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U. S. SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-QSB





xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended November 30, 2002.





 ̈ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934





Commission file number 0-16250





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DYNATEM, INC.


(Exact name of small business issuer as specified in its charter)





California (State or other jurisdiction of incorporated or organization)

95-3627099 (I.R.S.
Employer Identification No.)





23263 Madero, Suite C, Mission Viejo, California 92691


(Address of principal executive offices)





(949) 855-323


(Issuers telephone number)





Not Applicable


(Former name, former address and former fiscal year, if changed since last report)





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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  ̈





On November 30, 2002, there were 1,496,264 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 InformationItem 1.

Financial StatementsBalance Sheets at November 30, 2002 and May 31, 2002

1Statements of Operations for the Three Months Ended November 30, 2002 and November 30, 2001

2Statements of Operations for the Six Months Ended November 30, 2002 and November 30, 2001

3Statements of Cash Flows for the Six Months Ended November 30, 2002 and November 30, 2001

4Notes to Financial Statements

5Item 2.

Managements Discussion and Analysis or Plan of Operation

6Item 3.

Controls and Procedures

7Part II.    
Other Information

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DYNATEM, INC.





BALANCE SHEETS





November 30, 2002


May 31, 2002(Unaudited)


(Audited)ASSETSCurrent assets:Cash

$
1,226,975


$
959,042Accounts receivable, net


644,543



388,181Inventories


430,965



469,632Prepaid expenses


16,597



29,500Total current assets


2,319,080



1,846,355Property and equipment, net


33,283



38,115Other assets


23,888



19,624$
2,376,251


$
1,904,094LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
275,585


$
150,040Accrued expenses


197,020



187,307Total current liabilities


472,605



337,347Shareholders equity:Common stock, no par value, 50,000,000 shares authorized; 1,496,264 shares issued and outstanding2,389,085



2,389,085Accumulated deficit


(485,439
)


(822,338
)Total shareholders equity


1,903,646



1,566,747$
2,376,251


$
1,904,094





See accompanying notes to financial statements.




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DYNATEM, INC.





STATEMENTS OF OPERATIONS (UNAUDITED)





Three months ended November 30, 2002 and 2001





2002

2001Net sales

$
1,054,001

$
758,140Cost of sales


513,382


369,934Gross profit


540,619


388,206Operating expenses:Selling, general and administrative


198,744


237,128Research and development


123,302


71,113Total operating expenses


322,046


308,241Operating income


218,573


79,965Other income (expense), net


3,690


6,790Income before income taxes


222,263


86,755Provision for income taxes


800


0Net income

$
221,463

$
86,755Income per share  basic

$
.15

$
.06Income per share  diluted

$
.13

$
.05Weighted average shares outstanding  basic


1,496,264


1,418,400Weighted average shares outstanding  diluted


1,697,386


1,642,374





See accompanying notes to financial statements




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DYNATEM, INC.





STATEMENTS OF OPERATIONS (UNAUDITED)


Six months ended November 30, 2002 and 2001





2002

2001Net sales

$
2,007,905

$
1,400,486Cost of sales


1,041,076


701,221Gross profit


966,829


699,265Operating expenses:Selling, general and administrative


400,459


422,359Research and development


236,208


121,517Total operating expenses


636,667


543,876Operating income


330,162


155,389Other income, net


7,537


11,665Net income before taxes


337,699


167,054Provision for income taxes


800


800Net income

$
336,899

$
166,254Income per share  basic

$
.23

$
.12Income per share  diluted

$
.20

$
.10Weighted average shares outstanding  basic


1,496,264


1,418,400Weighted average shares outstanding  diluted


1,697,386


1,633,695





See accompanying notes to financial statements




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DYNATEM, INC.





STATEMENTS OF CASH FLOWS (UNAUDITED)





For Six months ended November 30, 2002 and 2001





2002


2001Cash flows from operating activities:Net income

$
336,899


$
166,254Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


4,832



9,435Changes in operating assets and liabilities:Accounts receivable


(256,362
)


109,469Inventories


38,667



7,052Prepaid expenses


12,903



14,951Accounts payable


125,545



(58,712
)Accrued expense


9,713



(13,170
)Net cash provided by operating activities


272,197



235,279Cash flows from investing activities:Purchases of fixed assets






(5,842
)Changes in other assets


(4,264
)


(23,720
)Net cash used in investing activities


(4,264
)


(29,562
)Net increase in cash


267,933



205,717Cash and cash equivalents, beginning balance


959,042



704,845Cash and cash equivalents, ending balance

$
1,226,975


$
910,562Supplemental disclosures of cash flow information:Cash paid during the period for:Taxes

$
800


$
800





See accompanying notes to financial statements.




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DYNATEM, INC.





Notes to Financial Statements





(1)    Interim Accounting Policy





In the opinion of the management of Dynatem, Inc. (the Company), the accompanying unaudited financial statements
include only normal recurring adjustments necessary for a fair presentation of the Companys financial position as of November 30, 2002 and the results of operations and cash flows for the three and six months ended November 30, 2002 and
November 30, 2001, respectively. Although the Company believes that the disclosures in these financial statements are adequate to ensure that the information presented is not misleading, certain information and footnote information normally included
in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, 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:





November 30, 2002

May 31, 2002Raw materials

$
215,482

$
230,529Work-in-process


193,935


215,933Finished goods


21,548


23,170$
430,965

$
469,632





(3)    Income Per Share





Income per common share is computed based on the weighted average number of common shares outstanding during the periods presented. The
potential exercise of stock options and warrants is included in the computation of income per diluted share in the periods when net income is reflected using the treasury stock method.




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DYNATEM, INC.





Item 2.    Managements Discussion and Analysis or Plan of Operation





Net sales for the three months ended
November 30, 2002, increased 39% to $1,054,001 compared to net sales of $758,140 in the same period a year ago. For the six months ended November 30, 2002, net sales were $2,007,905, $607,419 higher than the corresponding period in the previous
fiscal year, for an increase of 43%. The increase in total net sales was largely the result of continued demand for the DPC2 single-board computer.





Cost of sales for the three months ended November 30, 2002, was $513,382 or 48.7% of net sales and compares to $369,934 or 48.8% of net sales in the same period a year ago. For the six months ended November 30, 2002, cost of sales of
$1,041,076 represented 51.8% of net sales and compares to $701,221 representing 50.1% of net sales for the same period a year ago.





Selling, general and administrative expenses for the three-month and six-month periods ended November 30, 2002, were $198,744 and $400,459, respectively, as compared to $237,128 and $422,359 for the same respective periods a year
ago. The decrease in selling, general and administrative expense is primarily the result of significant catalog printing and mailing cost in the prior year, with no similar cost in the current periods.





Research and development expenses for three-month and six-month periods ended November 30, 2002, were $123,302 and $236,208, respectively, as compared to $71,113
and $121,517 for the same respective periods a year ago. The increase in expenses is attributed to the ongoing development of new single-board computer products utilizing advanced microprocessor technology. The Company continues to expand its
engineering capabilities to better support its many customers designs, which incorporate Dynatem products.





For the three-month and
six-month periods ended November 30, 2002, net income was $221,463 and $336,899, respectively, compared to net income of $86,755 and $166,254, for the same respective periods ended November 30, 2001, for the reasons described above.





The Company does not expect to pay significant income taxes due to its utilization of net operating loss carryforwards which will expire in various
years through 2019.





At November 30, 2002, the Companys working capital was $1,846,475 and its current ratio was 4.90:1 compared to
$1,509,008 and a ratio of 5.47:1 as of May 31, 2002. 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 2003. The Company has
arranged for a line of credit of $500,000 with its bank and may consider other sources of capital should the need arise.




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DYNATEM, INC.





Item 3.    Controls and Procedures





The Companys Chief Executive Officer and Chief Financial Officer
(collectively, the Certifying Officers)are responsible for establishing and maintaining disclosure controls and procedures for the Company. Such officers have concluded (based upon their evaluation of these controls and procedures as of
a date within 90 days of the filing of this report) that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in this report is accumulated and communicated to the
Companys management, including its principal executive officers as appropriate, to allow timely decisions regarding required disclosure.





The Certifying Officers also have indicated that there were no significant changes in the Companys internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation, and
there were no corrective actions with regard to significant deficiencies and material weaknesses.




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DYNATEM, INC.





PART II.    
OTHER INFORMATION





Items 1 through 3 have been omitted because there is nothing material to report and
there has been no report on Form 8-K during the quarter ended November 30, 2002.





Item 4.    SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS





On September 27, 2002, the Company held its annual meeting of shareholders and took the
following actions:





ELECTION OF DIRECTORS





The following persons were duly elected to the Companys Board of Directors. The tabulation of the votes cast for and against each director is set forth opposite their names below.





Directors

Yes

NoRobert Anslow

1,308,535

200Harry Cavanaugh

1,308,535

200Eileen DeSwert

1,308,535

200Richard Jackson

1,308,535

200Costis Toregas

1,308,535

200Charles Spear

1,308,535

200H. Richard Anderson

1,308,535

200Michael Horan

1,308,535

200





APPOINTMENT OF AUDITORS





The shareholders approved the appointment of the accounting firm of Squar, Milner, Reehl & Williamson, LLP as its independent auditors for the fiscal year ending May 31, 2003. Such
appointment was approved by 1,307,835 votes and 900 votes either abstained or voted against approval of the appointment.




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DYNATEM, INC.





Item 5.    OTHER INFORMATION





The Board of Directors
approved the election of the following officers at a meeting held September 27, 2002.





President & Chief
Executive Officer  Michael Horan





Executive Vice President & Corporate Secretary  Eileen DeSwert





Chief Financial Officer  Belen Ramos




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DYNATEM, INC.





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.





January 9, 2003



By:

/s/    Michael HoranMichael Horan President & Chief Executive Officer





January 9, 2003



By:

/s/    Belen RamosBelen Ramos Chief Financial Officer




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DYNATEM, INC.





CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED


PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the Quarterly Report of Dynatem, Inc. on Form 10-QSB for the quarter ending
November 30, 2002, as filed with the Securities and Exchange Commission on the date hereof, I, Michael Horan, the Chief Executive Officer of the Company, certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, that:





1.  I have reviewed this quarterly report on Form 10-QSB
of Dynatem, Inc.;





2.  Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.  Based on my knowledge, the financial statements and other financial information included in this
quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;





4.  The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and have:





a)  designed such disclosure control and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;





b)  evaluated the effectiveness of
the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;





5.  The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):





a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weakness in internal controls; and





b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and





6.  The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date:    January 9, 2003





/s/    Michael HoranMichael Horan, President & Chief Executive Officer




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DYNATEM, INC.





CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED


PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the Quarterly Report of Dynatem, Inc. on Form 10-QSB for the quarter ending
November 30, 2002, as filed with the Securities and Exchange Commission on the date hereof, I, Belen Ramos, the Chief Financial Officer of the Company, certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, that:





1.  I have reviewed this quarterly report on Form 10-QSB
of Dynatem, Inc.;





2.  Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.  Based on my knowledge, the financial statements and other financial information included in this
quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;





4.  The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and have:





a)  designed such disclosure control and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;





b)  evaluated the effectiveness of
the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;





5.  The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):





a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weakness in internal controls; and





b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and





6.  The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date:    January 9, 2003





/s/    Belen RamosBelen Ramos, Chief Financial Officer & Principal Accounting Officer




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DYNATEM, INC.





CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED


PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the Quarterly Report on Form 10-QSB of Dynatem, Inc. (the
Company) for the quarter ending November 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned Chief Executive Officer and Chief Financial Officer of the Company each
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:





|1. |  | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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|2. |  | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------




Date: January 9, 2003





/s/     Michael HoranMichael Horan, Chief Executive Officer





/s/     Belen RamosBelen Ramos, Chief Financial Officer & Principal Accounting Officer




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