<PAGE>

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                  FORM 10-KSB


[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended May 31, 2000

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


                          Commission File No. 0-16250

                                 DYNATEM, INC.
                                 -------------
                (Name of small business issuer 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
---------------------------------------                  -----------------
(Address of principal executive offices)                     (Zip Code)

Issuer's telephone number: (949) 855-3235

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock


     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 ___


     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
                                     ---

     The issuer's revenues for its most recent fiscal year were $1,925,738.

     The aggregate market value of voting stock held by nonaffiliates of the
registrant was $312,652 on August 1, 2000.

     On August 1, 2000, there were 1,418,400 shares of the issuer's Common Stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the issuer's Definitive Proxy Statement to be filed for its
Annual Meeting of Shareholders to be held on November 10, 2000, are incorporated
herein by reference into Part III hereof, to the extent indicated herein.


Transitional Small Business Disclosure Format  Yes ___  No  X
                                                           ---
<PAGE>

                                    PART I
                                    ------

This report contains forward-looking statements that relate to future events or
future financial performance.  These statements, which may be identified by term
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "forecasts," "potential," or "continue," or the negative of such
terms and other comparable technology, only reflect management's expectations.
Actual events or results may differ materially, as a result of competitive
products and pricing, new product introductions, developing technologies and
general economic conditions affecting the Company and its customers, as more
fully discussed below and in "Management's Discussion and Analysis or Plan of
Operation."

Item 1.    Description of Business.
-------    -----------------------

History
-------

Dynatem, Inc. (the "Company" or "Dynatem") was incorporated on May 15, 1981,
under the laws of the State of California.  It was organized to design,
manufacture and market microcomputers and microcomputer-based systems and
software for industrial applications such as factory automation, sensor
monitoring, process control, robots, data acquisition, networking and displays.
The Company commenced manufacturing and marketing operations in May 1981 and has
conducted such operations continuously from such date.  As part of such
operations, the Company was, until October 1984, an authorized dealer of certain
modular board level computer products manufactured by Rockwell International
Corporation.  In October 1984, the Company entered into an agreement with
Rockwell pursuant to which the Company was licensed to manufacture these
products.

The Company currently designs, manufactures, distributes and markets more than
100 products including microcomputers, microcomputer systems, microcomputer
modules, software and peripherals and markets such products and other licensed
products individually or as components of a system.

In 1987, the Company began concentrating its design efforts to develop a range
of products compatible with the VMEbus.  In order to further expand the product
offering, Dynatem entered into agreements to resell the VMEbus products of other
vendors that were complimentary to the Company's products.  This allowed the
Company to easily integrate complete embedded systems.  In 1996, the Company
began concentrating most of its design effort in the development of VMEbus
systems based on the x86 family of processors. The Company was able to combine
the broad range of relatively inexpensive components and software found in
desktop PC- compatible systems with the high performance, flexibility and
stability of the VMEbus.  To accompany the new x86 hardware, it has been equally
important for the Company to develop software drivers that could enable popular
desktop operating systems to operate across the VMEbus.  In fact, the ability to
run Windows NT in VMEbus systems has been one of the major appeals of this
product. In this way, embedded system designers can combine user-friendly
Windows NT, with its huge range of software applications, on the same backplane
with dedicated high-speed real-time operating systems.  More recently, the
interest in Linux systems has also added to the market appeal of these products.

One new area of design effort has been the integration of expansion cards
compatible with the PMC (PCI Mezzanine Card) standard.  This enables adding
functionality to VMEbus x86 processor boards by expansion via the local PCI bus.

                                       2
<PAGE>

Another new area of design activity has been based upon the Compact PCI Bus.
These products have similar form factor to the VMEbus but use the PCI bus as the
basis for the interface between modules.  This is a simpler and less expensive
design than the VMEbus-based products and from a design and support point of
view is a subset of the Pentium-based VMEbus products. The Compact PCI Bus'
popularity is based upon its simplicity, high bandwidth and reliability and
relative low cost.  Its simplicity and low cost are due to its reliance on
architectures and components found in the desktop world.

Market
------

The Company markets its products on a worldwide basis and its customers include
many Fortune 100 corporations.  Included among the export markets are the United
Kingdom, Germany, and Japan.  For the year ended May 31, 2000, export sales
accounted for 11% of the Company's net sales.

For the last two fiscal years the export net sales and the percentage to total
net sales were:


        Year                           Amount             % of Total Net Sales
--------------------           --------------------      -----------------------


           2000                        $204,487                    11%
           1999                        $350,645                    24%

Products
--------

The Company's products generally consist of modular single board microcomputers
known as Central Processing Unit (CPU) boards, peripheral systems and software.
The products are intended for use by manufacturing companies seeking to increase
efficiency and productivity through factory automation, sensor monitoring,
process control and other electronic implementations.  The Company provides
warranties ranging from 90 days to one year on all products sold.

     VME.  The Company's principal product group is based on the VMEbus
     ---
     specification.  These products are used as embedded controllers for
     telecommunications, industrial controls, robotics, aerospace, and a wide
     variety of military applications.

     In 1996, the Company established a distributor relationship with a German
     VMEbus manufacturer, Microsys Electronics GmbH ("Microsys"). The products
     manufactured by Microsys are consistently compatible with the Company's
     product line because, like the Company's VMEbus products, the Microsys
     products are relatively low in power consumption and well suited to
     extended temperature range systems.

     The addition of the Microsys line to the Dynatem line has had the effect of
     augmenting the Dynatem range of products.  It has also increased the range
     of hardware to meet virtually every customer's system requirements in
     connection with the products designed and manufactured by the Company.
     This is extremely important because customers prefer buying all of the
     modules in their system from one vendor who takes responsibility for
     guaranteeing that all modules function well together.

                                       3
<PAGE>

     New offerings from Microsys include VMEbus and Compact PCI designs based
     upon Motorola's Power PC family of processors.

     Among new products offered, the Company is selling Pentium III based
     Compact PCI modules and very small stand-alone PCs for embedded
     applications.  The embedded PC is excellent for situations where Original
     Equipment Manufacturers (OEMs) need full PC functionality with the
     complexity of the VMEbus or even the Compact PCI bus.

     Over the past year, the Company has continued to develop new low cost
     versions of its D360 board for use in higher volume traffic and OEM
     applications. The D2070 traffic controller, based on the 68360 processor,
     has been designed into traffic controllers for the city of Houston, Texas.
     Another 68360-based processor module was chosen as controller for overhead
     displays for the New York Long Island Expressway. Still another high volume
     customer has designed the D360 board as a power station monitor for
     analysis of electrical generating stations.

     Software. The Company offers to its customers software that it has
     --------
     developed, and software which the Company purchases from other suppliers.
     The Company believes that there are alternative sources of supply for such
     software. Since all of the modules offered are part of highly integrated
     real-time systems, it is essential that all boards work well together. For
     this reason, the Company is required to provide drivers for all the board
     level products, enabling them to run any of the standard real-time
     operating systems. The Company therefore distributes, sells and supports
     real-time operating systems that have been modified to work with the
     Dynatem products. This is a value-added service, which ties the Company
     more closely to its customer base.

Operations
----------

The Company's products are manufactured either at the Company's facility in
Mission Viejo, California, or by outside assembly contractors.  They are
produced from the Company's designs with standard and semi-custom components.

Most of the devices and components used in the Company's products are available
from several sources.  Although no assurance can be given as to the future, the
Company believes that the loss of one or more of its current suppliers would not
have a material adverse effect upon its business.

Marketing
---------

The Company's marketing and sales department consists of marketing, sales,
customer service, engineering and engineering application support.  The Company
has in recent years continued the use of advertising in major trade
publications, coupling it with wide distribution of marketing brochures.  In
addition, the Company participates in regional trade shows during the year
throughout the United States and Canada.

There are over 200 VMEbus vendors worldwide.  Depending on the application, at
least one or more of these companies are in direct competition with us.  Details
of unique characteristics of the Company's offerings are more fully described in
"Products" above.

                                       4
<PAGE>

Marketing of the Company and the Company's products is accomplished through
direct marketing and telemarketing efforts. Direct marketing efforts include
responding to inquiries generated through press releases, trade publications,
advertising, current customer lists and other similar leads.  Telemarketing is
utilized to inform current and potential customers of new products and technical
product changes, as well as allow the Company to evaluate the market and
customer needs.  Implementation of a World Wide Web site has been accomplished
over the past few years.  It has become an effective means of attracting new
customers throughout the world.  It has also become an excellent product
reference for existing and potential customers.

Research and Development
------------------------

The Company believes that its future growth greatly depends on its ability to be
an innovator in the development and application of new and existing hardware and
software technology. Expenditures for Company-sponsored research and development
for the fiscal years ended May 31, 2000 and 1999, were $209,876 and $199,218,
respectively.

In the last fiscal year the Company continued pursuing exciting product areas,
particularly development on a product to replace and surpass the DRC1, the
Company's Pentium II based VMEbus single board computer.  This product will be
called DPC2 and it will support more DRAM (up to 256 Mbytes) and a faster
processor.  I/O will be more flexible and there will be additional memory on-
board which can be freely accessed from the on-board Pentium III and the VMEbus.
The DPC2's design has taken more time than originally anticipated because the
design team has received guidance from Intel's embedded development group, who
reviewed the schematic before layout, and because of the learning curve
associated with new CAD software and the design of such a complicated single
board computer.

The engineering team has also progressed in the development of a traffic
controller, which the Company anticipates will be accepted as a standard
development and in-field system by the State of California Department of
Transportation (Cal Trans).  Integration and support efforts have continued,
resulting in the support and resale of a wide range of PMC expansion cards and
several important design-ins.

Employees
---------

At present the Company employs 14 people, 10 of whom are working full-time
schedules in the sales, engineering, financial and manufacturing departments.
Neither the Company nor its employees are parties to a collective bargaining
agreement.  The Company believes that its employee relations are very good.

                                       5
<PAGE>

Competition
-----------

Competition within the industry is based primarily upon product line breadth,
product performance, price and customer service.  The Company competes with over
200 manufacturers of VMEbus products in North America and Europe.  One advantage
the Company believes it has is its ability to offer a "one-stop-shop" approach,
which provides full support normally not provided by the Company's competitors.
As part of this approach, the Company provides high quality products,
competitive pricing, and technical support, which includes, when needed,
customization, special products and/or writing of special software programs.  In
addition, the Company provides customers with most products required for
specific applications including, but not limited to, special power supplies,
special enclosures, cables and other requisite hardware.  This approach is not
customary with larger competitors who would normally limit themselves to sales
of standard products.  However, most of these manufacturers have certain other
competitive advantages over the Company, including greater financial and
technological resources, earlier access to customers, established client service
programs and client loyalty.

Item 2.    Description of Property.
-------    -----------------------

The Company's executive offices and manufacturing plant are located in an
approximately 6,357 square foot facility in Mission Viejo, California.  The
facility is leased from an unaffiliated party for a term expiring in January
2006, and is currently adequate to meet the Company's needs.


Item 3.    Legal Proceedings.
-------    -----------------

Not applicable


Item 4.    Submission of Matters to a Vote of Security Holders.
-------    ---------------------------------------------------

Not applicable

                                       6
<PAGE>

                                    PART II
                                    -------

Item 5.    Market for Common Equity and Related Stockholder Matters.
-------    --------------------------------------------------------

There is no public trading market for the Company's Common Stock.  Set forth
below is the high and low bid quotations of the Company's Common Stock for the
periods indicated, as reported by a licensed marketmaker who continues to make a
market in the Common Stock. Such quotations represent inter-dealer quotations
without adjustment for retail mark-up, markdown or commissions, and may not
represent actual transactions.  Trading in the Company's Common Stock is limited
in volume and may not be a reliable indicator of its market value.

                                             Fiscal Years Ended May 31,
                                             2000                 1999
                                      -----------------------------------------
                                        High       Low        High        Low
                                      ---------  --------  ----------- --------

 First Quarter                         0.6250     0.2500     0.6875     0.5313
 Second Quarter                        0.5625     0.2188     0.6250     0.3438
 Third Quarter                         0.5313     0.2188     0.7500     0.3438
 Fourth Quarter                        4.0000     0.2188     0.6250     0.2500


As of August 1, 2000, there were approximately 144 shareholders of record of the
Company's Common Stock.

The Company has never paid cash dividends on its Common Stock and the Board of
Directors intends to continue this policy for the foreseeable future.  Future
dividend policy will depend upon the Company's earnings, capital requirements,
financial condition and other factors considered relevant by the Company's Board
of Directors.


Item 6.    Management's Discussion and Analysis or Plan of Operation.
-------    ---------------------------------------------------------

Results of Operations
---------------------

Net sales for the Company's fiscal year ended May 31, 2000 increased 34% to
$1,925,738 as compared to net sales of $1,432,373 in fiscal year 1999. The
increase in total net sales is attributed to the long expected surge in market
demand for the DRC1 system.  Export sales amounted to $204,487 representing 11%
of the total net sales for the fiscal year ended May 31, 2000. The decline in
foreign sales is attributed to weaker foreign currencies as well as a change in
technology in the marketplace.

Gross profit as a percentage of sales increased from 33% in fiscal year 1999 to
42% in fiscal year ended May 31, 2000, reflecting the growth of sales of the
DRC1 products which contribute to higher margins.

                                       7
<PAGE>

Selling, general and administrative expenses were $550,922 for fiscal year 2000
compared to $594,750 for fiscal year 1999, a 7 % decrease. The decrease was the
result of creating our own product catalogues and advertisements on the web in
lieu of utilizing outside vendors.

Research and development costs were $209,876 in fiscal year 2000 compared to
$199,218 in fiscal year 1999, a 5% increase. The increase is attributable to the
continued development of a product to replace and surpass the DRC1. This product
will be called the DPC2 and it will support more DRAM (up to 256 Mbytes) and a
faster processor. The Company will continue to expand its employment of in-house
design engineers in order to optimize the scheduling and completion of its new
products on a timelier basis, as well as to obtain more competitive costs.

At May 31, 2000, 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 2020.

As a result of the above factors, net income was $59,582 in fiscal year 2000, a
$360,705 increase from the $301,123 net loss in fiscal year 1999.

                                       8
<PAGE>

Liquidity and Capital Resources
-------------------------------

As of May 31, 2000, the Company's working capital was $800,274 and its current
ratio was 3.84 to 1. Management believes that the Company's existing working
capital and cash flows from operations will be sufficient to meet its working
capital needs during fiscal year 2001. The Company may consider additional
sources of capital should the need arise.

Future Trends
-------------

The Company is now promoting its new products and expects a significant growth
in sales of Microsys products over the next year.

The Company continues to develop relationships to resell the board level
products of other manufacturers.

Relationships with system integrators who are reselling Company products, has
already created some large new opportunities. These new sales channels are
expected to expand over the next year.

The Company's PC-compatible VMEbus module has been designed into several fairly
large, long-term programs and it is being well received by the VMEbus market.
CompactPCI versions of this product should also be equally well received. The
Company has put great effort into being first to the market with error-free
versions of several popular real-time operating systems. As the PC-compatible
market changes, the Company will attempt to achieve market leadership by
offering new products based upon the latest PC-compatible technology, in a
timely manner.

The Company is using alternative methods of manufacturing by using outside
vendor facilities on several contractual bases.

                                       9
<PAGE>

Item 7.    Financial Statements.
-------    --------------------

                                     INDEX


Independent Auditors' Report.....................................  F-1


Balance Sheet as of May 31, 2000.................................  F-2


Statements of Operations For The Years Ended
May 31, 2000 and 1999............................................  F-3


Statements of Shareholders' Equity For The
Years Ended May 31, 2000 and 1999................................  F-4


Statements of Cash Flows For The Years
Ended May 31, 2000 and 1999......................................  F-5


Notes to Financial Statements For The
Years Ended May 31, 2000 and 1999......................... F-6 to F-18
<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

Board of Directors
Dynatem, Inc.


We have audited the accompanying balance sheet of Dynatem, Inc. (the "Company")
as of May 31, 2000, and the related statements of operations, shareholders'
equity and cash flows for each of the years in the two-year period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of May 31, 2000,
and the results of its operations and its cash flows for each of the years in
the two-year period then ended in conformity with accounting principles
generally accepted in the United States.



                                                     /s/ CORBIN & WERTZ

Irvine, California
July 25, 2000

                                      F-1
<PAGE>

<TABLE>
<CAPTION>
                                                                                                           DYNATEM, INC.

                                                                                                           BALANCE SHEET

========================================================================================================================

ASSETS                                                                                                      May 31, 2000
                                                                                                          --------------
<S>                                                                                                      <C>
Current assets:
    Cash and cash equivalents                                                                             $      265,265
    Accounts receivable, net of allowance for doubtful accounts of $10,000                                       334,173
    Inventories                                                                                                  459,434
    Prepaid expenses and other                                                                                    22,647
                                                                                                          --------------

         Total current assets                                                                                  1,081,519

Note receivable                                                                                                    2,046

Property and equipment, net                                                                                       41,516

Other assets                                                                                                      32,042
                                                                                                          --------------

                                                                                                          $    1,157,123
                                                                                                          ==============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                                                                      $      209,556
    Accrued expenses                                                                                              71,689
                                                                                                          --------------

         Total current liabilities                                                                               281,245
                                                                                                          --------------

Commitments and contingencies

Shareholders' equity:
    Common stock, no par value, 50,000,000 shares authorized;
      1,418,400 shares issued and outstanding                                                                  2,383,385
    Accumulated deficit                                                                                       (1,507,507)
                                                                                                          --------------

         Total shareholders' equity                                                                              875,878
                                                                                                          --------------

                                                                                                          $    1,157,123
                                                                                                          ==============


--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                            DYNATEM, INC.

                                                                 STATEMENTS OF OPERATIONS
=========================================================================================

                                                             Years Ended May 31,
                                             --------------------------------------------
                                                        2000                     1999
                                             -------------------       ------------------
<S>                                            <C>                     <C>
Net sales                                       $      1,925,738        $       1,432,373

Cost of sales                                          1,122,775                  962,234
                                                 ---------------         ----------------

      Gross profit                                       802,963                  470,139
                                                 ---------------         ----------------

Operating expenses:
    Selling, general and administrative                  550,922                  594,750
    Research and development                             209,876                  199,218
                                                 ---------------         ----------------

         Total operating expenses                        760,798                  793,968
                                                 ---------------         ----------------

         Income (loss) from operations                    42,165                 (323,829)

Other income:
    Interest income                                       18,217                   23,506
                                                 ---------------         ----------------

Income (loss) before income taxes                         60,382                 (300,323)

Income taxes                                                 800                      800
                                                 ---------------         ----------------
Net income (loss)                               $         59,582        $        (301,123)
                                                 ===============         ================
Net income (loss) per common share:
    Basic                                       $           0.04        $           (0.21)
                                                 ===============         ================
    Diluted                                     $           0.04        $           (0.21)
                                                 ===============         ================

Weighted average number of common shares
 outstanding:
    Basic                                              1,418,400                1,418,400
                                                 ===============         ================
    Diluted                                            1,471,462                1,418,400
                                                 ===============         ================
</TABLE>

--------------------------------------------------------------------------------
                                                                             F-3
<PAGE>

                                                                   DYNATEM, INC.

                                              STATEMENTS OF SHAREHOLDERS' EQUITY

                                       For The Years Ended May 31, 2000 and 1999

================================================================================
<TABLE>
<CAPTION>
                                                                                                         Total
                                                 Common Stock                   Accumulated          Shareholders'
                                      ---------------------------------
                                          Shares              Amount              Deficit               Equity
                                      -------------       -------------      ---------------       ----------------
<S>                                   <C>                 <C>                <C>                   <C>
Balances at June 1, 1998                  1,418,400       $   2,383,385      $    (1,265,966)      $      1,117,419

Net loss                                          -                   -             (301,123)              (301,123)
                                     --------------       -------------      ---------------       ----------------

Balances at May 31, 1999                  1,418,400           2,383,385           (1,567,089)               816,296

Net income                                        -                   -               59,582                 59,582
                                     --------------       -------------      ---------------       ----------------

Balance at May 31, 2000                   1,418,400       $   2,383,385      $    (1,507,507)      $        875,878
                                     ==============       =============      ===============       ================
</TABLE>

--------------------------------------------------------------------------------

                                                                             F-4
<PAGE>

<TABLE>
<CAPTION>
                                                                                                    DYNATEM, INC.

                                                                                        STATEMENTS OF CASH FLOWS
==================================================================================================================

                                                                                   Years Ended May 31,
                                                                        -----------------------------------------
                                                                              2000                     1999
                                                                        ----------------        -----------------
<S>                                                                     <C>                     <C>
Cash flows from operating activities:
    Net income (loss)                                                   $         59,582        $        (301,123)
    Adjustments to reconcile net income (loss) to
      net cash used in operating activities:
       Depreciation and amortization                                              32,375                   40,707
       Allowance for doubtful accounts                                            (2,300)                   2,475
       Changes in operating assets and liabilities:
          Accounts receivable                                                   (143,489)                   1,266
          Inventories                                                            (46,595)                   7,746
          Prepaid expenses and other                                              (2,018)                  (3,299)
          Accounts payable                                                       (34,694)                 132,185
          Accrued expenses                                                        34,035                   (2,858)
                                                                        ----------------        -----------------
    Net cash used in operating activities                                       (103,104)                (122,901)
                                                                        ----------------        -----------------
Cash flows from investing activities:
    Purchases of property and equipment                                          (29,981)                 (18,128)
    Principal repayments on note receivable                                        2,340                    3,380
    Increase in other assets                                                     (38,081)                 (28,785)
                                                                        ----------------        -----------------
    Net cash used in investing activities                                        (65,722)                 (43,533)
                                                                        ----------------        -----------------
Net decrease in cash and cash equivalents                                       (168,826)                (166,434)

Cash and cash equivalents, beginning of year                                     434,091                  600,525
                                                                        ----------------        -----------------
Cash and cash equivalents, end of year                                  $        265,265        $         434,091
                                                                        ================        =================
Supplemental disclosures of cash flow information -
   Cash paid during the year for:

        Interest                                                        $              -        $               -
                                                                        ================        =================
        Income taxes                                                    $            800        $             800
                                                                        ================        =================

------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                                                    DYNATEM, INC

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------

Organization and Nature of Operations
-------------------------------------

Dynatem, Inc. (the "Company") was incorporated in the state of California in May
1981.  The Company designs, manufactures, distributes and markets modular single
board microcomputers and microcomputer-based systems and software.  These
systems are used for industrial applications, including factory automation,
process control, robotics, data acquisition and networking.

Concentrations of Credit Risks
------------------------------

Cash and cash equivalent balances are maintained at various financial
institutions. The Federal Deposit Insurance Corporation ("FDIC") insures
accounts at each institution for up to $100,000. During fiscal 2000, the Company
had cash balances in various financial institutions that exceeded the FDIC
limit.

The Company sells products to customers throughout the United States and in
several foreign countries. The Company performs periodic credit evaluations of
its customers and does not obtain collateral with which to secure its accounts
receivable.  The Company maintains reserves for potential credit losses based
upon the Company's historical experience related to credit losses.  Although the
Company expects to collect amounts due, actual collections may differ.

During fiscal 2000, the Company had sales to three customers which represented
35% of net sales.  During fiscal 1999, the Company had no such concentration. At
May 31, 2000 and 1999, one customer accounted for 52% and 32% of accounts
receivable, respectively. If the relationship between the Company and these
customers was altered, the future results of operations and financial condition
could be significantly affected.  Additionally, during fiscal 2000 and 1999,
export sales represented 11% and 24% of net sales, respectively.

Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates made by management are, among others, provisions for
losses on accounts receivable, provisions for slow moving and obsolete
inventories and estimates for current and deferred taxes. Actual results could
materially differ from those estimates.

________________________________________________________________________________

                                                                             F-6
<PAGE>

                                                                    DYNATEM, INC

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------------

Cash Equivalents
----------------

Cash equivalents consist of highly liquid investments (Certificates of Deposits)
with maturities of 90 days or less when purchased.  At May 31, 2000, cash
equivalent balances totaled $179,114.

Inventories
-----------

Inventories are stated at the lower of cost or net realizable value.  Cost is
determined under the average cost method.  The Company operates in an industry
in which its products are subject to design changes and are manufactured based
on customer specifications. Accordingly, should design requirements change
significantly or customer orders be canceled or decline, the ultimate net
realizable value of such products could be less than the carrying value of such
amounts.  At May 31, 2000, management believes that inventories are carried at
their net realizable value.

Property and Equipment
----------------------

Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to five years. Maintenance and repairs are charged to expense
as incurred.  Significant renewals and betterments are capitalized.  At the time
of retirement or other disposition of property and equipment, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in operations.

Long-Lived Assets
-----------------

The Company's management assesses the recoverability of its long-lived assets by
determining whether the depreciation and amortization of long-lived assets over
its remaining life can be recovered through projected undiscounted future cash
flows.  The amount of long-lived asset impairment, if any, is measured based on
fair value and is charged to operations in the period in which long-lived asset
impairment is determined by management. At May 31, 2000, the Company's
management believes there is no impairment of its long-lived assets.

________________________________________________________________________________

                                                                             F-7
<PAGE>

                                                                    DYNATEM, INC

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------------

Other Assets
------------

Certain costs incurred subsequent to establishing technological feasibility to
produce a finished product, including purchased software and other outside
costs, are capitalized (see Note 4).  The annual amortization of these costs is
computed at the lesser of the straight-line basis over the estimated product
life, not to exceed five years, or based on units sold divided by the total
estimated units to be sold.

Warranties
----------

The Company provides warranties ranging from ninety days to one year on all
products sold.  Estimated future costs of warranties are provided at the time of
sale.

Revenue Recognition
-------------------

Revenues from product sales are recognized at the time the product is shipped.

Research and Development Costs
------------------------------

Research and development costs are expensed as incurred.

Advertising
-----------

Advertising costs are expensed as incurred.  The advertising costs incurred for
the years ended May 31, 2000 and 1999 totaled $20,080 and $32,345, respectively.

Income Taxes
------------

The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes."  Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered.

________________________________________________________________________________

                                                                             F-8
<PAGE>

                                                                    DYNATEM, INC

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------------

Foreign Currency Transactions
-----------------------------

The Company obtains certain products from offshore facilities in Germany.
Foreign currency transaction gains or losses are included in cost of sales in
the period in which the exchange rate changes or the underlying transaction
settles.  During fiscal 2000 and 1999, the Company had no foreign currency
gains.

Accounting for Stock-Based Compensation
---------------------------------------

The Company accounts for stock-based compensation issued to employees using the
intrinsic value based method as prescribed by APB Opinion No. 25 "Accounting for
Stock Issued to Employees" ("APB 25").  Under the intrinsic value based method,
compensation is the excess, if any, of the fair value of the stock at the grant
date other measurement date over the amount an employee must pay to acquire the
stock.  Compensation, if any, is recognized over the applicable service period,
which is usually the vesting period.

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
123").  This standard, if fully adopted, changes the method of accounting for
employee stock-based compensation plans to the fair value based method.  For
stock options and warrants, fair value is determined using an option pricing
model that takes into account the stock price at the grant date, the exercise
price, the expected life of the option or warrant and the annual rate of
quarterly dividends.  Compensation expense, if any, is recognized over the
applicable service period, which is usually the vesting period.

The adoption of the accounting methodology of SFAS 123 is optional and the
Company has elected to continue accounting for stock-based compensation issued
to employees using APB 25; however, pro forma disclosures, as if the Company
adopted the cost recognition requirements under SFAS 123, are required to be
presented (see Note 5).

Basic and Diluted Earnings (Loss) Per Common Share
--------------------------------------------------

The Company has adopted Financial Accounting Standard No. 128 "Earnings Per
Share" ("SFAS 128").  SFAS 128 changes the methodology of calculating earnings
per common share. The adoption of SFAS 128 has not materially impacted the
Company's financial position or results of operations.

________________________________________________________________________________

                                                                             F-9
<PAGE>

                                                                    DYNATEM, INC

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------------

Basic earnings (loss) per common share is computed based on the weighted average
number of shares outstanding for the period.  Diluted earnings (loss) per share
is computed by dividing net income (loss) by the weighted average shares
outstanding assuming all dilutive potential common shares were issued (see Note
9).

Fair Value of Financial Instruments
-----------------------------------

Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 107 ("SFAS 107"), "Disclosures About Fair Value of
Financial Instruments." SFAS 107 requires disclosure of fair value information
about financial instruments when it is practicable to estimate that value.  The
carrying amount of the Company's cash, receivables, trade payables and accrued
expenses approximates their estimated fair values due to the short-term
maturities of those financial instruments.

Comprehensive Income
--------------------

The Company has adopted Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of general-
purpose financial statements.  The adoption of SFAS 130 has not materially
impacted the Company's financial position or results of operations as the
Company has no items of comprehensive income.

Segments of an Enterprise and Related Information
-------------------------------------------------

The Company has adopted Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information."  SFAS 131
changes the way public companies report information about segments of their
business in their annual financial statements and requires them to report
selected segment information in their quarterly reports issued to shareholders.
It also requires entity-wide disclosures about the products and services an
entity provides, the material countries in which it holds assets and reports
revenues and its major customers.  The adoption of SFAS 131 has not materially
impacted the Company's financial position or results of operations as the
Company currently operates in one segment.

________________________________________________________________________________

                                                                            F-10
<PAGE>

                                                                    DYNATEM, INC

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------------

New Accounting Pronouncements
-----------------------------

The FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities."  SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities.  It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet at their fair value.  This
statement is effective for financial statements for all fiscal quarters of all
fiscal years beginning after June 15, 2000 (as amended by SFAS 137).  The
Company does not expect the adoption of this standard to have a material impact
on its results of operations, financial position or cash flows as it currently
does not engage in any derivative or hedging activities.

In March 2000, the Emerging Issues Task Force reached a consensus on Issue No.
00-2, "Accounting for Web Site Development Costs," ("EITF 00-2") to be
applicable to all web site development costs incurred for the quarter beginning
after June 30, 2000.  The consensus states that for specific web site
development costs, the accounting for such costs should be accounted for under
Statement on Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use."  The Company does not expect
the adoption of EITF 00-2 to have a material effect on its financial statements.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101 ("SAB 101"), "Revenue Recognition," which outlines the basic
criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission.  The effective date of this pronouncement is the fourth quarter of
the fiscal year beginning after December 15, 1999.  The Company believes that
adopting SAB 101 will not have a material impact on its financial position and
results of operations.

________________________________________________________________________________

                                                                            F-11
<PAGE>

                                                                    DYNATEM, INC

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------------

In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions involving Stock Compensation," an interpretation of APB 25.
FIN 44 clarifies the application of APB 25 for (a) the definition of employee
for purposes of applying APB 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence for various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination.  FIN 44 is effective July 1, 2000, but certain provisions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of certain other provisions of FIN 44 prior to March 31, 2000 did
not have a material effect on the financial statements.  The Company does not
expect that the adoption of the remaining provisions will have a material effect
on the financial statements.

NOTE 2 - INVENTORIES
--------------------

Inventories consist of the following at May 31, 2000:

          Raw materials and component parts                         $ 311,409
          Work-in-process                                             132,472
          Finished goods                                               15,553
                                                                    ---------

                                                                    $ 459,434
                                                                    =========

NOTE 3 - PROPERTY AND EQUIPMENT
------------------------------------------------------------------

Property and equipment consist of the following at May 31, 2000:

          Machinery and equipment                                   $ 393,914
          Product tooling                                             243,091
          Furniture and fixtures                                       87,037
                                                                    ---------
                                                                      724,042

          Accumulated depreciation                                   (682,526)
                                                                    ---------

                                                                    $  41,516
                                                                    =========

During fiscal 2000 and 1999, depreciation expense totaled $12,551 and $10,174,
respectively.

________________________________________________________________________________

                                                                            F-12
<PAGE>

                                                                    DYNATEM, INC

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 4 - OTHER ASSETS
---------------------

Other assets consist of the following at May 31, 2000:

          Capitalized software and prepaid inventory    $27,384
          Deposits                                        4,658
                                                        -------

                                                        $32,042
                                                        =======

During fiscal 2000 and 1999, amortization expense on capitalized software
totaled $19,824 and $30,533, respectively.

NOTE 5 - SHAREHOLDERS' EQUITY
-----------------------------

On August 31, 1993, the Company's Board of Directors adopted, and the
shareholders approved, the Dynatem, Inc. 1993 Stock Option Plan, which provides
for the grant of options intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code and for the grant of nonqualified stock
options. In connection with this plan, 200,000 shares of the Company's common
stock have been reserved for issuance upon the exercise of options to be
granted.

On October 7, 1998, the Company's Board of Directors adopted and the
shareholders approved, the 1998 Stock Option Plan of Dynatem, Inc.  200,000
shares of the Company's common stock have been reserved for issuance upon the
exercise of options to be granted under this Plan.

Options to purchase an aggregate of 110,000 shares of the Company's common stock
were granted to directors and officers of the Company on October 15, 1993.  Such
options were fully exercisable at the date of grant and expire on various dates
through October 15, 2003.  The exercise price of such options ranges from $0.20
to $0.22, which exceeded the fair market value per share of the Company's common
stock on the date of grant.

On January 18, 1997, the Company granted options to purchase 55,000 shares of
the Company's common stock to certain officers and one director of the Company.
Such options were fully exercisable at the date of grant and expire on January
17, 2007.  The exercise price of such options was $0.35, which approximated the
fair market value of the Company's common stock on the date of grant.

On March 13, 1998, the Company granted options to purchase 10,000 shares of the
Company's common stock to a director of the Company.  Such options were fully
exercisable at the date of grant and expire on March 31, 2008.  The exercise
price of such options was $0.53, which approximated the fair market value of the
Company's common stock on the date of grant.

________________________________________________________________________________

                                                                            F-13
<PAGE>

                                                                    DYNATEM, INC

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 5 - SHAREHOLDERS' EQUITY, continued
----------------------------------------

On February 28, 1999, the Company granted options to purchase 50,000 shares of
the Company's common stock to three employees of the Company.  Such options were
fully exercisable at the date of grant and expire on February 27, 2009.  The
exercise price of such options was $0.25, which approximated the fair market
value of the Company's common stock on the date of grant.

On October 22, 1999, the Company granted options to purchase 120,000 shares of
the Company's common stock to ten employees of the Company.  Such options were
fully exercisable at the date of grant and expire on October 21, 2009.  The
exercise price of such options was $0.22, which approximated the fair market
value of the Company's common stock on the date of grant.

The following represents a summary of the stock options outstanding at May 31,
2000 and 1999 and the changes during the years then ended:

<TABLE>
<CAPTION>
                                               2000                                  1999
                                ------------------------------------    ----------------------------------
                                                       Weighted                              Weighted
                                                        Average                               Average
                                    Options          Exercise Price         Options        Exercise Price
                                ---------------    -----------------    --------------    ----------------
<S>                             <C>                <C>                  <C>               <C>
Outstanding, beginning of year        225,000        $         0.26           175,000      $         0.27
    Granted                           120,000                  0.22            50,000                0.25
                                    ---------             ---------         ---------           ---------

Outstanding, end of year              345,000        $         0.25           225,000      $         0.26
                                    =========             =========         =========           =========

Exercisable, end of year              345,000        $         0.25           225,000      $         0.26
                                    =========             =========         =========           =========

Weighted average fair value of
  options granted                                    $         0.22                        $         0.17
                                                          =========                             =========
</TABLE>


345,000 of the options outstanding at May 31, 2000 have exercise prices between
$0.20 and $0.53, with a weighted average exercise price of $0.25 and a weighted
average remaining contractual life of 7.1 years.

________________________________________________________________________________

                                                                            F-14
<PAGE>

                                                                    DYNATEM, INC

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 5 - SHAREHOLDERS' EQUITY, continued
----------------------------------------

Pro Forma Stock Option Information
----------------------------------

Pro forma information regarding net income is required by SFAS 123 and is
determined as if the Company had accounted for its employee stock options under
the fair value method pursuant to SFAS 123, rather than the method pursuant to
APB 25 as discussed in Note 1.  The fair value of these options is estimated at
the date of grant based on the Black-Scholes options pricing model (the "Model")
with the following assumptions for the years ended May 31, 2000 and 1999,
respectively: risk free interest rate of 6.09% and 6.20%, expected dividend
yield of 0%; expected life of the options of 5 years; and volatility factor of
the expected market price of the Company's common stock of 150% and 47%.

The Model was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable.  In addition, the
Model requires the input of highly subjective assumptions including the expected
stock price volatility.  The Company's employee stock options have
characteristics significantly different from those of traded options; changes in
the subjective input assumptions can materially affect the fair value estimate.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option vesting period.  Adjustments are made
for options forfeited prior to vesting.  The effect on compensation expense and
net income (loss) had compensation cost for the Company's stock option issuances
been determined based on fair value on the date of grant consistent with the
provisions of SFAS 123, for the years ended May 31, is as follows:

                                                    2000        1999
                                                  ---------  ----------

Net income (loss), as reported                    $ 59,582   $(301,123)

Additional compensation expense under SFAS 123     (26,400)     (8,500)
                                                  --------   ---------

Pro forma net income (loss)                       $ 33,182   $(309,623)
                                                  ========   =========

Pro forma net income (loss) per share             $   0.02   $   (0.22)
                                                  ========   =========

________________________________________________________________________________

                                                                            F-15
<PAGE>

                                                                   DYNATEM, INC.

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 6 - INCOME TAXES
---------------------

During both fiscal 2000 and 1999, the provision for taxes consists of the
following:


                      Federal        State     Total
                      -------        -----     -----

Current                $    -       $  800     $ 800

Deferred                    -            -         -
                       ------       ------     -----
                       $    -       $  800     $ 800
                       ======       ======     =====


During fiscal 2000 and 1999, the provision for taxes differs from the amounts
computed by applying the U.S. Federal income tax rate of 34% to income before
provision for taxes as a result of the following:


<TABLE>
<CAPTION>
                                                                 2000         1999
                                                              ----------   ----------
<S>                                                           <C>          <C>
Computed "expected" tax expense (benefit)                     $ 20,530      $(102,110)

Addition to (reduction in) income taxes resulting from:
   Change in the valuation allowance                           (65,960)       102,910
   Change in prior year estimate                                46,230              -
   State income taxes and other                                      -              -
                                                              --------      ---------
                                                              $    800      $     800
                                                              ========      =========
</TABLE>

At May 31, 2000, the significant components of the Company's deferred tax assets
are as follows:

   Net operating loss carryforwards                                   $ 528,000
   Research and development credit carryforwards                        176,000
   Inventory reserve and uniform cost capitalization                     41,000
   Other                                                                 16,960
                                                                      ---------
                                                                        761,960

   Valuation allowance                                                 (761,960)
                                                                      ---------
                                                                      $       -
                                                                      =========

--------------------------------------------------------------------------------

                                                                            F-16
<PAGE>

                                                                   DYNATEM, INC.

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 6 - INCOME TAXES, continued
--------------------------------

At May 31, 2000, the Company had Federal and state net operating loss
carryforwards of approximately $1,680,000 and $74,000, respectively, which, if
not utilized to offset future taxable income, will expire in various years
through 2020.

At May 31, 2000, the Company had unused federal and California research and
development credits of approximately $176,000, which, if not used, will expire
in various years through 2015.

NOTE 7 - RELATED PARTY TRANSACTIONS
-----------------------------------

During fiscal 2000 and 1999, the Company paid fees of and $1,500 and $3,531,
respectively, to a consulting firm principally owned by the Company's Chairman
of the Board.

Note receivable consists of amounts due from an officer, which bear interest at
the rate of 5% per annum and require monthly installments of principal and
interest. The note matures December 31, 2000.

NOTE 8 - COMMITMENTS AND CONTINGENCIES
--------------------------------------

Leases
------

The Company has entered into a non-cancelable operating lease agreement for its
corporate and manufacturing facility. In addition to monthly lease payments for
the facility, the Company is required to pay utilities and certain insurance and
maintenance costs. The lease provides for annual rental increases and a five-
year renewal option based on certain terms and conditions. The lease expires in
fiscal 2006.

Future annual minimum lease payments under this lease are as follows:


   Years Ending
     May 31,
  --------------
       2001                   $ 68,304
       2002                     74,161
       2003                     77,127
       2004                     80,212
       2005                     83,421
       Thereafter               35,325
                              --------

                              $418,550
                              ========

--------------------------------------------------------------------------------

                                                                            F-17
<PAGE>

                                                                   DYNATEM, INC.

                                                   NOTES TO FINANCIAL STATEMENTS

                                       For The Years Ended May 31, 2000 and 1999

================================================================================

NOTE 8 - COMMITMENTS AND CONTINGENCIES, continued
-------------------------------------------------

During fiscal 2000 and 1999, the Company incurred $72,910 and $70,750,
respectively, related to this lease, of which $36,474 and $35,412 has been
classified as a component of cost of sales in the accompanying statements of
income.

Royalty and Licensing Agreements
--------------------------------

The Company is a party to a royalty agreement that requires it to pay royalties
of 25% of sales of a select hardware product and 50% of sales of a select
software product, as defined. The Company is also a party to another royalty
agreement that requires it to pay royalties of 50% of the gross profit earned by
the Company on sales of certain hardware products, as defined.

During 1997, the Company entered into two software licensing agreements. The
licensed software will be used with various products which the Company
manufactures and distributes. One of the agreements provides for a one-time
licensing fee and the other agreement provides for a fixed fee on each unit of
software sold.

During fiscal 2000 and 1999, total royalty and licensing expense for the royalty
and licensing agreements mentioned herein totaled $18,800 and $12,071,
respectively.

NOTE 9 - BASIC AND DILUTED (LOSS) EARNINGS PER COMMON SHARE
-----------------------------------------------------------

The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per common share computations:

<TABLE>
<CAPTION>
                                                                      2000            1999
                                                                     ------          ------
<S>                                                                <C>            <C>
Numerator for basic and diluted loss earnings per common share:
  Net gain (loss) (basic)                                          $   59,582     $ (301,123)
                                                                   ==========     ==========

Denominator for basic and diluted earnings per common share:
  Weighted average shares (basic)                                   1,418,400      1,418,400
  Common stock equivalents                                             53,062              -
                                                                   ----------     ----------
  Weighted average shares (dilutive)                                1,471,462      1,418,400
                                                                   ==========     ==========

Basic and diluted gain (loss) per common share:
  Basic                                                            $     0.04     $    (0.21)
                                                                   ==========     ==========
  Diluted                                                          $     0.04     $    (0.21)
                                                                   ==========     ==========
</TABLE>

--------------------------------------------------------------------------------

                                                                            F-18
<PAGE>

Item 8.        Changes in and Disagreements with Accountants on
-------        ------------------------------------------------
               Accounting and Financial Disclosure.
               -----------------------------------

Not applicable.

                                   PART III
                                   --------

Item 9.        Directors, Executive Officers, Promoters and Control Persons;
-------        ------------------------------------------------------------
               Compliance with Section 16(a) of the Exchange Act.
               -------------------------------------------------

Information concerning the Company's directors and executive officers and
compliance with Section 16(a) of the Exchange Act is incorporated herein by
reference to the portion of the Company's Definitive Proxy Statement, to be
filed for its 2000 Annual Meeting of Shareholders to be held on November 10,
2000, set forth under the heading "ELECTION OF DIRECTORS".

Item 10.       Executive Compensation.
--------       ----------------------

Information concerning executive compensation is incorporated herein by
reference to the portion of the Company's Definitive Proxy Statement, to be
filed for its 2000 Annual Meeting of Shareholders to be held on November 10,
2000, set forth under the heading "ELECTION OF DIRECTORS - Compensation of
Executive Officers".

Item 11.       Security Ownership of Certain Beneficial Owners and Management.
--------       --------------------------------------------------------------

Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference to the portion of the Company's
Definitive Proxy Statement, to be filed for its 2000 Annual Meeting of
Shareholders to be held on November 10, 2000, set forth under the heading
"PRINCIPAL HOLDERS OF VOTING SECURITIES".

Item 12.       Certain Relationships and Related Transactions.
--------       ----------------------------------------------

Information concerning certain relationships and related transactions is
incorporated herein by reference to the portion of the Company's Definitive
Proxy Statement, to be filed for its 2000 Annual Meeting of Shareholders to be
held on November 10, 2000 set forth under the heading "ELECTION OF DIRECTORS -
Relationships with Outside Firms".

                                       10
<PAGE>

Item 13.       Exhibits and Reports on Form 8-K.
--------       --------------------------------

(a)  Exhibits.
     --------

Reference is made to the Exhibit Index preceding the exhibits attached hereto
for a list of all exhibits filed as part of this Report.

(b)  Reports on Form 8-K.
     -------------------

The Company did not file any reports on Form 8-K during the last quarter of the
Company's fiscal year ended May 31, 2000.

                                       11
<PAGE>

                                  SIGNATURES
                                  ----------

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                             DYNATEM, INC.


August 24, 2000               By:  /s/ Eileen DeSwert
                                   ---------------------------------------
                                             Eileen DeSwert, President

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.



By:  /s/ Eileen DeSwert
     ---------------------------------              August 24, 2000
     Eileen DeSwert
     President/Principal Executive
     Officer/Director

By:  /s/ Harry Cavanaugh
     ---------------------------------               August 24, 2000
     Harry Cavanaugh
     Chairman of the Board/Director

By:  /s/ Belen Ramos
     ---------------------------------               August 24, 2000
     Belen Ramos
     Chief Financial Officer

By:  /s/ Robert Anslow
     ---------------------------------               August 24, 2000
     Robert Anslow
     Director

By:  /s/ Richard Jackson
     ---------------------------------               August 24, 2000
     Richard Jackson
     Director

By:  /s/ Charles Spear
     ---------------------------------               August 24, 2000
     Charles Spear
     Director

By:  /s/ Costis Toregas
     ---------------------------------               August 24, 2000
     Costis Toregas
     Director

By:  /s/ H. Richard Anderson
     ---------------------------------               August 24, 2000
     H. Richard Anderson,
     Director

                                      12
<PAGE>

                                 EXHIBIT INDEX
                                 -------------

     The following is a list of Exhibits required by Item 601 of Regulation S-B.
Except for those exhibits indicated by an asterisk which are filed herewith, the
remaining exhibits listed below are incorporated by reference to the exhibit
previously filed by us as indicated.

Exhibit
Number
-------

3(a)  Restated Articles of Incorporation of the Company (1)

3(b)  Bylaws of the Company (2)

10    Standard Industrial/Commercial Multi-Tenant Lease- Modified Net dated
      August 22, 1995, between Pacific Highpark Partners, as lessor and the
      Company as lessee (3)

27    Financial Data Schedule *

___________________________

(1)   Incorporated herein by reference to Exhibit 3(a) to the Company's Annual
      Report on Form 10-KSB for fiscal year ended May 31, 1997.

(2)   Incorporated herein by reference to Exhibit 3(b) to the Company's Annual
      Report on Form 10-KSB for fiscal year ended May 31, 1997.

(3)   Incorporated herein by reference to Exhibit 10 to the Company's Quarterly
      Report on Form 10-QSB for the quarter ended August 31, 1995.

                                       13