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U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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

For the quarterly period ended November 30, 2006.



| ̈ | 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)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)

(949) 855-3235

(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 December 31, 2006, there were 1,459,564 shares of the
issuers Common Stock outstanding.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.):    Yes ̈No  x

Transitional Small Business Disclosure Format (check one):    Yes ̈No  x



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##### Table of Contents

DYNATEM, INC.

INDEX



|         |  |         |  |                                                                                                       |  |   
|-------- |  | ------- |  | ----------------------------------------------------------------------------------------------------- |  | --
|Part I.  |  |         |  | Financial Information                                                                                 |  |   
|         |  |         | 
|         |  | Item 1. |  | Financial Statements (Unaudited)                                                                      |  |   
|         |  |         | 
|         |  |         |  | Condensed Balance Sheets at November 30, 2006 and May 31, 2006                                        |  | 1 
|         |  |         | 
|         |  |         |  | Condensed Statements of Operations for the Three Months Ended November 30, 2006 and November 30, 2005 |  | 2 
|         |  |         | 
|         |  |         |  | Condensed Statements of Operations for the Six Months Ended November 30, 2006 and November 30, 2005   |  | 3 
|         |  |         | 
|         |  |         |  | Condensed Statements of Cash Flows for the Six Months Ended November 30, 2006 and November 30, 2005   |  | 4 
|         |  |         | 
|         |  |         |  | Notes to Condensed Financial Statements                                                               |  | 5 
|         |  |         | 
|         |  | Item 2. |  | Managements Discussion and Analysis or Plan of Operation                                             |  | 7 
|         |  |         | 
|         |  | Item 3. |  | Controls and Procedures                                                                               |  | 10
|         |  |         | 
|Part II. |  |         |  | Other Information                                                                                     |  | 11
|         |  |         | 
|         |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                                   |  | 11
|         |  |         | 
|         |  | Item 5. |  | Other Information                                                                                     |  | 11
|         |  |         | 
|         |  | Item 6. |  | Exhibits                                                                                              |  | 12



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##### Table of Contents

DYNATEM, INC.

CONDENSED BALANCE SHEETS (UNAUDITED)



|                                                                                                  |  |                   |            |   |              |   |           |  
|------------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ------------ | - | --------- | -
|                                                                                                  |  | November 30, 2006 |            |   | May 31, 2006 |  
|ASSETS                                                                                            |  |                   |            |   |              |   |           |  
|Current assets:                                                                                   |  |                   |            |   |              |   |           |  
|Cash                                                                                              |  | $                 | 340,704    |   |              | $ | 287,847   |  
|Accounts receivable, net                                                                          |  |                   | 298,299    |   |              |   | 653,644   |  
|Inventories                                                                                       |  |                   | 954,423    |   |              |   | 821,504   |  
|Prepaid expenses                                                                                  |  |                   | 22,438     |   |              |   | 46,896    |  
|                                                                                                  |  |                   |            |   |              |   |           |  
|Total current assets                                                                              |  |                   | 1,615,864  |   |              |   | 1,809,891 |  
|Property and equipment, net                                                                       |  |                   | 60,171     |   |              |   | 67,565    |  
|Other assets                                                                                      |  |                   | 41,069     |   |              |   | 11,646    |  
|                                                                                                  |  |                   |            |   |              |   |           |  
|                                                                                                  |  | $                 | 1,717,104  |   |              | $ | 1,889,102 |  
|                                                                                                  |  |                   |            |   |              |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                              |  |                   |            |   |              |   |           |  
|Current liabilities:                                                                              |  |                   |            |   |              |   |           |  
|Accounts payable                                                                                  |  | $                 | 296,288    |   |              | $ | 186,622   |  
|Accrued expenses                                                                                  |  |                   | 257,865    |   |              |   | 220,979   |  
|                                                                                                  |  |                   |            |   |              |   |           |  
|Total current liabilities                                                                         |  |                   | 554,153    |   |              |   | 407,601   |  
|                                                                                                  |  |                   |            |   |              |   |           |  
|Stockholders equity:                                                                             |  |                   |            |   |              |   |           |  
|Common stock, no par value, 50,000,000 shares authorized; 1,459,564 shares issued and outstanding |  |                   | 2,172,108  |   |              |   | 2,172,108 |  
|Accumulated deficit                                                                               |  |                   | (1,009,157 | ) |              |   | (690,607  | )
|                                                                                                  |  |                   |            |   |              |   |           |  
|Total stockholders equity                                                                        |  |                   | 1,162,951  |   |              |   | 1,481,501 |  
|                                                                                                  |  |                   |            |   |              |   |           |  
|                                                                                                  |  | $                 | 1,717,104  |   |              | $ | 1,889,102 |  
|                                                                                                  |  |                   |            |   |              |   |           |  

See accompanying notes to condensed financial statements.



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##### Table of Contents

DYNATEM, INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

Three months ended November 30, 2006 and 2005



|                                                        |  |      |           |   |      |   |           |  
|------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                        |  | 2006 |           |   | 2005 |  
|Net sales                                               |  | $    | 458,938   |   |      | $ | 989,305   |  
|Cost of sales                                           |  |      | 339,380   |   |      |   | 629,525   |  
|                                                        |  |      |           |   |      |   |           |  
|Gross profit                                            |  |      | 119,558   |   |      |   | 359,780   |  
|                                                        |  |      |           |   |      |   |           |  
|Operating expenses:                                     |  |      |           |   |      |   |           |  
|Selling, general and administrative                     |  |      | 269,739   |   |      |   | 302,032   |  
|Research and development                                |  |      | 121,740   |   |      |   | 129,248   |  
|                                                        |  |      |           |   |      |   |           |  
|Total operating expenses                                |  |      | 391,479   |   |      |   | 431,280   |  
|                                                        |  |      |           |   |      |   |           |  
|Operating loss                                          |  |      | (271,921  | ) |      |   | (71,500   | )
|                                                        |  |     
|Other income                                            |  |      | 1,581     |   |      |   | 2,780     |  
|                                                        |  |      |           |   |      |   |           |  
|Net loss                                                |  | $    | (270,340  | ) |      | $ | (68,720   | )
|                                                        |  |      |           |   |      |   |           |  
|                                                        |  |     
|Loss per share  basic and diluted                      |  | $    | (0.19     | ) |      | $ | (0.05     | )
|                                                        |  |      |           |   |      |   |           |  
|Weighted average shares outstanding  basic and diluted |  |      | 1,459,564 |   |      |   | 1,469,564 |  
|                                                        |  |      |           |   |      |   |           |  

See accompanying notes to condensed financial statements.



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DYNATEM, INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

Six months ended November 30, 2006 and 2005



|                                              |  |      |           |   |      |   |          
|--------------------------------------------- |  | ---- | --------- | - | ---- | - | ---------
|                                              |  | 2006 |           |   | 2005
|Net sales                                     |  | $    | 1,196,812 |   |      | $ | 2,044,324
|Cost of sales                                 |  |      | 786,454   |   |      |   | 1,118,036
|                                              |  |      |           |   |      |   |          
|Gross profit                                  |  |      | 410,358   |   |      |   | 926,288  
|                                              |  |      |           |   |      |   |          
|Operating expenses:                           |  |      |           |   |      |   |          
|Selling, general and administrative           |  |      | 479,147   |   |      |   | 583,840  
|Research and development                      |  |      | 251,890   |   |      |   | 265,725  
|                                              |  |      |           |   |      |   |          
|Total operating expenses                      |  |      | 731,037   |   |      |   | 849,565  
|                                              |  |      |           |   |      |   |          
|Operating (loss) income                       |  |      | (320,679  | ) |      |   | 76,723   
|Other income, net                             |  |      | 2,929     |   |      |   | 6,630    
|                                              |  |      |           |   |      |   |          
|Net (loss) income before taxes                |  |      | (317,750  | ) |      |   | 83,353   
|Provision for income taxes                    |  |      | 800       |   |      |   | 800      
|                                              |  |      |           |   |      |   |          
|Net (loss) income                             |  | $    | (318,550  | ) |      | $ | 82,553   
|                                              |  |      |           |   |      |   |          
|                                              |  |     
|(Loss) income per share - basic               |  | $    | (0.22     | ) |      | $ | 0.06     
|                                              |  |      |           |   |      |   |          
|(Loss) Income per share - diluted             |  | $    | (0.22     | ) |      | $ | 0.05     
|                                              |  |      |           |   |      |   |          
|Weighted average shares outstanding  basic   |  |      | 1,459,564 |   |      |   | 1,469,564
|                                              |  |      |           |   |      |   |          
|Weighted average shares outstanding  diluted |  |      | 1,459,564 |   |      |   | 1,595,364
|                                              |  |      |           |   |      |   |          

See accompanying notes to condensed financial statements.



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DYNATEM, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

For six months ended November 30, 2006 and 2005



|                                                                                                   |  |      |          |   |      |   |          |  
|-------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                                                                   |  | 2006 |          |   | 2005 |  
|Cash flows from operating activities:                                                              |  |      |          |   |      |   |          |  
|Net (loss) income                                                                                  |  | $    | (318,550 | ) |      | $ | 82,553   |  
|Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: |  |      |          |   |      |   |          |  
|Depreciation and amortization                                                                      |  |      | 11,518   |   |      |   | 3,528    |  
|Provision for debt expense                                                                         |  |      | 41,850   |   |      |   |          |  
|Changes in operating assets and liabilities:                                                       |  |      |          |   |      |   |          |  
|Accounts receivable                                                                                |  |      | 313,495  |   |      |   | (209,187 | )
|Inventories                                                                                        |  |      | (132,919 | ) |      |   | (167,858 | )
|Prepaid expenses                                                                                   |  |      | 24,458   |   |      |   | 27,844   |  
|Other assets                                                                                       |  |      | (1,352   | ) |      |   |         |  
|Accounts payable                                                                                   |  |      | 109,666  |   |      |   | 28,484   |  
|Accrued expenses                                                                                   |  |      | 36,886   |   |      |   | 77,841   |  
|                                                                                                   |  |      |          |   |      |   |          |  
|Net cash provided by (used in) operating activities                                                |  |      | 85,052   |   |      |   | (156,795 | )
|                                                                                                   |  |      |          |   |      |   |          |  
|Cash flows from investing activities:                                                              |  |      |          |   |      |   |          |  
|Purchases of fixed assets                                                                          |  |      | (2,294   | ) |      |   | (1,829   | )
|Changes in other assets                                                                            |  |      | (29,901  | ) |      |   | (265     | )
|                                                                                                   |  |      |          |   |      |   |          |  
|Net cash used in investing activities                                                              |  |      | (32,195  | ) |      |   | (2,094   | )
|                                                                                                   |  |      |          |   |      |   |          |  
|Cash flows from financing activities                                                               |  |      |          |   |      |   |          |  
|Proceeds from credit line advances                                                                 |  |      |         |   |      |   | 109,500  |  
|Payment of credit line advances                                                                    |  |      |         |   |      |   | (59,500  | )
|                                                                                                   |  |      |          |   |      |   |          |  
|Net cash provided by investing activities                                                          |  |      |         |   |      |   | 50,000   |  
|                                                                                                   |  |      |          |   |      |   |          |  
|Net increase (decrease) in cash                                                                    |  |      | 52,857   |   |      |   | (108,889 | )
|Cash, beginning balance                                                                            |  |      | 287,847  |   |      |   | 720,046  |  
|                                                                                                   |  |      |          |   |      |   |          |  
|Cash, ending balance                                                                               |  | $    | 340,704  |   |      | $ | 611,157  |  
|                                                                                                   |  |      |          |   |      |   |          |  

See accompanying notes to condensed financial statements.



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DYNATEM, INC.

(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, 2006 and the results of operations and cash flows for the three and six
months ended November 30, 2006 and November 30, 2005, 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. The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto which are included in Dyantem, Inc.s Form 10-KSB filed
with the Securities and Exchange Commission (SEC) on August 28, 2006. Results of operations for interim periods are not necessarily indicative of results of operations to be expected for the full year.

(2) Recent Accounting Standards

Effective June 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share Based Payment, (SFAS No. 123(R)). See Accounting For
Stock-Based Compensation below for more information regarding the effects of adopting this standard.

Other recent accounting
pronouncements discussed in the notes to the May 31, 2006 audited financial statements, filed previously with the Securities and Exchange Commission in form 10-KSB, that were required to be adopted during the year ending May 31, 2007, did
not have or are not expected to have a significant impact on the Companys 2007 financial statements.

(3) Accounting for Stock-Based
Compensation

On August 31, 1993, the Companys Board of Directors adopted, and the shareholders approved, the
Dynatem, Inc. 1993 Stock Option Plan (1993 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 the 1993 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. (1998 Plan). 400,000 shares of the Companys common
stock have been reserved for issuance upon the exercise of options to be granted under the 1998 Plan.

Prior to June 1, 2006, the
Company accounted for grants for these plans under Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations, and applied SFAS
No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, for disclosure purposes only. Under APB 25,
stock-based compensation cost related to stock options was not recognized in net income since the options underlying those plans had exercise prices greater than or equal to the market value of the underlying stock on the date of the grant.

Effective June 1, 2006, the Company adopted SFAS No. 123(R), which revises SFAS No. 123 and supersedes APB 25. SFAS
No. 123(R) requires that all share-based payments to employees be recognized in the financial statements based on their fair values at the date of grant. The calculated fair value is recognized as expense (net of any capitalization) over the
requisite service period, net of estimated forfeitures, using the straight-line method under SFAS No. 123(R). The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical
experience. The statement was adopted using the modified prospective method of application which requires compensation expense to be recognized in the financial statements for all unvested stock options beginning in the quarter of adoption. No
adjustments to prior periods have been made as a result of adopting SFAS No. 123(R). Under this transition method, compensation expense for share-based awards granted prior to June 1, 2006, but not yet vested as of such date, will be
recognized in the Companys financial statements over their remaining service period. The cost was based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123. As required by SFAS
No. 123(R), compensation expense recognized in future periods for share-based compensation granted prior to adoption of the standard will be adjusted for the effects of estimated forfeitures.



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DYNATEM, INC.

For the three and six months ended November 30, 2006, the impact of adopting SFAS No. 123(R) on the Companys condensed statements of operations was nil as there were no unvested options at June 1,
2006 and no additional options were granted during the three month and six months ended November 30, 2006. There was no material impact on the Companys basic and diluted net income per share as a result of the adoption of SFAS
No. 123(R). The adoption of SFAS No. 123(R) had no significant effect on net cash flow.

There was no stock-based employee
compensation cost reflected in the results of operations for the quarters ended November 30, 2006 and 2005. Additionally, if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee
compensation in fiscal 2006, there would have been no change to net income or earnings per share for the three and six months ended November 30, 2005.

(4) Inventories

A summary of inventories follows:



|                |  |                   |         |              |   |        
|--------------- |  | ----------------- | ------- | ------------ | - | -------
|                |  | November 30, 2006 |         | May 31, 2006
|Raw materials   |  | $                 | 662,681 |              | $ | 518,383
|Work-in-process |  |                   | 196,197 |              |   | 193,654
|Finished goods  |  |                   | 95,545  |              |   | 109,467
|                |  |                   |         |              |   |        
|                |  | $                 | 954,423 |              | $ | 821,504
|                |  |                   |         |              |   |        

(5) Stock Repurchase Plan

On October 26, 2006, the Board of Directors formally adopted a resolution to take effect after November 1, 2006, to discontinue the
Companys Stock Repurchase Plan, originally initiated on October 1, 2003, (the Repurchase Plan). The Company was authorized to acquire shares of the Companys common stock with an aggregate purchase price not to exceed
$300,000. There were no repurchase transactions during the six months ended November 30, 2006.

(6) Earnings (Loss) Per Share

Under SFAS No. 128 Earnings Per Share, basic earnings per share is computed by dividing income available to common shareholders by
the weighted-average number of common shares assumed to be outstanding during the period of computation. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive using the treasury stock method. The Company had a net loss for the three and six month
periods ended November 30, 2006 and for the three month period ended November 30, 2005. As a result, all shares of common stock issuable upon exercise of stock options have been excluded from the calculation of diluted loss per share for
the three and six month periods ended November 30, 2006 and for the three month period ended November 30, 2005 because their inclusion would be antidilutive.



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DYNATEM, INC.

The following is a reconciliation of the shares used in the computation of basic and diluted earnings (loss) per share for the three and six month periods ended November 30, 2006 and 2005, respectively:



|                                                                                                                     |  |              |           |            |           |              |   |            |  |          
|-------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ---------- | --------- | ------------ | - | ---------- |  | ---------
|                                                                                                                     |  | 2006         |           | 2005      
|                                                                                                                     |  | Three-Months |           | Six-Months |           | Three-Months |   | Six-Months
|Basic (loss) earnings per share - weighted-average number of common shares outstanding                               |  | $            | 1,459,564 |            | 1,459,564 |              | $ | 1,469,564  |  | 1,469,564
|Effect of dilutive potential common shares - stock options outstanding                                               |  |              |          |            |          |              |   |           |  | 125,800  
|                                                                                                                     |  |              |           |            |           |              |   |            |  |          
|Diluted (loss) earnings per share - weighted-average number of common shares and potential common shares outstanding |  | $            | 1,459,564 |            | 1,459,564 |              | $ | 1,469,564  |  | 1,595,364
|                                                                                                                     |  |              |           |            |           |              |   |            |  |          

(7) Line of Credit

The Company had a revolving line of credit agreement (the Line of Credit) that permitted borrowings up to $500,000. This Line of Credit matured July 18, 2006. The Company has not renewed such
Line of Credit.

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

THE FOLLOWING DISCUSSION INCLUDES
FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE COMPANYS FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE
DESCRIBED BELOW. SEE ALSO THE COMPANYS ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED MAY 31, 2006.

Results of
Operations

Net sales for the three months ended November 30, 2006, decreased 53.6% to $458,938 compared to net sales of $989,305 in
the same period a year ago. For the six months ended November 30, 2006, net sales decreased 41.5% to $1,196,812 compared to net sales of $2,044,324, $847,512 lower than the corresponding period in the previous fiscal year. The decrease in
revenue is attributed to the end of life of the DPC2 product line combined with the slow ramp up of newer designs.

Cost of sales for the three months
ended November 30, 2006, was $339,380 or 73.9% of net sales compared to $629,525 or 63.6% of net sales in the same period a year ago. For the six months ended November 30, 2005, cost of sales of $786,454 represented 65.7% of net sales and
compares to $1,118,036 representing 54.7% of net sales for the same period a year ago. The increase in cost of sales as a percentage of net sales is attributable primarily to the spreading of fixed production cost over reduced unit production, and
also to changes in product mix such as the introduction of new products with high initial costs as a result of low volume.

Selling, general and
administrative expenses for the three and six months ended November 30, 2006, were $269,739 and $479,147, respectively, as compared to $302,032 and $583,840 for the same periods a year ago. Selling, general and administrative expenses for the
three and six month periods were lower by 10.7% and 17.9%, respectively, as compared to prior year. The decrease in selling, general and administrative expenses is primarily the result of staff reductions and reduced expenses in some areas like
salaries, medical group insurance, etc.

Research and development expenses for the three and six months ended November 30, 2006, were $121,740 and
$251,890, respectively, and $129,248 and $265,725 respectively, for the same periods a year ago. Research and development expenses for the three and six month periods were lower by 5.8% and 5.2%, respectively, as compared to prior year. The decrease
is the result of lower costs of new product introduction attributed to the ability to leverage previous design databases into new products



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DYNATEM, INC.

Liquidity and Capital Resources

As of November 30, 2006, the Companys working capital, which is current assets
less current liabilities, was $1,061,711 and the Companys current ratio, which is current assets divided by current liabilities, was 2.9:1 compared to $1,402,290 and a ratio of 4.4:1 as of May 31, 2006. 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 2007. The Company may consider other sources of capital should the need arise.

(A) Critical Accounting Policies

Our discussion and
analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate
our estimates, including those related to revenue recognition and the valuation of long-lived assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions
or conditions. We do not have off-balance sheet arrangements, financings, or relationships with unconsolidated entities or other persons, also known as special purposes entities (SPEs). We believe the following critical accounting
policies affect our more significant judgments and estimates used in preparation of our financial statements.



| |  |  | Revenue recognition;
| | - |  | --------------------



| |  |  | Valuation of deferred tax assets; and
| | - |  | -------------------------------------



| |  |  | Estimation of the allowance for doubtful accounts receivable.
| | - |  | -------------------------------------------------------------

(B)
Revenue Recognition

Revenue is recognized at the time the product is shipped.

SEC Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition, 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. Management believes the Companys revenue recognition policy conforms to SAB 104.

VME

The VME product group is the Companys principal
product group. This product group consists of hardware only. A customer will place an order. The Company then fills the order and ships the product to the customer FOB shipping point, with a one-year warranty. Revenue is recognized at the time the
product is shipped.

CPU Boards  The Company manufactures boards classified as hardware products and recognizes revenue upon shipment.

Hardware  The Company manufactures computer hardware as noted above and recognizes revenue upon shipment of the product.

Support Services  The Company does not provide support services. It provides a hardware warranty. If the product does not work, the Company repairs or
replaces the product. After the warranty period expires, the Company continues to provide repair services for all its products regardless of the age of the product, subject to availability of spare parts.



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DYNATEM, INC.

Custom Designed Products and Software  The Company occasionally provides custom designed hardware products, but generally builds single board products for sale to its general customer base.

Software

The Company sells software drivers specific to the
hardware and software it has purchased from other suppliers (operating system software for resale). The volume of resale software is minimal and typically only involves installing an operating system in order to pre-install software drivers in
situations where customers request pre-installation (the drivers cannot be installed unless there is an operating system). The software drivers are sold with the related hardware as an off the shelf product. Software resale represents
off the shelf operating systems designed, maintained, and supported by the original software manufacturer. The Company provides support to its customers under the terms of its warranty and does not supply software support services billed
separately. There are no multiple element software sales as described in SOP 97-2. The Companys software sale activities are incidental to the core hardware products sold and the Company is not in the business of selling software; rather, it
is necessary for the Company to supply integration of the various hardware products it sells. Such integration is done by software drivers, which in effect are part of the hardware.

Systems and Software  The Company does not develop operating system software and is not in this line of business. The Company sells hardware systems and related software drivers.

Software Drivers  The Company develops and sells software drivers with its hardware products. Revenue is recognized upon shipment of the related hardware
products.

Resale of Other Manufacturers Software  The Company is not in the business of selling software and rarely sells an operating
system (such as Windows XP) in order for pre-installation of drivers. The Company recognizes the revenue upon shipment of the related hardware products. Software sales of this type are very minor.

Microsys

The Company is a distributor of Microsys GmbH
products and purchases such products from Microsys as needed. The Company reports the related revenue on a gross revenue basis under EITF 99-19 because the Company is (1) the primary obligor in the arrangement, (2) has the
general inventory risk, (3) has reasonable latitude to establish the price with the customer, (4) changes the mix of the products between Microsys and Company products as required, (5) determines the customer needs, (6) has
physical loss inventory risk, and finally (7) has the credit risk. Revenue is recognized upon shipment of the Microsys product as noted herein in accordance with EITF 99-19.

(C) Long-Lived Assets

Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from
such asset, an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. SFAS No. 144 also requires companies to separately report discontinued operations
and extends that reporting requirement to a component of an entity that either has been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the
carrying amount or the estimated fair value less costs to sell.

Management believes that no impairment loss has been incurred on long-lived assets. There
can be no assurance, however, that market conditions or demand for the Companys products or services will not change which could result in long-lived asset impairment charges in the future.



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DYNATEM, INC.

Important Factors Related to Forward-Looking Statements and Associated Risks.

This report contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act) and we intend that such forward-looking statements be subject to the safe
harbors created thereby. These forward-looking statements include our plans and objectives of management for future operations, including plans and objectives relating to the products and our future economic performance. The forward-looking
statements included herein are based upon current expectations that involve a number of risks and uncertainties. These forward-looking statements are based upon assumptions that we will design, manufacture, market and ship new products on a timely
basis, that competitive conditions within the computer and electronic markets will not change materially or adversely, that the computer and electronic markets will continue to experience growth, that demand for the our products will increase, that
we will obtain and/or retain existing development partners and key management personnel, that future inventory risks due to shifts in market demand will be minimized, that our forecasts will accurately anticipate market demand and that there will be
no material adverse change in our operations or business. Assumptions relating to the foregoing involve judgments with respect, among other things, to future economic, competitive and market conditions and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in forward-looking information will be realized. In addition, as disclosed above, our business and operations are subject to substantial risks which increase the uncertainty inherent in such
forward-looking statements. Any of the other factors disclosed above could cause our net sales or net income (or loss), or our growth in net sales or net income (or loss), to differ materially from prior results. Growth in absolute amounts of costs
of sales and selling and administrative expenses or the occurrence of extraordinary events could cause actual results to vary materially from the results contemplated in the forward-looking statements. Budgeting and other management decisions are
subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may
in turn affect our results of operations. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person
that our objectives or plans will be achieved.

Item 3.Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of
November 30, 2006, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance
level as of November 30, 2006.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the quarter ended November 30, 2006 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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DYNATEM, INC.

PART II. OTHER INFORMATION

Items 1, 2 and 3 have been omitted because there is nothing material to report.

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

On October 26, 2006, 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       |  | No
|Robert Anslow        |  | 1,305,728 |  | 0 
|                     |  |          
|Eileen D. Schmalbach |  | 1,305,728 |  | 0 
|                     |  |          
|Michael Horan        |  | 1,305,728 |  | 0 
|                     |  |          
|Dr. Costis Toregas   |  | 1,305,728 |  | 0 
|                     |  |          
|Charles Spear        |  | 1,305,728 |  | 0 
|                     |  |          
|H. Richard Anderson  |  | 1,305,728 |  | 0 

Appointment of Auditors

The shareholders approved the appointment of the accounting firm of Squar, Milner, Miranda & Williamson, LLP as its independent auditors for the fiscal year ending May 31, 2007. Such appointment was
approved by 1,276,429 votes and 29,299 votes either abstained or voted against approval of the appointment.

Item 5.Other Information

The Board of Directors approved the election of the following officers at a
meeting held October 26, 2006.

President and Chief Executive Officer  Michael Horan

Executive Vice President and Corporate Secretary  Eileen D. Schmalbach

Chief Financial Officer  Belen M. Ramos



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DYNATEM, INC.

Item 6.Exhibits

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 |  | Exhibit                                                                                                                                                  
|3(a)           |  | Restated Articles of Incorporation of the Company1                                                                                                       
|               | 
|3(b)           |  | Bylaws of the Company2                                                                                                                                   
|               | 
|31.1*          |  | Certifications Pursuant to Securities Exchange Act Rules 13A  14 and 15D -14 - Section 302, signed by Michael Horan, Chief Executive Officer            
|               | 
|31.2*          |  | Certifications Pursuant to Securities Exchange Act Rules 13A  14 and 15D -14 - Section 302, signed by Belen Ramos, Chief Financial Officer              
|               | 
|32*            |  | Certification Pursuant to 18 U.S.C. Section 1350 - Section 906, signed by Michael Horan, Chief Executive Officer and Belen Ramos, Chief Financial Officer

---

|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.
|- | ----------------------------------------------------------------------------------------------------------------------------------



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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 10, 2007 |  | By:           |  | /s/ Michael Horan      
|                 |  |               |  | Michael Horan          
|                 |  |               |  | President and CEO      
|                 |  |              
|January 10, 2007 |  | By:           |  | /s/ Belen Ramos        
|                 |  |               |  | Belen Ramos            
|                 |  |               |  | Chief Financial Officer



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