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UNITED STATES
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 August 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-16250
DYNATEM, INC.
(Exact name of small business issuer as specified in its charter)
California 95-3627099
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
23263 Madero, Suite C, Mission Viejo, California 92691
(Address of principal executive offices)
(949) 855-3235
(Issuer's telephone number)
On August 31, 1999, there were 1,418,400 shares of the issuer's Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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DYNATEM, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets at August 31, 1999
and May 31, 1999 1
Statements of Operations for the Three Months
Ended August 31, 1999 and 1998 2
Statements of Cash Flows for the Three Months
Ended August 31, 1999 and 1998 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis or
Plan of Operation 5,6
Part II. Other Information 7
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PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
--------------------
DYNATEM, INC.
BALANCE SHEETS
August 31, May 31,
1999 1999
----------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 418,147 $ 434,091
Accounts receivable, net 207,450 188,384
Inventories (note 2) 376,108 412,839
Prepaid expenses 14,298 20,629
----------- -----------
Total current assets 1,016,003 1,055,943
Note receivable 3,996 4,386
Property and equipment, net 21,715 24,086
Other assets 29,552 13,785
----------- -----------
$ 1,071,266 $ 1,098,200
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 299,803 $ 244,250
Accrued expenses 42,973 37,654
----------- -----------
Total current liabilities 342,776 281,904
----------- -----------
Shareholders' equity:
Common stock, no par value, 50,000,000
authorized shares; 1,418,400 shares
issued and outstanding 2,383,385 2,383,385
Accumulated deficit (1,654,895) (1,567,089)
----------- -----------
Total shareholders' equity 728,490 816,296
----------- -----------
$ 1,071,266 $ 1,098,200
=========== ===========
See accompanying notes to financial statements.
1
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DYNATEM, INC.
STATEMENTS OF OPERATIONS
Three months ended August 31, 1999 and 1998
1999 1998
---------- ----------
Net sales $ 323,675 $ 325,421
Cost of sales 233,939 188,298
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Gross profit 89,736 137,123
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Operating expenses:
Selling, general and administrative 135,477 135,002
Research and development 45,147 46,510
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Total operating expenses 180,624 181,512
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Operating loss (90,888) (44,389)
Other income, net 3,082 4,963
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Loss before income taxes (87,806) (39,426)
Provision for income taxes - -
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Net loss $ (87,806) $ (39,426)
========== ==========
Loss per share (note 3) $ (.06) $ (.03)
========== ==========
Weighted average common shares outstanding
(note 3) 1,418,400 1,418,400
========== ==========
See accompanying notes to financial statements.
2
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DYNATEM, INC.
STATEMENTS OF CASH FLOWS
Three months ended August 31, 1999 and 1998
1999 1998
---------- ----------
Cash flows from operating activities:
Net loss $ (87,806) $ (39,426)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization 2,371 2,321
Changes in operating assets
and liabilities:
Accounts receivables (19,066) (16,983)
Inventories 36,731 31,380
Prepaid expenses 6,331 2,340
Accounts payable 55,553 32,659
Accrued expenses 5,319 6,646
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Total adjustments 87,239 58,363
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Net cash (used in) provided by
operating activities (567) 18,937
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Cash flows from investing activities:
Increase in other assets (15,767) (33,018)
Purchases of property and equipment - (1,575)
---------- ----------
Net cash used in investing activities (15,767) (34,593)
---------- ----------
Cash flows from financing activities:
Repayment of notes receivable 390 520
---------- ----------
Net decrease in cash and cash equivalents (15,944) (15,136)
Cash and cash equivalents, beginning balance 434,091 600,525
---------- ----------
Cash and cash equivalents, ending balance $ 418,147 $ 585,389
========== ==========
Supplemental disclosures of
cash flow information:
Cash paid during the quarter for:
Income taxes $ - $ -
========== ==========
See accompanying notes to financial statements.
3
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DYNATEM, INC.
Notes to Financial Statements
(1) Interim Accounting Policy
-------------------------
In the opinion of the Company's management, the accompanying unaudited
statements include all adjustments including only normal recurring
adjustments necessary for a fair presentation of the financial
position of the Company as of August 31, 1999, and the results of
operations and cash flows for the three months ended August 31, 1999
and 1998. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented
not misleading, certain information and footnote information normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange
Commission. Results of operations for interim periods are not
necessarily indicative of results of operations to be expected for the
full year.
(2) Inventories
-----------
A summary of inventories follows:
August 31, 1999 May 31, 1999
--------------- ------------
Finished goods $ 80,586 $ 162,196
Work-in-process 19,202 34,013
Raw materials 277,984 216,630
----------- ------------
$ 377,772 $ 412,839
=========== ============
(3) Earnings (loss) Per Share
-------------------------
Earnings (loss) per common share is computed based on the weighted
average number of common shares outstanding during the period
presented. The potential exercise of stock options and warrants are
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 August 31, 1999 and 1998, transactions
gains and losses are not material to the financial statements taken as
a whole.
4
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DYNATEM, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
Revenues for the first quarter ended August 31, 1999 and 1998 were $323,675 and
$325,421 respectively.
Cost of sales for the three months ended August 31, 1999, was $233,939 or 72% of
net sales and compares to $188,298 or 58% of net sales in the same period a year
ago. The increase in cost of sales as a percent of net sales was the result of
lower sales prices to preserve the Company's competitive advantage. Also, the
Company records a monthly provision for obsolete inventory.
Operating expenses for the three months ended August 31, 1999 was $135,477
compared to $135,002 in the same period a year ago. There was an initial
decrease of 12% due to the cost reduction program initiated by the Company.
However, this was offset by an additional cost of approximately $15,000 for new
product catalogues and mailings.
Research and development expenses were $45,147 and $46,510 for the three months
ended August 31, 1999 and 1998, respectively. Research and development expenses
relate to the continued development of new VME products such as the DPC2 boards
and the D2070 boards. The Company, however, is continuing to utilize outside
engineering to expedite product development.
Income tax expense for the three months ended August 31, 1999 and 1998 are not
considered material due to losses incurred during such periods. Utilization of
net operating loss carryforwards will expire through the year 2009.
The results of operations for the three months ended August 31, 1999 and 1998,
reflect net losses of $87,806 and $39,426, respectively. The decrease in net
earnings was the result of low sales revenue during the quarters ended August
31, 1999 and 1998, as mentioned above.
The Company continues to believe that the cash flow generated from operations
plus existing working capital reserves will be sufficient to meet its short-term
working capital needs over the next 12 months.
The Company has initiated a program to evaluate the impact of the "Year 2000"
situation on its operations. This program has developed into a four-phase
process which includes the following procedures:
1.) The Company has established communication with all customers who have
received a product, either software or hardware, which may or may not be
compliant with Year 2000. This communication has been exhibited in the form of a
WebPage identified as www.dynatem.com/y2kissues.html. Those customers who are
------------------------------
concerned with the Company's compliance have been referred to this page. As of
this date, there has been no significant concern expressed by customers.
2.) The Company has advised its vendors to report on the progress of their
compliance with Year 2000 requirements. So far, the responses received
demonstrate general confidence by these vendors that they will be prepared for
the Year 2000.
5
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DYNATEM, INC.
3.) The primary focus of Dynatem's VMEbus product line is embedded
hardware. The Company has made an effort to determine which software being used
by Dynatem customers might have problems related to Y2K compliance. The
operating systems employed by our CPU modules are supplied by a number of
software vendors and in this regard, customers are referred to the web sites of
these vendors. These web sites define potential Y2K problem areas, advise if and
how the various versions of their software products deal with them, and suggest
ways to modify the application code to best avoid potential problems. In some
cases, software patches are offered, and in other cases upgrading to a newer
version is strongly recommended. To date, there have been no significant
concerns expressed by customers.
4.) The Company is now in the process of a computer upgrade for the
Company's financial accounting and administrative systems in order to be
compliant with Year 2000. Approximate cost of expenditures already incurred for
these upgrades was $25,000.
At August 31, 1999, the Company had a current ratio of 2.96:1 compared to a
ratio of 3.75:1 at May 31, 1999. The decrease is due to low sales revenue and a
net loss of $87,806 for the period ending August 31, 1999. The net worth for the
Company at August 31, 1999 was $728,490 compared to $816,296 at May 31, 1999.
6
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DYNATEM, INC.
PART II. OTHER INFORMATION
-----------------
Items 1 through 5 have been omitted because there is nothing material to report
and there has been no report on Form 8-K during the quarter ended August 31,
1999.
ITEM 6(A). EXHIBITS.
--------
See attached Exhibit Index.
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.
October 8, 1999 By: /s/ Eileen DeSwert
---------------------------------------
Eileen DeSwert, President and
Chief Executive Officer
October 8, 1999 By: /s/ Belen Ramos
---------------------------------------
Belen Ramos, Chief Financial Officer
7
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EXHIBIT INDEX
-------------
Exhibit
Number
- ------
3(a) Restated Articles of Incorporation of the Company (1)
3(b) Bylaws of the Company (2)
27 Financial Data Schedule
___________
(1) Incorporated herein by reference to Exhibit 3(a) to the Company's Annual
Report on Form 10-KSB for the fiscal year ended May 31, 1997.
(2) Incorporated herein by reference to Exhibit 3(b) to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter ended November 30,
1998.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
INTERIM FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD ENDED AUGUST
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 418,147
<SECURITIES> 0
<RECEIVABLES> 207,450
<ALLOWANCES> 0
<INVENTORY> 376,108
<CURRENT-ASSETS> 1,016,003
<PP&E> 694,062
<DEPRECIATION> 672,347
<TOTAL-ASSETS> 1,071,266
<CURRENT-LIABILITIES> 342,776
<BONDS> 0
0
0
<COMMON> 2,383,385
<OTHER-SE> (1,654,895)
<TOTAL-LIABILITY-AND-EQUITY> 1,071,266
<SALES> 323,675
<TOTAL-REVENUES> 326,757
<CGS> 233,939
<TOTAL-COSTS> 414,563
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (87,806)
<INCOME-TAX> 0
<INCOME-CONTINUING> (87,806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87,806)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
