the Dynatec International, Inc.
incentive stock option plans of 1987 and 1989. As part of the
issuance, 19,471 shares of stock were relinquished in order to
purchase the stocks. 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 4,204 shares of stock in the first six months of 1996
and 2,102 shares in the first six months of 1995.
19
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 and 1995
NOTE 11 - UNCONSOLIDATED AFFILIATE AND MINORITY INTEREST
The account receivable from unconsolidated affiliate at June 30, 1996
is calculated as follows:
June 30
1996
---------
Cash Advances $ 341,788
Expenses paid on behalf of WiTec 1,420
Consulting income receivable 66,667
---------
Net receivable $ 409,875
---------
---------
Minority interest in affiliate is calculated as follows:
June 30
1996
---------
Total:
Sales $ 209,486
Direct Expenses 167,489
---------
Gross Profit $ 41,997
Selling Expenses 90,350
General and Administrative 260,033
---------
Net Income (Loss) $(308,386)
Dynatec Share:
Net Income (Loss) $ (77,097)
Current Assets $ 259,889
Property and Equipment (Net) 38,815
Other Assets 8,242
---------
Total Assets $ 306,946
Current Liabilities $ 515,332
Paid in Capital - others 100,000
Interest of others (231,289)
Dynatec equity (deficit) (77,097)
---------
Total Liabilities and Equity $ 306,946
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 twenty-five percent (25%) profit or loss interest in
WiTec. At June 30, 1996 Dynatec's share of the WiTec loss was
$77,097. As of June 30, 1996 the Company had loaned cash to WiTec
in the amount of $341,788 and had paid unreimbursed expenses on its
behalf of $1,420. Dynatec also has accrued $66,667 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 June 30, 1996 under the agreements mentioned above
totaled $409,875.
The Company and WiTec have agreed to discontinue their relationship.
Principals to the agreement are currently negotiating a dissolution of
the joint venture. The effect that such a dissolution could have on
the financial statements of the company is unknown at this time.
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. Donald M. Wood, CEO and director of the
Company is the beneficial owner of one-half of WAC Research. In
August 1986, WAC Research, Inc. purchased a 10% royalty right from the
inventor of Softalk and related products in a private transaction.
This involved both cash and stock in a transaction valued between one
and two million dollars being paid to Practical Innovations, Inc. At
that time, WAC determined in conjunction with the Board of Directors
of Dynatec that the 10% royalty was onerous and not sustainable;
therefore, WAC agreed to lower the royalty to 5%.
During 1995, the Company sold all rights and interest in various
discontinued products to WAC Research for $150,000 in the form of
a demand note bearing 8% interest. As part of the transaction,
inventory and molds were also sold at cost to WAC. During
calendar years 1996 and 1995, WAC assumed responsibility for
various travel and other expenses related to Dynatec.
Over the past several years WAC has entered into various
agreements with Dynatec which has helped Dynatec increase it's
profitability and cash flow. Previous footnotes concerning these
transactions have improperly given the impression that WAC has
benefited monetarily from these transactions. This is not the
case. In fact, WAC has significantly lowered royalties in the
past to accommodate Dynatec. Independent tax counsel for WAC and
the Management of Dynatec have suggested that the Related Party
Transactions footnote be restated to reflect these facts
accurately.
The royalty reduction, purchase of molds, rights, and products, as
well as the assumption of expenses as explained above were done in
an effort to increase the profitability and/or cash flows of the
Company. Management is currently negotiating with WAC Research in
regards to the disposition of these items. Management is
confidant that a solution beneficial to the Company can be reached
with WAC.
21
<PAGE>
NOTE 13 - ROYALTIES
The following is a summary of royalties for the six month periods
ended June 30, 1996 and 1995.
Terms 1996 1995
---------------- -------- --------
WAC Research
Telephone accessories 5% of net sales. $ 84,764 $ 82,289
Hardware products (Same) 6,351 3,217
Other Entities
Hardware products 1% of net sales 9,767 20,836
Hardware products 10% of net sales 24,253 17,868
Miscellaneous products 173 --
-------- --------
$125,308 $124,210
-------- --------
-------- --------
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 June 30, 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:
June 30 June 30
1996 1995
---------- ----------
Revenues:
Telephone accessories $3,130,393 $2,529,024
Hardware products 1,562,857 1,111,233
Batteries 43,451 247,059
Other segments 122,509 215,079
---------- ----------
Total $4,859,210 $4,103,290
---------- ----------
---------- ----------
Operating income (loss):
Telephone accessories $ 333,327 $ 331,759
Hardware products (28,290) (414,893)
Batteries (55,621) (68,204)
Other segments (39,995) (16,986)
---------- ----------
Total $ 209,421 $ (168,324)
---------- ----------
---------- ----------
Identifiable assets:
Telephone accessories $6,712,015 $2,592,537
Hardware products 554,140 1,344,494
Batteries - 877,586
Other segments 73,396 29,377
---------- ----------
Total $7,339,551 $4,843,994
---------- ----------
---------- ----------
Depreciation and amortization:
Telephone accessories $ 128,516 $ 102,189
Hardware products 67,391 79,294
Batteries 1,503 3,134
Other segments 3,757 (6,141)
---------- ----------
Total $ 201,167 $ 178,476
---------- ----------
---------- ----------
Capital expenditures:
Telephone accessories $ 114,765 $ 134,901
Hardware products 57,318 117,340
Batteries - 43,437
Other segments - 1,367
---------- ----------
Total $ 172,083 $ 297,045
---------- ----------
---------- ----------
23
<PAGE>
SCHEDULE 1
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED COST OF SALES
For the Three and Six Month periods ended June 30, 1996 and 1995
<TABLE>
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30 June 30 June 30 June 30
1996 1995 1996 1995
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
COST OF SALES - PRODUCTS
Beginning inventory finished $ 907,512 $ 1,025,330 $ 866,690 $ 218,369
Cost of goods manufactured
(Schedule 2) 1,363,151 1,023,832 2,657,517 3,095,277
Amortization 25,317 34,931 50,634 57,363
Less ending inv.-finished (784,228) (1,092,682) (784,228) (1,092,682)
---------- ----------- ---------- -----------
TOTAL COST OF SALES-
PRODUCT $1,511,752 $ 991,411 $2,790,613 $ 2,278,327
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
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 and Six month periods ended June 30, 1996 and 1995
<TABLE>
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30 June 30 June 30 June 30
1996 1995 1996 1995
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
COST OF GOODS
MANUFACTURED
Beginning inventory-raw $ 379,950 $ 306,662 $ 390,490 $ 999,712
Materials - raw 1,050,255 758,460 2,065,388 1,807,244
Freight in 50,912 46,527 112,119 87,138
Depreciation 52,041 39,482 99,110 80,281
Labor 170,649 175,946 308,474 401,759
Repairs & maintenance 5,473 2,556 12,467 9,068
Miscellaneous - direct 26,632 23,994 42,230 39,870
Less: ending inventory-raw (372,761) (329,795) (372,761) (329,795)
---------- ---------- ---------- ----------
TOTAL COST OF GOODS
MANUFACTURED $1,363,151 $1,023,832 $2,657,517 $3,095,277
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
SCHEDULE 3
DYNATEC INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED EXPENSES
For the Three and Six month periods ended June 30, 1996 and 1995
<TABLE>
Three Months Ended Six Months Ended
------------------- -------------------
June 30 June 30 June 30 June 30
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SELLING EXPENSES
Advertising $ 40,046 $ 18,565 $ 74,940 $ 51,065
Commissions 125,971 115,256 259,364 235,267
Depreciation - selling 17,738 13,677 29,969 25,309
Freight out 89,925 302,948 179,161 399,523
Miscellaneous 4,190 7,587 5,398 14,255
Promotions & Literature 25,030 35,978 66,414 60,543
Salaries-sales 139,957 105,824 255,103 201,693
Travel & entertainment 31,712 69,404 77,007 124,837
-------- -------- -------- ----------
TOTAL SELLING EXPENSES $474,569 $669,239 $947,356 $1,112,492
-------- -------- -------- ----------
-------- -------- -------- ----------
GENERAL & ADMINISTRATIVE EXPENSES
Corporate expense $ 31,934 $ 39,291 $ 78,310 $ 87,360
Depreciation & amortization
office 10,919 8,126 21,454 15,523
Insurance 45,965 64,484 92,746 112,595
Legal & accounting 17,316 18,269 52,623 43,787
Miscellaneous 7,414 (5,418) 11,721 285
Office Expense 31,888 19,223 55,273 49,501
Payroll Taxes 28,396 33,822 73,553 77,818
Rent 46,969 41,060 82,134 74,368
Salaries-office & officers 129,839 101,611 230,130 215,880
Taxes 8,765 5,611 11,666 10,137
Telephone 16,808 16,788 29,422 29,993
Utilities 11,710 12,361 24,480 25,838
-------- -------- -------- --------
TOTAL GENERAL &
ADMIN EXPENSE $387,923 $355,228 $763,512 $743,085
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 259478
<SECURITIES> 0
<RECEIVABLES> 1463444
<ALLOWANCES> 0
<INVENTORY> 1156989
<CURRENT-ASSETS> 3581021
<PP&E> 3011404
<DEPRECIATION> 0
<TOTAL-ASSETS> 7339551
<CURRENT-LIABILITIES> 2740156
<BONDS> 0
0
0
<COMMON> 9454
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7339551
<SALES> 2694419
<TOTAL-REVENUES> 2694419
<CGS> 1580167
<TOTAL-COSTS> 2449659
<OTHER-EXPENSES> 9141
<LOSS-PROVISION> 7000
<INTEREST-EXPENSE> 61539
<INCOME-PRETAX> 235619
<INCOME-TAX> 34054
<INCOME-CONTINUING> 201565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201565
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
