<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Dyna Group International, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
[GREAT AMERICAN PRODUCTS INC. LETTERHEAD]
MEMORANDUM
June 11, 1998
To All Shareholders:
Enclosed is the notice of the Annual Meeting of Shareholders, the Annual
Report, Proxy Voting Card and Proxy Statement. We trust that you will
appreciate our cost saving efforts by eliminating the high cost of printing
annual reports. If you need any additional information please do not hesitate
to call. We like hearing from our shareholders and discussing the activities of
our company.
To keep you better informed on the events and progress we are making, please
visit our web site at www.gap1.com.
We intend to release the 2nd quarter results just prior to our Annual Meeting.
We are confident the report will show that the move to Texas, manufacturing in
Mexico and the overall reduction of our overhead has established a more solid
base for future growth.
Sincerely,
/s/ JAMES M. SABLIC
James M. Sablic
Controller and Chief Financial Officer
JS/Im
ENCLOSURES
<PAGE> 3
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 15, 1998
TO THE STOCKHOLDERS OF DYNA GROUP INTERNATIONAL, INC.
The Annual Meeting of Stockholders of DYNA GROUP INTERNATIONAL, INC. will be
held Wednesday, July 15, 1998 at the Company's office at 1661 S. Seguin Avenue
(FM 725), New Braunfels, Texas at 10:00am CDST for the following purpose:
1. To elect three directors until the next Annual Meeting of
Stockholders and until their successor shall have been elected
and qualified.
Only stockholders of record at the close of business on May 29, 1998 will be
entitled to notice of, and vote at, the meeting.
By Order of the Board of Directors
/s/ JEFFREY L. SMITH
New Braunfels, Texas Jeffrey L. Smith
June 15, 1998 Secretary
<PAGE> 4
DYNA GROUP INTERNATIONAL, INC.
1661 S. SEGUIN AVENUE
NEW BRAUNFELS, TX 78130
(Address of Principal Executive Office)
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JULY 15, 1998
GENERAL
SOLICITATION OF PROXIES
This Proxy Statement is furnished to the stockholders of Dyna Group
International, Inc., a Nevada Corporation (the "Company"), in connection with
the solicitation by and on behalf of the Board of Directors of proxies to be
voted at an Annual Meeting of Stockholders of the Company. In addition to
solicitation of proxies by use of mails, proxies may be solicited by the
officers and employees of the Company, without remuneration, by telephone,
telegraphy, cable or personal interview. The Company will bear all costs of
solicitation. The Company will also request brokerage houses, nominees,
custodians and fiduciaries to forward proxy material to the beneficial owners of
shares held of record by them and reimburse their expenses.
The approximate date on which this Proxy Statement and accompanying Proxy will
first be sent or given to stockholders is June 12, 1998.
TIME AND PLACE OF MEETING
The Annual Meeting of Stockholders will be held at the Company's office at 1661
South Seguin Avenue (FM 725), New Braunfels, Texas at 10:00 am, Central Daylight
Savings Time on July 15, 1998. A copy of the notice of meeting accompanies this
Proxy Statement.
SECURITIES ENTITLED TO VOTE AND RECORD DATE
The Board of Directors has fixed the close of business on May 29, 1998 as the
date for determining stockholders entitled to receive notice of and to vote at,
the Annual Meeting. On that date the Company had 7,497,925 shares of Common
Stock outstanding, which are the only securities of the Company entitled to vote
at the stockholders meeting. Stockholders on that date will be entitled to
notice and will be entitled to one vote for each share held of record on such
record date.
REVOCABILITY OF PROXY
Stockholders who execute proxies may revoke them by giving written notice to the
Secretary of the Company at any time before such proxies are voted. Attendance
at the meeting shall not have the effect of revoking a proxy unless the
stockholder so attending shall, in writing, so notify the Secretary of the
meeting at any time prior to the voting of the proxy.
All proxies received pursuant to this solicitation will be voted except as to
matters where authority to vote is specifically withheld and, where a choice is
specific as to the proposal, they will be voted in accordance with such
specification. If no instructions are given, the persons named in the proxy
solicited by the Board of Directors of the Company intend to vote for the
nominees for election as directors of the Company listed below.
2
<PAGE> 5
ELECTION OF DIRECTORS
Three directors are to be elected at the meeting for terms of one year each
(subject to the Company's by-laws). Each director shall hold office until the
next Annual Meeting of Stockholders and until his respective successor shall be
elected and qualified. The Company proposes that the stockholders elect Mr.
Roger R. Tuttle, Mr. James M. Sablic and Mr. Jeffrey L. Smith to serve until the
next Annual Meeting of Stockholders and until their successors are elected and
qualified. Officers and Directors holding 45.45% of the Company's Common Stock
will vote for the nominees as presented.
Directors of the Company will be elected by a plurality vote of the outstanding
shares of Common Stock present and entitled to vote at the meeting. Directors
currently are not paid any fees for attendance at meetings of The Board of
Directors.
The nominees have indicated that they are willing and able to serve as directors
if elected. If the nominees should become unable or unwilling to serve, it is
the intention of the persons designated as proxies to vote instead, at their
discretion, for such other person(s) as may be designated as nominee(s) by the
Management of the Company.
The following is information with respect to the nominees and their security
holdings as furnished by them to the Company.
<TABLE>
<CAPTION>
COMMON STOCK PERCENT OF
NAME, PRINCIPAL BENEFICIALLY OWNED COMMON STOCK
OCCUPATION & BUSINESS SERVED AS AS OF BENEFICIALLY
EXPERIENCE AGE DIRECTOR SINCE MAY 29, 1998 OWNED
- --------------------- --- -------------- ------------------ ------------
<S> <C> <C> <C> <C>
Roger R. Tuttle
Chief Executive 50 1986 3,327,000 (a) 44.20%
Officer and
Chairman of the
Board
James M. Sablic
Controller and 43 N/A (0) (0)
Director
Jeffrey L. Smith
Secretary and 42 1992 81,000 1.08%
Director
All officers and directors
as a group - 3 persons 3,408,000 45.27%
</TABLE>
(a) Includes 13,000 shares each, that Mr. Tuttle gifted to his two minor
children in December 1996; he retains guardianship and voting rights.
All Directors of the Company serve in such capacity until the next Annual
Meeting of the Company's stockholders following their election and until their
successors have been elected and qualify.
3
<PAGE> 6
(1) ROGER R. TUTTLE has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since August 1986. Mr. Tuttle
served as President of Great American Products from 1974 to September
1989, and resumed that position in December 1991.
(2) JAMES M. SABLIC has recently joined the Board of Directors in March
1998. Prior to joining Dyna Group, Mr. Sablic was a Plant Operations
Manager from 1995 to 1997 for Archer Daniels Midland Co. and from 1987
to 1994 he was a Plant Controller with Central Soya Company, Inc. in
Effingham, IL and Des Moines, IA respectively. Mr. Sablic has a
Bachelors of Science Degree in Accounting from Indiana University
(1981).
(3) JEFFREY L. SMITH has been employed with Great American Products since
1985. Mr. Smith has served as Vice President and General Manager of the
Company since October 1991. He has an Associates Degree from the
University of Arkansas (1978).
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table provides information as of May 29, 1998 for each person who
beneficially owned more than five percent (5%) of the Company's Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL SHARES OF COMMON STOCK
OWNERS BENEFICIALLY OWNED PERCENT OF COMMON STOCK
- ------------------------------ ---------------------- -----------------------
<S> <C> <C>
Roger R. Tuttle
1661 S. Seguin Avenue 3,327,000 44.20%
New Braunfels, TX 78130
</TABLE>
THE BOARD OF DIRECTORS AND ITS COMMITTEE
The Board of Directors held three meetings in 1997 and all directors attended
all of such meetings. The Board of Directors does not have an audit or
nominating committee. However, the Board does have a Compensation Committee
comprised of Mr. Tuttle and Mr. Smith. The Committee's duties are to review
executive compensation and make recommendations to the Board concerning
compensation level of officers. The Compensation Committee held one meeting in
1997.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes information concerning the compensation of the
Chief Executive Officer. No other officers are included in this table as their
respective aggregate compensations did not exceed $100,000.
4
<PAGE> 7
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME & PRINCIPAL
POSITION YEAR SALARY BONUS OTHER STOCK OPTIONS ALL OTHER
- ---------------- ------ -------- -------- ------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Roger R. Tuttle, 1997 $138,500 (0) $3,850 (0) N/A
CEO 1996 $141,000 (0) $3,850 (0) N/A
1995 $136,000 (0) $3,850 (0) N/A
</TABLE>
The Company does not presently have any stock option plans, or stock bonus
plans.
COMPENSATION PURSUANT TO PLAN
The Company has a Profit Sharing Plan and Trust for eligible employees.
Employees of the Company who have completed one year of service are eligible to
participate in the Plan under which the Company contributes amounts determined
from time to time at its discretion. Company contributions vest in specified
percentages per year commencing after 2 years and generally become fully vested
after six years of employment with the Company. The annual contributions and
forfeitures allotted to any participant may not exceed the lesser of $30,000 or
25% of the participant's total compensation. Benefits generally are payable upon
death or upon termination of employment with the Company or age 65.
Participants' account balances under the Trust as of the year ended December 31,
1997 for Mr. Tuttle and for all executive officers as a group, were $147,255 and
$159,519 respectively.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a note payable to Mr. Tuttle which is summarized as follows:
Unsecured promissory note, due December 14, 1998, interest payable at
prime plus 1/2% (8.75% at December 31, 1998) $550,000 (1)
MISCELLANEOUS
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers and Directors, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and the
NASD. Officers, Directors and greater than 10% stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of such reports furnished
to the Company, or written representations from the Company's Officers,
Directors and greater than 10% beneficial owners, during 1997 all section 16(a)
filing requirements applicable to its Officers, Directors and greater than 10%
beneficial owners were complied with.
5
<PAGE> 8
AUDITORS
The Board of Directors selected BDO Seidman, LLP to serve as its Independent
Auditors for the year ended December 31, 1997.
A copy of the Company's Annual Report for the year ended December 31, 1997 is
included with this Proxy Statement.
STOCKHOLDER PROPOSALS FOR NEXT YEAR
Any stockholder desiring to submit any proposal for consideration at the
Company's Annual Meeting of Stockholders for the fiscal year ending December 31,
1998 must deliver such proposal to the Company's New Braunfels, Texas office no
later than January 31, 1999.
OTHER BUSINESS
The Board of Directors knows of no business that will come before the meeting
for action except as described in the accompanying Notice of Meeting. However,
as to any such business, the person(s) designated as proxies will have
discretionary authority to act in their best judgment.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K is available without charge
by writing to:
INVESTOR RELATIONS
DYNA GROUP INTERNATIONAL, INC.
1661 S. SEGUIN AVENUE
NEW BRAUNFELS, TX 78130
By order of the Board of Directors
/s/ JEFFREY L. SMITH
New Braunfels, Texas Jeffrey L. Smith
June 15, 1998 Secretary
6
<PAGE> 9
DYNA GROUP INTERNATIONAL, INC.
1997
ANNUAL REPORT
<PAGE> 10
Dear Shareholder,
Committed to improving production, generating higher long-term profit margins
and refocusing the efforts of our sales and marketing personnel, we have
successfully completed our relocation from Broadview, Illinois to New Braunfels,
Texas.
Now located about a half-hour drive north from San Antonio and 45 miles to the
south of the capital city of Austin, we are accessible by Interstate 35 and two
international airports. The move also allows us to be in a more favorable
geographic position with our joint-venture partnership in Mexico, where their
improved production techniques will add up to more timely and expedient
deliveries of products to our New Braunfels plant.
Moving a company's facility and uprooting the lives of personnel is a difficult
and expensive proposition. The actual price tag for positioning ourselves for a
greater tomorrow can be seen in the decline in revenues from $10,891,187 in 1996
to $9,279,743 in 1997 and a loss of $706,241, or .09 per share.
During the costly transition, payroll increased, with terminated personnel
eligible for severance benefits and resigning personnel meant additional
expenditures for recruiting and training of new employees. This duplicated
payroll took its toll on the bottom line and the cost of living benefits in
south central Texas were not immediately reflected. In addition, freight costs
and relocation assistance for employees, and installation of new systems were
all profit-draining expenditures.
Our auditors have determined that all of the dollar benefit on our ending
inventory from our lower cost of manufacturing is in fact a reduction of the
value of this inventory. This unrealized gain should be recognized in the form
of increased gross profit margins on sales in 1998. Interest expense remained
comparable to the previous year, due to high inventory levels in the second half
of the year. An additional reduction of $800,000 is forecast for 1998, which
should substantially reduce our bank debt and interest expense.
We also weathered through the financial burden of retaining the expenses on the
Broadview plant during 1997, which I'm happy to report was just sold, and thus
will reduce our occupancy expenses from nearly a third a million dollars to
$125,000. Operating both plants subjected us to an additional quarter of a
million dollars of expenses.
We have made a pro-active decision to eliminate short-term costly business that
is unprofitable, in exchange for long-term focused growth. We will be
discontinuing business in market areas where our products were salable, but
profit margins were low. We have come to recognize that these types of projects
only interfered with the long-term focus toward cultivating relationships with
more profitable customers.
Our new sales focus is to maximize on what we do well and generate orders with
the greatest potential for long-term relationships and profitability. Days of
taking on low-quantity custom orders that are expensive in labor and production
and ancillary costs are no longer acceptable.
We will reduce the build-up that was bogging down production lines and new
product development will be directed exclusively toward our growth markets.
While the new focus is motivating to our new personnel who have come on board,
sales did have to weather an unexpected hurdle that was created by a product
failure which reduced sales by $400,000. The problem has been resolved by
changing the product used and we have instituted legal action against the
product manufacturer.
New on the sales agenda for 1998 is NASCAR. After spending the greater part of
1997 signing up ten of the top drivers and initiating relationships with
concessionaires, retailers and catalogs, we've moved forward with the roll-out
of a signature design series.
2
<PAGE> 11
Added to the drivers signature series is the rights we have secured to the
NASCAR 50th anniversary logo. We have increased all areas of distribution.
Reported sell-through's have been excellent in all NASCAR markets and it gives
us a seasonal balance with opening race dates in mid-February, helping to
enhance a traditional slow first quarter of sales.
No longer centered around the Southeast United States, NASCAR is the fastest
growing spectator sport and will become a significant percentage of our total
business, as driver agents look for an upscale alternative to the trinkets of
hard goods that have dominated the market in years past. Headliners like
perennial champions Dale Earnhardt, Jeff Gordon, Rusty Wallace, Bill Elliot and
six other top drivers are the signatures for our NASCAR designs.
The NASCAR excitement however, will not come at the expense of losing focus on
our primary big four pro league licensees; NFL, NBA, MLB, NHL and 70 colleges
and universities.
With the new license demands, as well as our existing league partnerships, you
can look for an increased production out of our Mexico facility which is good
news for all. The quality level has increased greatly with experience and
increased production from this facility will add up to higher profits and a
greater return on investment. Lower costs have also allowed us to get very
aggressive in our pricing, which will allow us to generate business in
previously uncharted waters and will provide a route to compete with offshore
producers.
Again, the move will pay dividends here, because no longer does the product take
weeks to get to our New Braunfels facility, but we are now receiving weekly
deliveries of products from Mexico. It's allowed us to reduce shipping time from
three weeks to a few days and we're doing it without sacrificing quality,
craftsmanship or artistry in any way.
Getting products to the stores quicker enhances our chance for increased sales
and prompts the critical re-order from a satisfied retailer.
Our lower manufacturing cost will allow us to compete with offshore producers
but we also meet the needs of the retailers seeking the "made in America" stamp,
our "just in time" facility in Texas can meet those needs with efficiency and
superior quality.
Critical to our retailers is also customer service, which has been re-focused
and thus more responsive to the needs of retailers. Their insight and constant
dialogue with production and shipping will further enhance our credibility and
improve the overall salability of the products we make.
Moving the company, which really called for a rebuilding of core personnel, was
costly, but in reality it was necessary. It gave us the opportunity to
re-evaluate existing procedure, operations, systems and staff. We have improved
all facets.
Our challenge for 1998 is to grow our business in NASCAR, licensed sports
merchandise and large private label accounts to offset the lost revenues from
the less profitable gift, floral and small custom accounts of years past. Our
costs and overhead are reduced and due to our increased Mexico production our
margins will be on the rise.
BOTTOM LINE FORECAST: A RETURN TO PROFITABILITY AND THE FIRST STEP TO REALIZING
OUR FULL POTENTIAL.
Sincerely yours,
/s/ ROGER R. TUTTLE
Roger Tuttle
President/CEO
3
<PAGE> 12
SELECTED FINANCIAL DATA
The following table represents consolidated financial data of continuing
operations for the Company for the five years ended December 31, 1997:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 9,280 $10,891 $10,045 $10,025 $10,703
Income (loss) from
continuing operations (706) 31 204 564 359
Income (loss) from
continuing operations (.09) -- .03 .08 .05
Per common share
Total assets at end of year 6,976 8,664 7,764 6,040 5,961
Long-term debt, less current
maturities, at end of year -- 696 686 835 923
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Set forth below is a discussion and analysis of the financial condition and
operating results of the Company's operations. This discussion should be read
in conjunction with the accompanying consolidated financial statements and
notes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position has a current ratio in 1997 of 1.4 to 1,
compared to a current ratio of 1.5 to 1 in 1996. Net cash decreased by $121,103
in 1997.
Operating activities provided an increase of cash of $763,401. This increase in
cash was primarily the result of a decrease of $1,100,636 in inventory and a
decrease in accounts receivable of $844,930. The decrease in inventory was
attributable to tighter controls on raw material purchases and the elimination
of unprofitable product lines. The decrease in accounts receivable was
attributable to tighter restrictions on the use of extended payment terms to
customers and improved collection efforts. These increases in cash were
partially offset by the net loss generated by the Company and a decrease in
accounts payable of $337,203 and amounts due to the joint venture of $385,261
which were the result of lower inventory levels at December 31, 1997.
During 1997, investing activities used $320,201 which is primarily new dies and
molds capitalization for the year.
During 1997, financing activities resulted in a use of cash of $564,303,
primarily due to a decrease in long-term debt of $52,141 and a decrease in
short-term borrowing of $522,000.
At December 31, 1997, the Company had a bank revolving line of credit, allowing
the Company to borrow up to $3,750,000 against qualified receivables and
inventory. At that date the Company had approximately $1,000,000 available to
borrow. This line of credit was converted to a new line of credit of $4,000,000
on April 3, 1998.
4
<PAGE> 13
As of December 31, 1997 there are no material commitments for future capital
expenditures, and management does not feel there will be any major expenditures
in the foreseeable future. It is management's belief that the Company's present
credit facilities will be adequate to meet its current and future needs, as the
Company has successfully instituted programs to reduce inventory from past
levels via sales and reduced inventory levels and to reduce accounts receivable
with more intensive collection efforts.
YEAR 2000 PLANS
In anticipation of the year 2000, management has developed a plan to review
software that was internally developed or externally purchased or licensed, and
also to review, with its key vendors and service providers of software, for
compliance with Year 2000 processing requirements. In accordance with Emerging
Issues Task Force Opinion No. 96-14, "Accounting for the Costs Associated with
Modifying Computer Software for the Year 2000," the Company will expense all
costs as incurred. The Company does not believe that such costs will have a
material impact on the financial results of the Company.
RESULTS OF OPERATIONS
1997 VERSUS 1996
Net sales for the year ended December 31, 1997 decreased by $1,611,444 or 14.8%
as compared to 1996. 1997 foreign sales decreased from the 1996 level by
$256,000. This decrease is due in large part to the overall strength of the
U.S. dollar. At the end of 1997 our key foreign accounts have shown a renewed
interest in our products and we expect a return to 1996 levels in 1998. The
domestic sales decreases are basically attributed to the move of our operations
from Illinois to Texas and the loss or several large local based accounts in
Illinois. As we develop new relationships in the growing Texas market our sales
should begin to show a steady increase.
Gross profit margin as a percent of sales declined from 41% of sales in 1996 to
33% of sales in 1997. There are two major reasons for this decline. First, a
number of unprofitable product lines were closed out during the year. The
elimination of these products also resulted in our lower year end inventory
balances. Secondly, the duplications of our manufacturing staff and related
inefficiencies created by moving the domestic production from our Illinois
facility to Texas had a material impact on our total production costs reflected
in cost of sales.
Selling, general, and administrative expenses as a percent of sales increased
from 38% in 1996 to 40% in 1997. The primary reason for this percentage
increase relates to the overall decrease in sales dollars of $1,611,444.
However, in total, these expenses are $431,000 less than 1996. The substantial
decrease in selling, general, and administrative expenses is primarily due to
three areas; a reduction in sales staff, lower bad debt expense, and lower
shipping material expenditures.
Interest expense increased by $24,026 in 1997 when compared to 1996. This is
primarily due to an increase in our credit line borrowings for carrying
slightly higher inventories on average during the last six months of 1997 when
compared to 1996.
For 1997 the Company's net loss was $706,241 as compared to a net income of
$31,487 in 1996. This decline in earnings was primarily due to the decrease in
gross profit margin of $1,377,566. This
5
<PAGE> 14
significant decrease in margin was partially offset by the lower selling,
general and administrative expenses of $431,059 and the income tax benefit of
$220,576.
In 1997, the total cost of relocating the Company from Illinois includes a one
time charge of approximately $400,000. These costs are for the labor and
freight involved with removing and transporting inventory and equipment,
severance pay, the termination of the union agreement, duplicate payroll costs,
and the moving expenses of key personnel. Also, the additional fixed costs of
maintaining both facilities was in excess of $250,000 in 1997. These fixed
costs will be substantially less in 1998, with the sale of the facility in
Illinois. This sale was completed on May 1, 1998.
1996 VERSUS 1995
Net sales for the year ended December 31, 1996 increased by $846,420 or 8.4% as
compared to 1995. Foreign sales in 1996 declined from the 1995 level by
$19,000, as a result of decreasing sales of belt buckles in these markets.
Domestic sales increased from 1995 levels by $865,000 as a result of some new
large retail customers as well as increased sales to a major customer.
Gross profit margin as a percent of sales declined from 47% of sales in 1995 to
41% of sales in 1996. This change was primarily attributed to a substantial
reduction in the Company's year end physical inventory value as compared to
perpetual inventory records. Also contributing to this decline was an overall
increase in the cost of goods sold without a corresponding price increase to
customers.
Throughout the year the Company estimated its gross profit margin based on
previous historical margins. During 1996 there were unanticipated
inefficiencies incurred as the Company began outsourcing more of its production
to its Mexican joint venture which resulted in a decline in gross profit. The
Company began the process of relocating its production and distribution
facility to New Braunfels, Texas in 1996.
Selling, general and administrative expenses as a percent of sales decreased
from 41% in 1995 to 38% in 1996. This decrease was largely due to the fixed
nature of these costs which were virtually unchanged in total between the two
years, but declined as a percentage because of the sales increase. The
composition of these costs did change with increased selling costs being offset
by decreases in administrative costs.
Interest expense increased $65,023 over 1995 due to higher short term borrowing
levels prompted by higher average accounts receivable and inventory levels
throughout the year.
The Company is a partner in a joint venture in Mexico for the casting and
painting of its products. In 1995 the Company's ownership interest was 45% and
its share of joint venture earnings was $14,331. In 1996 the Company's ownership
interest declined to 40% and its share of joint venture earnings was $60,731.
For 1996 the Company's net income declined to $31,487 as compared to 1995's net
income of $204,325. The decline in earnings was primarily due to the decrease
in gross profit margins and the increase in interest expense.
6
<PAGE> 15
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock trades on the NASDAQ Small-Cap Market under the
symbol DGIX. The following table sets forth for the periods indicated the high
and low bid quotations for the Company's Common Stock. The quotations represent
prices in the over-the-counter market between dealers in securities, do not
include retail markup, markdown, or commissions. Prices were determined based
on actual transactions.
<TABLE>
<CAPTION>
YEAR QUARTER HIGH BID LOW BID
- ---- ------------ ------------ -------
<S> <C> <C> <C>
1997 Fourth (4th) $ 19/32 $ 11/32
Third (3rd) 13/16 3/8
Second (2nd) 13/16 1/2
First (1st) 1-7/16 21/32
1996 Fourth (4th) 1-1/16 11/16
Third (3rd) 1-1/4 11/16
Second (2nd) 1-3/8 15/16
First (1st) 1-15/16 1
</TABLE>
Holders
- -------
Approximate number of holders
Title of Class of record as of March 1, 1998
- -------------- -----------------------------
Common stock, par value $.001 per share 371
DIVIDENDS
There have been no dividends paid on the Company's common stock since inception.
It is currently expected that any additional earnings the Company realizes would
be retained to finance growth.
7
<PAGE> 16
DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 217,858 $ 338,961
Accounts receivable, less allowance for doubtful accounts of
$92,000 in 1997 and 1996 2,043,885 2,888,815
Inventories 2,713,439 3,814,075
Prepaid expenses and other 74,419 126,451
Refundable income taxes 371,000 127,433
Deferred income taxes -- 53,963
Due from joint venture 296,872 --
Land & building held for resale--net 548,167 --
- --------------------------------------------------------------------------------------------------
6,265,640 7,349,698
- --------------------------------------------------------------------------------------------------
PROPERTY & EQUIPMENT--NET 510,859 525,366
- --------------------------------------------------------------------------------------------------
LAND & BUILDING HELD FOR RESALE--NET -- 563,670
- --------------------------------------------------------------------------------------------------
OTHER ASSETS:
Cost in excess of net assets of acquired business,
Less accumulated amortization of $135,752 and
$120,843 -- 14,909
Investment in joint venture 94,906 94,906
Other 105,247 115,444
- --------------------------------------------------------------------------------------------------
200,153 225,259
- --------------------------------------------------------------------------------------------------
$6,976,652 $8,663,993
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 17
DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY DECEMBER 31,
1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to bank $2,747,142 $3,469,142
Notes payable to related party 550,000 350,000
Accounts payable 463,010 800,213
Accrued expenses 293,493 284,698
Due to joint venture -- 88,389
Current maturities of long-term debt 693,688 50,004
- -------------------------------------------------------------------------------------------------------
4,747,337 5,042,446
- -------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities -- 695,829
- -------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock $.001 par value--authorized, 100,000 shares;
Issued 8,179,704 8,180 8,180
Additional paid in capital 974,313 967,113
Retained earnings 1,388,706 2,094,947
Treasury stock--681,779 and 696,779 shares, at cost (131,084) (140,084)
- -------------------------------------------------------------------------------------------------------
Unearned compensation (10,800) (4,438)
- -------------------------------------------------------------------------------------------------------
2,229,315 2,925,718
- -------------------------------------------------------------------------------------------------------
$6,976,652 $8,663,993
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 18
DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 9,279,743 $10,891,187
COST OF SALES 6,208,374 6,442,252
- ----------------------------------------------------------------------------------
Gross Profit 3,071,369 4,448,935
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 3,700,761 4,131,820
- ----------------------------------------------------------------------------------
Operating (loss) income -- 88,389
INTEREST EXPENSE (333,915) (309,869)
EQUITY IN EARNINGS OF JOINT VENTURE -- 60,731
- ----------------------------------------------------------------------------------
(Loss) Income from operations before income
taxes (benefit) (963,307) 67,977
INCOME TAX (BENEFIT) EXPENSE (257,066) 36,490
- ----------------------------------------------------------------------------------
NET (LOSS) INCOME $ (706,241) $ 31,487
==================================================================================
NET (LOSS) INCOME:
PER COMMON SHARE--Basic $ (.09) --
PER COMMON SHARES--Assuming dilution $ (.09) --
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 7,500,425 7,478,822
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 19
DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY UNEARNED
STOCK CAPITAL EARNINGS STOCK COMPENSATION TOTAL
----- ------- -------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY
1, 1996 $8,180 $950,687 $2,063,460 $(143,657) $(20,406) $2,858,264
Issuance of
Treasury stock -- 16,426 -- 3,573 -- 19,999
Amortization -- -- -- -- 15,968 15,968
Net income -- -- 31,487 -- -- 31,487
=============================================================================================================================
BALANCE AT DECEMBER
31,1996 $8,180 $967,113 $2,094,947 $(140,084) $ (4,438) $2,925,718
Issuance of
Treasury stock -- 7,200 -- 9,000 (16,200) --
Amortization -- -- -- -- 9,838 9,838
Net (loss) -- -- (706,241) -- -- (706,241)
=============================================================================================================================
BALANCE AT DECEMBER
31,1997 $8,180 $974,313 $1,388,706 $(131,084) $(10,800) $2,229,315
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
SHARE AMOUNTS ISSUED TREASURY
- ------------- ------ --------
<S> <C> <C>
Balance at December 31, 1995 8,179,704 714,557
Shares issued for license agreement -- (17,778)
- -==========================================================================
Balance at December 31, 1996 8,179,704 696,779
Shares issues as compensation -- (15,000)
===========================================================================
Balance at December 31, 1997 8,179,704 681,779
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE> 20
DYNA GROUP INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING YEAR ENDED DECEMBER 31,
ACTIVITIES: 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net (loss) income $ (706,241) $ 31,487
Adjustments to reconcile net (loss) income to cash provided by
(used in) operating activities -
Depreciation and amortization 350,211 434,591
Deferred income taxes 75,973 7,409
Other 3,096 (35,726)
Change in assets and liabilities:
Accounts receivable (net) 844,930 (483,776)
Inventories 1,100,636 (146,880)
Prepaid expenses and other 52,032 11,815
Accounts payable (337,203) 158,187
Accrued expenses 8,795 (173,725)
Refundable income taxes (243,567) (94,124)
Due to (from) joint venture (385,261) 23,464
- --------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 763,401 (267,278)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------------
Capital expenditures (320,201) (366,394)
Distribution from joint venture -- 35,646
Cash used in investing activities 763,401 (267,278)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (52,141) (840,130)
Increase (decrease) in notes payable (522,000) 854,142
Proceeds from long-term debt -- 750,000
Amortization of unearned compensation 9,838 15,968
- --------------------------------------------------------------------------------------------------------------
Cash (used in) provided by financing activities (564,303) 779,980
- --------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH (121,103) 181,954
CASH, beginning of year 338,961 157,007
- --------------------------------------------------------------------------------------------------------------
CASH, end of year $ 217,858 $ 338,961
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 21
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF Year ended December 31,
CASH FLOW INFORMATION 1997 1996
<S> <C> <C>
Cash paid during the period for:
Interest $312,550 $279,066
Income taxes -- 284,738
</TABLE>
NON-CASH INVESTING AND FINANCIAL ACTIVITIES
(SEE NOTE 11)
See accompanying notes to consolidated financial statements.
---------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Dyna Group International, Inc. (the "Company") is a Nevada corporation and
conducts all its business through its wholly owned subsidiary, Great American
Products, Inc.
The Company designs, manufactures, and markets lines of consumer products, as
well as products for industry used as advertising specialties and premiums,
utilizing pewter and white metal alloys centrifugally cast in rubber molds.
These products include belt buckles, model miniatures, key chains, picture
frames, and pewter decorated products.
In August, 1994, the Company entered into a joint venture agreement with
Mexican individuals for the manufacturing and painting of a substantial portion
of its products.
In January, 1995, the Company leased a manufacturing/warehousing facility in
Columbia, Missouri for the assembly and shipping of its glassware and ceramic
products. This lease was terminated as of December 31, 1996.
In January, 1997, the Company leased a manufacturing/warehousing facility in
New Braunfels, Texas, to replace its Columbia, Missouri facility. During 1997
the Company moved its corporate offices and plant operations from Broadview, IL
to the Texas facility.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Dyna Group
International Inc. and its wholly-owned subsidiary ("the Company"). All
significant intercompany balances and transactions are eliminated in
consolidation.
13
<PAGE> 22
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method.
REVENUE RECOGNITION
The Company recognizes revenue as products are shipped.
PROPERTY, EQUIPMENT, AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets using both straight-line and accelerated
methods. Depreciable lives of major classes of property and equipment are
summarized as follows:
YEARS
Building 31.5
Building improvements 3-7
Machinery, equipment and furnishings 5-7
Transportation equipment 5
Molds and dies 3
In 1996, The Company adopted SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of, which requires
losses to be recorded on long-lived assets used in operations or are expected
to be disposed of, when indicators of impairment are present and the
undisclosed cash flows estimated to be generated by those assets are less than
carrying value of the assets. There were no impairment losses recorded in
fiscal 1997 or 1996 as the result of adopting SFAS 121.
COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESS
Cost in excess of net assets of acquired business is being amortized on a
straight-line basis over five years ending in fiscal year 1997.
INVESTMENT IN JOINT VENTURE
The Company's investment in the joint venture is being accounted for using the
equity method of accounting. For the year ended December 31, 1997, the joint
venture produced exclusively for the Company. Accordingly, the Company's
pro-rata share of the profits during 1997 generated from the joint venture was
reflected in the accompanying financial statements as a reduction to the
inventory value. All of the Company's earnings in the joint venture were
recorded by this method, because a significant portion of the inventory
produced by the joint venture during 1997 was in the Company's ending
inventory.
EARNINGS (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS
128 is effective for the year ended December 31,1997. SFAS 128 simplifies the
standards required under current accounting rules for computing earnings per
share and replaces the presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic earnings per share
("basic EPS") and diluted earnings per share ("diluted EPS"). Following is a
summary of the basic and diluted earnings per share calculations:
14
<PAGE> 23
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
<S> <C> <C>
BASIC AND DILUTED
Net income (loss) as reported $ (706,241) $ 31,487
Weighted average common shares outstanding 7,500,425 7,478,822
Basic and diluted earnings per share (.09) --
</TABLE>
When compared to prior years the impact of FAS 128 had no effect on the earnings
per share calculation.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentration
of credit risk, consist principally of cash and cash equivalents and accounts
receivable. The company places its cash and cash equivalents with high credit
quality financial institutions. At times such investments may be uninsured or
in excess of FDIC insurance limits.
FINANCIAL INSTRUMENTS
The Company follows the guidance of Statement of Financial Accounting Standards
No. 107, "Disclosure of Fair Value of Financial Instruments," which requires
the disclosures of the fair value of the Company. Some of the information used
to determine fair value is subjective and judgmental in nature; therefore, fair
value estimates, especially for marketable securities may vary. The amounts
actually realized or paid upon settlement or maturity could be significantly
different.
Unless quoted market price indicates otherwise, the fair values of cash and
cash equivalents and short-term investments generally approximate market value
because of the short maturity of these instruments. The Company's notes payable
and capital lease obligations also approximate market value as the underlying
borrowing rates are similar to other financial instruments with similar
maturities and terms.
REPORTING COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.
ESTIMATES
The accompanying financial statements include estimated amounts and disclosures
based on management's assumptions about future events. Actual results may
differ from these estimates.
INCOME TAXES
The provision for income taxes include federal and state income taxes currently
payable and those deferred because of temporary differences between the
financial statement and tax basis of assets and liabilities.
15
<PAGE> 24
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
<TABLE>
<CAPTION>
NOTE 2--INVENTORIES
DECEMBER 31,
Inventories consist of the following: 1997 1996
<S> <C> <C>
Raw materials $ 609,757 $ 619,755
Work in progress 252,156 378,698
Finished goods 1,851,526 2,815,622
------------------------------------------------------------------------------
$2,713,439 $3,814,075
==============================================================================
NOTE 3--PROPERTY & EQUIPMENT
DECEMBER 31,
1997 1996
Property & equipment consist of the following:
Building improvements $ 188,802 $ 117,970
Machinery, equipment, and furnishings 724,770 724,770
Molds and dies 2,260,982 2,011,613
-------------------------------------------------------------------------------
3,174,554 2,854,353
Less accumulated depreciation 2,663,695 2,328,987
-------------------------------------------------------------------------------
$ 510,859 $ 525,366
===============================================================================
</TABLE>
The Company has land and building with a net book value of $548,167 which has
been sold effective May 1, 1998, accordingly this land and building was held
for resale and included in current assets as of December 31, 1997.
NOTE 4--NOTES PAYABLE TO BANK
In July 1997, the Company extended it's secured promissory note with the bank
to April 30,1998. The interest rate on this line is a blended rate tied to the
prime rate (approximately 9.00% as of December 31, 1997).
Effective April 3, 1998, the Company secured a new line of credit with another
bank with a maximum borrowing limit of $4,000,000. The interest rate on the new
line is prime plus 1.5% (approximately 10% as of April 5, 1998).
16
<PAGE> 25
NOTE 5--NOTE PAYABLE TO RELATED PARTY
In August 1997, the promissory note to the major stockholder was increased to
$550,000 and extended to December 31, 1998. (8.75% at December 31, 1997).
Interest expense for the years ended 1997 and 1996 was $38,912 and $31,762,
respectively, of such amounts $53,127 and $31,762 remained unpaid at December
31, 1997 and 1996.
NOTE 6--INCOME TAXES
<TABLE>
<CAPTION>
Provisions (benefits) for income taxes from continuing operations YEAR ENDED DECEMBER 31,
consist of the following: 1997 1996
<S> <C> <C>
Current:
Federal $(287,000) $24,719
State (46,039) 4,362
- ---------------------------------------------------------------------------------------------
(333,039) 29,081
Deferred 75,973 7,409
- ---------------------------------------------------------------------------------------------
$(257,066) $36,490
=============================================================================================
The components of the deferred tax assets (liabilities) are
as follows:
Allowance for doubtful accounts $ 35,000 $34,532
Accruals 36,000 (492)
Inventories 31,000 9,315
Contributions carryforward 80,000 (7,365)
Other -- 17,973
- ---------------------------------------------------------------------------------------------
Gross deferred tax asset 182,000 53,963
Valuation Allowance (182,000) --
- ---------------------------------------------------------------------------------------------
Net deferred tax assets $ -- $53,963
=============================================================================================
The Company has recorded a 100% valuation allowance for the year ended December 31, 1997 on
the deferred tax assets since it could not be determined if the asset was more likely than
not to be realized.
YEAR ENDED DECEMBER 31,
The effective tax rate on income from continuing operations was 1997 1996
different than the statutory federal income tax rate for the
following reasons.
Tax (benefit) at U.S. statutory rate $(262,135) $23,113
State income taxes, net of federal income tax benefit -- 1,745
Goodwill amortization 5,069 6,759
Other -- 4,873
- ---------------------------------------------------------------------------------------------
$(257,066) $36,490
=============================================================================================
</TABLE>
17
<PAGE> 26
<TABLE>
<CAPTION>
NOTE 7--ACCRUED EXPENSES
Accrued expenses consist of the following: YEAR ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
Salary, payroll taxes and other $ 115,515 $138,394
Interest 83,959 63,243
Real estate taxes 93,979 83,061
- ---------------------------------------------------------------------------------
$293,453 $284,698
=================================================================================
</TABLE>
NOTE 8--EMPLOYEE BENEFIT PLANS
The Company has a qualified profit sharing plan for eligible employees.
Contributions to the plan are determined on a discretionary basis by the Board
of Directors. Amounts charged to expense during 1997 and 1996 was $25,000 for
each year.
NOTE 9--LONG-TERM DEBT
The Company had long-term debt as of December 31, 1997 and 1996 totaling
$643,688 and $695,829, respectively. This debt bore interest at prime of 8.5%
plus 1/4% and was secured by the Company's facility in Broadview, IL which was
sold On May 1, 1998. All principal and interest was paid in full as of closing
of the sale.
NOTE 10--LEASE OBLIGATIONS
As of December 31, 1996, the Company terminated its operating facility in
Columbia, Missouri. This facility was replaced in January 1997 with another in
New Braunfels, Texas, which is leased from the major stockholder. That lease
expires in January, 2003. The Company also leases an automobile under a lease
expiring in 1998. Its computer equipment is leased from the major stockholder
on a month to month basis.
Future minimum non-cancelable lease payments under the above operating leases
are as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C>
Lease from major
stockholder $105,600 $121,200 $121,200 $121,200 $121,200
Other 2,200 -- --- --- --
- ----------------------------------------------------------------------------------------
TOTAL $107,800 $121,200 $121,200 $121,200 $121,200
========================================================================================
</TABLE>
Total rent expense relating to the lease with the major stockholder totaled
$72,000 in 1997.
18
<PAGE> 27
NOTE 11--STOCKHOLDERS' EQUITY
During 1994, the Company issued 84,000 shares of treasury stock to employees as
a bonus. In connection with this transaction, the Company recorded $35,438 in
unearned compensation which is being amortized over three years.
In the first quarter of 1995, the Company repurchased 64,000 shares of stock
for its treasury at a cost of $51,411.
In the second quarter of 1995, the Company issued 37,500 shares of treasury
stock to employees as a bonus. In connection with this transaction, the Company
recorded $14,063 in unearned compensation which is being amortized over three
years. Also, in the second quarter of 1995, the Company redeemed 4,000 shares
of restricted stock through forfeiture.
During the first quarter of 1996, the Company issued 17,778 shares of treasury
stock to obtain certain NFL licensing rights. In connection with this
transaction, the Company recorded $19,999 in prepaid licensing fees which are
being amortized over 36 months.
In the first quarter of 1997, the Company issued 45,000 shares of treasury
stock to employees as a bonus. In connection with this transaction, the Company
recorded $16,200 in unearned compensation which is being amortized over three
years.
NOTE 12--FOREIGN OPERATIONS & EXPORT SALES
<TABLE>
<CAPTION>
The Company markets its product both domestically and YEAR ENDED DECEMBER 31,
internationally from its United States facility in New Braunfels, Texas. 1997 1996
Export sales were as follows:
<S> <C> <C>
Europe $286,281 $384,386
Australia 94,697 106,663
Other 124,499 218,764
- -----------------------------------------------------------------------------------------------------
TOTAL $505,477 $709,813
=====================================================================================================
</TABLE>
The Company presently operates in one business segment, "Consumer Goods."
In August 1994, the Company entered into a Joint Venture agreement with Mexican
individuals for the casting, painting and marketing of its products. The
Company's ownership interest in the joint venture is 40% with 60% held by
Mexican individuals.
The investment is being accounted for using the equity method of accounting.
The Company's portion of the income generated from this joint venture was
reflected in the accompanying financial statements as a reduction of the cost
of inventory.
19
<PAGE> 28
<TABLE>
<CAPTION>
1997 1996
Financial information for this joint venture is as follows: UNAUDITED
<S> <C>
Current assets $ 362,692 $ 508,000
Non-current assets 44,507 45,000
Current liabilities 89,140 239,000
Stockholders' equity 318,059 314,000
Net sales 1,902,706 1,487,000
Gross margin 581,225 532,000
</TABLE>
For years ended 1997 and 1996, the Company purchased products from the joint
venture totaling $1,902,706 and $1,218,643 respectively.
For the year end December 31, 1997, the joint venture produced exclusively
inventory for the Company. Accordingly, the Company's pro-rata share of the
profits generated by the joint venture was recorded as a reduction to the
Company's inventory cost.
NOTE 13--MAJOR CUSTOMERS
The Company sells to over 5,000 customers. One accounted for 24% of sales in
1997, 25% of sales in 1996. This customer accounted for 30% and 33% of the
outstanding accounts receivable at December 31, 1997 and 1996, respectively.
NOTE 14--FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1997 the Company recorded an inventory adjustment
of approximately $400,000 to bring the inventory to lower of cost or market.
During the fourth quarter of 1996, the Company recorded a book to physical
inventory adjustment of approximately $500,000.
NOTE 15--SUBSEQUENT EVENT
On May 1, 1998 the Company sold the land and building located in Illinois. This
sale will result in a book gain in excess of $200,000 for 1998.
20
<PAGE> 29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors Of Dyna Group International, Inc.
We have audited the accompanying consolidated balance sheets of Dyna Group
International, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dyna Group
International, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years then
ended in conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP, Houston, Texas
April 2, 1998, except for Note 15, which is as of May 1, 1998.
==============================================================
Corporate Information
SUBSIDIARY--
Great American Products, New Braunfels, Texas, Jeffrey L. Smith--Executive Vice
President & General Manager
EMPLOYEES AND SHAREHOLDERS--
Dyna Group has 100 employees and 371 common shareholders of record.
INDEPENDENT AUDITORS--
BDO Seidman, LLP - Houston, TX
SHAREHOLDER ASSISTANCE--
The annual meeting of the shareholders will be held on July 15, 1998 at 10:00
am CDST at: Great American Products, 1661 South Sequin (Fm 725), New Braunfels,
TX 78130. All shareholders are cordially invited to attend. A copy of the 1997
Form 10-KSB our Annual Report to the Securities and Exchange Commission,
including the financial statements is available to any stockholder at no charge
upon written request to: Investor Relations, Dyna Group International, Inc.,
1661 South Seguin, New Braunfels, TX 78130.
TRANSFER AGENT--
For change of address, lost stock certificates and related matters, please
direct inquires to: Pacific Stock Exchange, 3690 South Eastern Ave., Suite 218,
Las Vegas, Nevada 89109
COMMON STOCK LISTING--
Dyna Group International's Common Stock is traded on the Nasdaq Small Cap
Market under the symbol DGIX.
21
<PAGE> 30
DYNA GROUP INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING JULY 15,1998, NEW BRAUNFELS, TEXAS
The undersigned hereby appoints Roger R. Tuttle, James M. Sablic and
Jeffrey L. Smith and each or any of them, proxies for the undersigned, with
full power of substitution, to represent and vote the shares of the undersigned
at the Annual Meeting of Stockholders of Dyna Group International, Inc. to be
held at the Company's Office, in New Braunfels, Texas on July 15, 1998, or any
adjournments thereof, on the following matters:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL (1)
(1) Election of Directors (Roger R. Tuttle, James M. Sablic and
Jeffrey L. Smith)
Mark One. [ ] FOR all nominees listed above.
[ ] FOR all nominees listed above except
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above
(2) In their discretion on such business as may properly come before the
meeting.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR THE NOMINEES LISTED IN PROPOSAL (1).
(Please Sign on Other Side)
<PAGE> 31
Date_____________________________________________
Please Sign______________________________________
_________________________________________________
Number of Shares__________________
Please date and sign exactly as on your Stock Certificate(s). Joint accounts
must be signed with all names.
Executors, administrators, trustees, etc. should so indicate.
(Proxy Card)
