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U. S. SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-QSB





x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934





For the quarterly period ended August 31, 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

95-3627099(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)





23263 Madero, Suite C, Mission Viejo, California

92691(Address of principal executive offices)

(Zip Code)





(949) 855-3235


Issuers telephone number





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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 August 31, 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 August 31, 2002 and May 31, 2002

1Statements of Operations for the Three Months Ended August 31, 2002 and 2001

2Statements of Cash Flows for the Three Months Ended August 31, 2002 and 2001

3Notes to Financial Statements

4Item 2.

Managements Discussion and Analysis or Plan of Operation

5Item 3.

Controls and Procedures

6Part II.    
Other Information

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PART I.    FINANCIAL INFORMATION





Item 1.Financial Statements





DYNATEM, INC.





BALANCE SHEETS





August 31, 2002


May 31, 2002(Unaudited)


(Audited)ASSETSCurrent assets:Cash and cash equivalents

$
1,004,014


$
959,042Accounts receivable, net


463,121



388,181Inventories


560,957



469,632Prepaid expenses


26,888



29,500Total current assets


2,054,980



1,846,355Property and equipment, net


35,368



38,115Other assets


11,831



19,624$
2,102,179


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

$
251,758


$
150,040Accrued expenses


168,238



187,307Total current liabilities


419,996



337,347Shareholders equity:Common Stock no par value, 50,000,000 authorized shared; 1,496,264 shares issued and outstanding


2,389,085



2,389,085Accumulated deficit


(706,902
)


(822,338
)Total shareholders equity


1,682,183



1,566,747$
2,102,179


$
1,904,094





See accompanying notes to financial statements.




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DYNATEM, INC.





STATEMENTS OF OPERATIONS (UNAUDITED)


Three months ended August 31, 2002 and 2001





2002

2001Net sales

$
953,904

$
642,346Cost of sales


527,694


331,287Gross profit


426,210


311,059Operating expenses:Selling, general and administrative


201,715


185,231Research and development


112,906


50,404Total operating expenses


314,621


235,635Operating income


111,589


75,424Other income, net


3,847


4,875Income before income taxes


115,436


80,299Provision for income taxes


0


800Net income

$
115,436

$
79,499Net income available to common shareholders per common share:Basic

$
0.08

$
0.06Diluted

$
0.07

$
0.05Weighted average common shares outstanding:Basic


1,496,264


1,418,400Diluted


1,697,386


1,554,414





See accompanying notes to financial statements.




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DYNATEM, INC.





STATEMENTS OF CASH FLOWS (UNAUDITED)


Three months ended August 31, 2002 and 2001





2002


2001Cash flows from operating activities:Net income

$
115,436


$
79,499Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


2,747



4,869Changes in operating assets and liabilities:Accounts receivable


(74,940
)


89,480Inventories


(91,325
)


(73,146
)Prepaid expenses


2,612



8,168Accounts payable


101,718



(43,889
)Accrued expenses


(19,069
)


(51,684
)Net cash provided by operating activities


37,179



13,297Cash flows from investing activities:Purchases of fixed assets


0



(3,897
)Changes in other assets


7,793



(38,988
)Net cash used in investing activities


7,793



(42,885
)Net increase (decrease) in cash


44,972



(29,588
)Cash and cash equivalents, beginning balance


959,042



704,845Cash and cash equivalents, ending balance

$
1,004,014


$
675,257Supplemental disclosures of cash flow information:Cash paid during the quarter for:Income taxes

$
0


$
800Interest

$
0


$
0





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 August 31, 2002, and the results of operations and cash flows for the three months ended August 31, 2002 and 2001.
Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in
accordance with 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:





August 31, 2002

May 31, 2002Raw materials

$
252,822

$
230,529Work-in-process


280,100


215,933Finished goods


28,035


23,170$
560,957

$
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 net 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





Revenues for
the first quarter ended August 31, 2002 and 2001 were $953,904 and $642,346, respectively. The increase is the result of continued demand in the market for the DPC2 product introduced in late 2000.





Cost of sales for the three months ended August 31, 2002, was $527,694 or 55% of net sales and compares to $331,287 or 52% of net sales in
the same period a year ago.





Selling, general and administrative expenses for the three months ended August 31,
2002 were $201,715 compared to $185,231 in the same period a year ago. The increase was principally the result of adding new staff to cope with the increased level of business and providing more competitive salaries, wages and benefits to assist in
retaining personnel.





Research and development expenses were $112,906 and $50,404 for the three months ended
August 31, 2002 and 2001, respectively. The increase is attributed to the ongoing development of new single-board computer products utilizing advanced microprocessor technology, based on recommendations from our customers.





The results of operations for the three months ended August 31, 2002 and 2001, reflect net income of $115,436 and $79,499, respectively.
The increase in income is the result of the increased sales of the DPC2 product.





Income taxes for the three
months ended August 31, 2002 and 2001 are not considered material due to the utilization of net operating loss carry forwards which will expire in various years through 2019.





At August 31, 2002, the Company had a current ratio of 4.89:1 compared to a ratio of 5.47:1 at May 31, 2002. The net worth of the Company at August 31, 2002 was $1,682,183,
compared to $1,566,747 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 5 have been omitted because there is nothing material
to report and there has been no report on Form 8-K during the quarter ended August 31, 2002.





SIGNATURES





In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


DYNATEM, INC.





October 8, 2002


By:

/s/    MICHAEL
HORANMichael Horan President and
Chief Executive Officer


October 8, 2002


By:

/s/    BELEN RAMOSBelen Ramos Chief Financial
Officer




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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 August 31, 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: October 8, 2002





/s/    MICHAEL
HORANMichael Horan Chief Executive
Officer




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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 August 31, 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 controls 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: October 8, 2002





/S/    BELEN
RAMosBelen Ramos Chief Financial
Officer







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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 August 31, 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





2.  The information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the Company.





Date: October 8, 2002





/s/    MICHAEL HORANMichael Horan Chief Executive
Officer





/s/    BELEN RAMOSBelen Ramos Chief Financial
Officer




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