<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-16250
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DYNATEM, INC.
---------------------------------------
(Exact name of small business issuer as
specified in its charter)
CALIFORNIA 95-3627099
------------------------------ --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23263 MADERO, SUITE C, MISSION VIEJO, CALIFORNIA 92691
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(Address of principal executive offices)
(714) 855-3235
---------------------------
(Issuer's telephone number)
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
On March 31, 1997, there were 1,418,400 shares of the issuer's Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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DYNATEM, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets at February 28, 1997
and May 31, 1996 1
Statements of Operations for the Three
Months Ended February 28, 1997
and February 29, 1996 2
Statements of Operations for the Nine
Months Ended February 28, 1997
and February 29, 1996 3
Statements of Cash Flows for the Nine
Months Ended February 28, 1997
and February 29, 1996 4
Notes to Financial Statements 5,6
Item 2. Management's Discussion and Analysis or
Plan of Operation 7
Part II. Other Information 8
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DYNATEM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 610,644 $ 532,918
Accounts receivable, net 299,596 275,288
Inventories (note 2) 300,068 266,299
Prepaid expenses 24,299 19,980
----------- -----------
Total current assets 1,234,607 1,094,485
Note Receivable 11,675 10,735
Plant and equipment, net 20,477 24,919
Other assets 58,487 57,617
----------- -----------
$ 1,325,246 $ 1,187,756
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 245,501 $ 160,692
Accrued expenses 47,863 61,569
----------- -----------
Total current liabilities 293,364 222,261
----------- -----------
Shareholders' equity:
Common stock, no par value authorized
50,000,000 shares; 1,418,400 shares
issued and outstanding 2,383,385 2,383,385
Accumulated deficit (1,351,503) (1,417,890)
----------- -----------
Total shareholders' equity 1,031,882 965,495
----------- -----------
$ 1,325,246 $ 1,187,756
=========== ===========
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
DYNATEM, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net Sales $ 770,880 $ 675,972
Cost of Sales 514,539 442,262
---------- ----------
Gross profit 256,341 233,710
---------- ----------
Operating expenses:
Selling, general and administrative 194,807 169,499
Research and development 38,116 40,616
---------- ----------
Total operating expenses 232,923 210,115
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Operating income 23,418 23,595
Other income, net 8,729 3,745
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Net income $ 32,147 $ 27,340
========== ==========
Earnings per share (note 3) $ .02 $ .02
========== ==========
Weighted average shares outstanding
(note 3) 1,418,400 1,418,400
========== ==========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
DYNATEM, INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED FEBRUARY 28, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net Sales $1,988,516 $2,077,111
Cost of Sales 1,309,936 1,489,207
---------- ----------
Gross profit 678,580 587,904
---------- ----------
Operating expenses:
Selling, general and administrative 516,450 491,535
Research and development 112,897 108,296
---------- ----------
Total operating expenses 629,347 599,831
---------- ----------
Operating income (loss) 49,233 (11,927)
Other income, net 17,954 10,206
---------- ----------
Net income (loss) before taxes 67,187 (1,721)
Provision for income taxes 800 800
---------- ----------
Net income (loss) $ 66,387 $ (2,521)
========== ==========
Income (loss) per share (note 3) $ .05 $ (.00)
Weighted average shares outstanding
(note 3) 1,418,400 1,418,400
========== =========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
DYNATEM, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED FEBRUARY 28, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 66,387 $ (2,521)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 11,541 13,475
Change in assets and liabilities:
(Increase) in receivables (24,308) (119,757)
(Increase) in inventories (33,769) (24,935)
(Increase) in prepaid expenses (4,319) (35,010)
Increase in accounts payable 84,809 125,235
Increase (decrease) in
accrued expenses (13,706) 1,817
-------- ---------
Total adjustments 20,248 (39,175)
-------- ---------
Net cash provided by (used in)
operating activities 86,635 (41,696)
-------- ---------
Cash flows from investing activities:
Increase in other assets (870) (13,677)
Purchases of property & equipment (7,099) (828)
Repayment of notes receivable (940) 2,340
-------- ---------
Net cash used in investing activities (8,909) (12,165)
-------- ---------
Net increase (decrease) in cash $ 77,726 $ (53,861)
Cash, beginning balance 532,918 497,611
-------- ---------
Cash, ending balance $610,644 $ 443,750
-------- ---------
Supplemental disclosures of
cash flow information:
Cash paid during the nine months for:
Taxes $ 800 $ 800
======== =========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Interim Accounting Policy
-------------------------
In the opinion of the management of Dynatem, Inc. (the "Company"), the
accompanying unaudited financial statements include only normal recurring
adjustments necessary for a fair presentation of the Company's financial
position as of February 28, 1997 and the results of operations and cash
flows for the three and nine months ended February 28, 1997 and February
29, 1996, respectively. Although the Company believes that the disclosures
in these financial statements are adequate to ensure that the information
presented is not misleading, certain information and footnote information
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. Results of operations for interim periods are not necessarily
indicative of results of operations to be expected for the full year. Refer
to the Company's Annual Report on Form 10-KSB for the year ended May 31,
1996 for further information.
(2) Inventories
-----------
A summary of inventories follows:
<TABLE>
<CAPTION>
February 28, 1997 May 31, 1996
----------------- ------------
<S> <C> <C>
Finished Goods $ 63,655 $ 33,117
Work-in-process 32,800 66,644
Raw Materials 203,613 166,538
-------- --------
$300,068 $266,299
======== ========
</TABLE>
(3) Earnings (loss) Per Share
-------------------------
Earnings (loss) per common share is computed based on the weighted average
number of common shares outstanding during the periods presented. The
potential exercise of stock options and warrants is not included in the
computation of net income (loss) per share because the effect would not
impact per share information or would be antidilutive.
(4) Foreign Currency transactions
-----------------------------
For the three months ended February 28, 1997 and February 29, 1996,
transaction gains and (losses) were $49,083 and $10,243 and for the nine
months ended February 28, 1997 and February 29, 1996, were $86,981 and
$28,431, respectively. The exchange rates of the German DeutschMark versus
the U.S. dollar was
5
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DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS
approximately 61% for February 28, 1997 as compared to 70% for February 29,
1996.
(5) Income taxes
------------
Income tax expense for the three-and nine-month periods ended February 28,
1997 and February 29, 1996 are not considered material due to the
utilization of net operating loss carryforwards.
Significant deferred tax assets of the Company consist of the net operating
loss carryforwards for the federal and state tax purposes of approximately
$1,545,000 and $87,000 at February 28, 1997 and February 29, 1996,
respectively.
(6) Risk, Uncertainties and Concentrations
--------------------------------------
During the nine months ended February 28, 1997 six customers accounted for
12%, 10%, 7% and for three of them, 6% of net sales, respectively, compared
to one customer accounting for 33% of sales during the same period during
the prior fiscal year. During the nine months ended February 28, 1997 and
February 29, 1996, one supplier represented 47% and 70% of total purchases
of inventory, respectively.
A growing portion of Dynatem's sales has been generated by its distribution
of the OR product line. This arrangement with the German company has not
only increased Dynatem's overall sales volume but has increased the
Company's ability to promote and provide its own manufactured products. For
the nine months ended February 28, 1997, the Company's sales of OR products
accounted for 64% of the total year to date sales. The Company has been
notified by OR that as of April 30, 1997, OR is terminating its
distributorship relationship with Dynatem and Dynatem will no longer be a
distributor of OR products. This will materially adversely affect the net
sales of Dynatem in the near future since the ongoing arrangement proposed
by OR is that of a representative or finder. The Company is continuing to
develop its own products, is exploring the possibility of other
distributorships and is diversifying its distribution and support service
for highly qualified technical suppliers.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
Net sales for the three months ended February 28, 1997, increased 14% to
$770,880 over net sales of $675,972 in the same period a year ago. For the nine
months ended February 28, 1997, net sales were $1,988,516, $88,595 lower than
the corresponding period in the previous fiscal year, for a decrease of 4%. Net
sales of the OR products in the nine months ended February 28, 1997, were 64% of
total net sales compared to 75% of total net sales for the corresponding period
the previous fiscal year. Six customers accounted for 12%, 10%, 7% and for
three of them, 6% of the total net sales for the nine months ended February 28,
1997, as compared to one customer accounting for 33% of net sales for the
corresponding period during the previous fiscal year. The Company has been
notified by OR that as of April 30, 1997, OR is terminating its distributorship
relationship with Dynatem and Dynatem will no longer be a distributor of OR
products. This will materially adversely affect the net sales of Dynatem in the
near future since the ongoing arrangement proposed by OR is that of a
representative or finder. The Company is continuing to develop its own
products, is exploring the possibility of other distributorships and is
diversifying its distribution and support service for highly qualified technical
suppliers.
Cost of sales for the three months ended February 28, 1997, was $514,539 or 67%
of net sales and compares to $442,262 or 65% of net sales in the same period a
year ago. For the nine months ended February 28, 1997, cost of sales of
$1,309,936 represented 66% of net sales and compares to $1,489,207 representing
72% of net sales for the same period a year ago. The three months increase of
cost of sales as a percentage of net sales is the result of a write-off of
approximately $10,000 for obsolete inventory. The overall decrease in the cost
of sales is the result of a greater strength in the exchange value of the U.S.
Dollar against the German DeutschMark as well as the factors which relate to the
Company's product sales mix.
Operating costs for the three-month and nine-month period ended February 28,
1997, were slightly higher than the corresponding periods a year ago. The
increase was attributable to certain increased operating expenses of the
Company, such as rent, insurance and utility expenses, aside from marketing
expenses and research and development costs for the Company's own proprietary
products, particularly the Pentium VMEbus DPCI board.
For the three-month and nine-month period ended February 28, 1997, net earnings
reflect net profit of $32,147 and $66,387 respectively, compared to net profit
of $27,340 and net loss of $2,521, for the same periods ended February 29, 1996.
Net earnings for the periods above were the result of factors explained in the
preceding paragraphs.
The Company does not expect to pay significant income taxes due to its
utilization of net operating loss carryforwards which will expire through the
year 2010.
At February 28, 1997, the Company's working capital was $941,243 and its current
ratio was 4.2:1 compared to $872,224 and a ratio of 4.9.1 as of May 31, 1996.
Management believes that the Company's existing working capital and cash flows
from operations will be sufficient to meet its working capital needs.
7
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Items 1 through 6 have been omitted because there is nothing material to report
and there has been no report on Form 8-K during the quarter ended February 28,
1997.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DYNATEM, INC.
March 24, 1997 By: /s/ EILEEN DESWERT
--------------------------
Eileen DeSwert
President and Chief
Executive Officer
March 24, 1997 By: /s/ BELEN RAMOS
--------------------------
Belen Ramos
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> MAY-31-1997 MAY-31-1997
<PERIOD-START> JUN-01-1996 DEC-01-1996
<PERIOD-END> FEB-28-1997 FEB-28-1997
<CASH> 610,644 0
<SECURITIES> 0 0
<RECEIVABLES> 299,596 0
<ALLOWANCES> 0 0
<INVENTORY> 300,068 0
<CURRENT-ASSETS> 1,234,607 0
<PP&E> 20,477 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,325,246 0
<CURRENT-LIABILITIES> 293,364 0
<BONDS> 0 0
0 0
0 0
<COMMON> 2,383,385 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,325,246 0
<SALES> 1,988,516 770,880
<TOTAL-REVENUES> 1,988,516 770,880
<CGS> 1,309,936 514,539
<TOTAL-COSTS> 1,309,936 514,539
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 67,187 32,147
<INCOME-TAX> 800 0
<INCOME-CONTINUING> 66,387 32,147
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 66,387 32,147
<EPS-PRIMARY> .05 .02
<EPS-DILUTED> 0 0
</TABLE>
