UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended: September 30, 1999
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to _________
Commission file number: 0-17385
DYNA GROUP INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 87-0404753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1661 S. Sequin Ave., New Braunfels, Texas 78130
(Address of principal executive offices) (Zip Code)
830-620-4400
(Registrant's telephone number, including area code)
(1661 S. Seguin, New Braunfels. TX 78130)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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.
[ X ] Yes [ ] No
The number of shares outstanding of the registrant's common stock
as of September 30, 1999 was 8,179,704.
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DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
September 30, December 31,
1999 1998
(Unaudited)
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ (145,388) $ 12,481
Accounts receivable, less allowance
For doubtful accounts of $132,856 2,285,107 1,249,333
Inventories 2,391,990 2,311,124
Prepaid expenses and other 54,779 236,290
Refundable income taxes --- 14,671
Deferred tax assets 138,340 138,340
Due from joint venture (23,847) ---
--------- ---------
4,700,981 3,962,239
--------- ---------
PROPERTY AND EQUIPMENT
Net 305,505 408,093
--------- ---------
OTHER ASSETS:
Investment in joint venture 83,064 83,064
Other 172,870 59,502
--------- ---------
255,934 142,566
--------- ---------
$5,262,420 $4,512,898
========= =========
See accompanying notes.
</TABLE>
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<TABLE>
DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND
STOCKHOLDERS' EQUITY
September 30, December 31,
1999 1998
(Unaudited)
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Revolving line of credit $1,169,211 $ 771,339
Notes payable related party 491,158 512,304
Accounts payable 313,792 363,297
Accrued expenses 254,987 39,716
Current maturities of long-term debt --- 4,779
Income taxes payable 782 12,694
Due to joint venture --- 32,774
--------- ---------
Total current liabilities $2,229,930 $1,736,903
--------- ---------
Deferred income taxes 18,608 18,608
Long-term debt, less current maturities 8,130 8,130
--------- ---------
Total liabilities 2,256,668 1,763,641
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock $ .001 par value -
authorized, 100,000,000 shares;
issued 8,179,704 8,180 8,180
Capital in excess of par value 974,313 974,313
Retained earnings 2,169,050 1,912,555
Treasury stock _ 681,779 and 696,779
shares, at cost (135,761) (135,761)
Unearned compensation (10,030) (10,030)
--------- ---------
3,005,752 2,749,257
--------- ---------
$5,262,420 $4,512,898
========= =========
See accompanying notes.
</TABLE>
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<TABLE>
DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended September 30,
1999 1998
---------- ----------
<S> <C> <C>
NET SALES $ 2,848,549 $ 2,669,713
COST OF GOODS SOLD 1,716,818 1,466,679
---------- ----------
Gross profit 1,131,731 1,203,034
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 944,904 847,287
---------- ----------
Operating Income/(Loss) 186,827 355,747
INTEREST EXPENSE 39,832 87,403
GAIN ON SALE OF PROPERTY --- ---
---------- ----------
Income/(Loss) before income taxes 146,995 268,344
PROVISION(CREDIT) FOR INCOME TAXES 49,982 148,192
---------- ----------
NET INCOME/(LOSS) $ 97,013 $ 120,152
========== ==========
INCOME/(LOSS) PER COMMON SHARE $ .01 $ .02
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,497,925 7,497,925
See accompanying notes.
</TABLE>
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DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Nine Months Ended September 30,
1999 1998
---------- ----------
<S> <C> <C>
NET SALES $ 6,903,630 $ 6,342,275
COST OF GOODS SOLD 3,945,915 3,502,505
---------- ----------
Gross profit 2,957,715 2,839,770
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,567,709 2,380,044
---------- ----------
Operating Income/(Loss) 390,006 459,726
INTEREST EXPENSE 101,176 205,697
GAIN ON SALE OF PROPERTY --- 284,652
---------- ----------
Income/(Loss) before income taxes 288,830 538,681
PROVISION(CREDIT) FOR INCOME TAXES 97,603 176,030
---------- ----------
NET INCOME/(LOSS) $ 191,227 $ 362,651
INCOME/(LOSS) PER COMMON SHARE $ .03 $ .05
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,497,925 7,497,925
See accompanying notes
</TABLE>
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<TABLE>
DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $ 191,227 $ 362,651
Adjustments to reconcile income to net
cash used by operating activities -
Depreciation and amortization 238,681 198,212
Provision for losses on accounts receivable 30,856 27,241
Amortization of unearned compensation --- ---
Change in assets and liabilities:
Increase in accounts receivable (1,066,630) (219,643)
Increase in inventories (80,846) 565,364
Decrease in prepaid expenses and other 35,838 50,580
Increase in accounts payable 36,551 90,931
Increase in accrued expenses 119,066 53,547
Decrease in due to joint venture 8,947 (133,911)
Decrease (increase) in other assets 46,976 439,745
---------- ----------
Cash provided (used) by operating activities (630,561) 1,072,066
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditure (88,690) (80,000)
Sale of land & building --- 117,000
---------- ----------
Cash used by investing activities (88,690) 37,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (6,571) (684,113)
Increase (decrease) in notes payable 376,726 (1,060,561)
Issue treasury stock --- 3,800
---------- ----------
Cash provided (used) by financing activities 370,155 (1,740,874)
DECREASE IN CASH (157,869) (232,157)
---------- ----------
CASH, beginning of period 12,481 217,858
---------- ----------
CASH, end of period $ (145,388) $ (14,299)
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for _
Interest $ 70,537 $ 154,575
Income Taxes 25,500 88,710
See accompanying notes
</TABLE>
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DYNA GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - FINANCIAL INFORMATION
The consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principals have been condensed or omitted
pursuant to or as permitted by such rules and regulations, although the
Company believes that the disclosures are adequate to make the
information presented not misleading. These financial statements should
be read in conjunction with the consolidated financial statements and
footnotes thereto contained in the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1998.
The financial information included herein at September 30, 1999 and
for the nine months ended September 30, 1999 and September 30, 1998 is
unaudited and, in the opinion of the Company, reflects all adjustments
(which includes only normal recurring adjustments) necessary for the
fair presentation of financial position as of that date and the results
of operations for those periods. The information in the consolidated
balance sheet as of December 31, 1998 was derived from the Company's
audited financial statements for 1998.
NOTE 2 - INVENTORIES
Inventories consist of the following:
September 30, 1999 December 31, 1998
---------- ----------
Raw materials $ 134,820 $ 557,914
Work in process --- 64,723
Finished goods 2,257,170 1,688,487
---------- ----------
$ 2,391,990 $ 2,311,124
========== ==========
NOTE 3 - STOCKHOLDERS' EQUITY
During 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. During the 2ND Quarter of
1998 the Company purchased 27,778 shares at market price and issued
those shares to nine employees as a bonus.
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NOTE 4 - ADJUSTMENTS
During the fourth quarter of 1997 the Company recorded an inventory
adjustment of $400,000 and a loss of $706,241. The financial statements
for the quarter ended March 31,1997 have been restated to reflect the
impact of this adjustment on the first quarter's operating results.
For a further explanation of this adjustment, refer to Note 15 of the
Company's 10-KSB for the year ended December 31, 1997.
NOTE 5 - SUBSEQUENT EVENT
On May 1, 1998 the Company sold the land and building located in
Illinois. This sale resulted in a pre-tax gain of $288,000 for 1998.
As a result of this sale, the Company's long-term debt was reclassified
as short-term debt for December 31, 1997, and March 31, 1998
respectively. This land and building in Illinois was also reclassified
as a current asset for these reporting periods. All principal and
interest was paid in full at closing.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company's working capital ratio at September 30, 1999 decreased
to1.9 from to 2.3 at December 31, 1998. Cash in bank decreased by
$157,869 during the period.
For the third quarter ended September 30, 1999, operating activities
used cash flow of $630,561. Changes in assets and liabilities used
$900,098. The net increase related to assets and liabilities was
primarily due to significant increase of account receivables and
inventory.
During the third quarter of 1999, financing activities provided
$370,155 due to increase of accounts payable. Effective April 3,1998,
the Company secured a line of credit with a Texas bank with a maximum
borrowing limit of $4,000,000.
As of September 30, 1999, there are no material commitments for
future capital expenditures, and management does not anticipate any
major expenditure in the foreseeable future. It is management's belief
that the Company's present facilities will be adequate to meet its
current and future needs.
Results of Operations
Net sales for the quarter ended September 30, 1999 as compared to
the quarter ended September 30, 1998 increased $178,836 or 6.7%. This
increase in sales primarily relates to the sports market, and over-all
broadening of the customer base.
The gross margin percent decreased to 42.8% as compared to 44.8% in
1998. This was due to a price increase of raw materials during the
third quarter of 1999.
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The total selling, general and administrative expenses increased
7.9%, from $2,380,044 in 1998 to $2,567,709 in 1999. The increase in
costs is due to the sales mix, selling a greater percentage of licensed
products in which royalties are paid.
Interest expense decreased by $104,521 as a result of lower average
borrowing levels in 1999 when compared to last year, despite slightly
higher interest rate.
For the third quarter of 1999 the Company's pre-tax income was
$288,830 as compared to the income for 1998 of $538,681. The earnings
for 1998 include a $284,652 gain on the sale of the Broadview facility.
Therefore, operating earnings increased due to the lower cost of
production in Mexico, the elimination of expenses relating to the
Illinois operation, and lower interest expense.
Until May 1,1998 there were fixed costs involved in maintaining the
Broadview facility.
Change In Structure of Subsidiary
Effective September 23, 1999, Great American Products, Inc. (the
"Subsidiary"), a wholly-owned subsidiary of Dyna Group International,
Inc. (the "Company") converted from an Illinois corporation into a
limited partnership organized under the laws of the State of Texas. The
name of the Texas limited partnership after the conversion will be Great
American Products, Ltd. (the "Partnership.").
On the same date, the Company organized Dyna Group of Texas, LLC (the
"LLC"), a limited liability company organized under the Texas Limited
Liability Company Act. The sole initial member of the LLC will be the
Company.
The Partnership issued 1,000 partnership units, which consist of ten
(10) general partnership units issued to the LLC, and 990 limited
partnership units issued to the Company. For federal income taxes, the
Company intends for this transaction to be equivalent to that of a tax-
freeType F reorganization that has merely caused a change in name, place
of organization or form of operation. In this regard, the Company will
file the appropriate requests and elections to elect treatment as a Type
F reorganization. For state income and franchise taxes, the Company
intends to file all required final corporate tax returns in the states
of Illinois and Texas.
This transaction is deemed to be merely a change in form of operation
for the Subsidiary and does not have any effect on the form of operation
or ownership of the Company or its shareholders. Management believes
these changes will generate state tax savings in the current year and
future years.
<PAGE>
Y2K Compliance
The Company began analyzing its year 2000 (Y2K) readiness in March
of 1998. At that time, the Company estimated the cost not to exceed
$10,000 and expected to begin year 2000 changes in the third quarter of
1998.
The Company reached an out of court settlement with Executone to up
grade the telephone system for Y2K compliance at no charge and include a
5 year warranty at $2,000 per year, which is approximately half the
quoted price.
The Company is continually contacting its third party suppliers as
to their status of the year 2000 compliance. The Company is not aware
of any Y2K compliance problems with the joint venture. If needed the
Company could increase U.S. production in a timely manner.
All of the testing has been done through a normal course of business
activity, as it would appear in year 2000. Some equipment testing
required sending as well as receiving information.
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year.
Computer programs that have date-sensitive software may recognize a date
using "00" as the Year 1900 rather than the Year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to
process transactions, and invoices, or engage in similar normal business
activities.
On a recent assessment, the Company determined that it would be
required to modify or replace portions of its software so that its
computer systems will properly utilize dates beyond December 31, 1999.
The Company presently believes that with modifications to existing
software, conversions to new software, and modifications to the
telephone system, the Year 2000 issue can be mitigated. However, if
such modifications and conversions are not made, or are not completed
timely, the Year 2000 issue could have a material impact on the
operations of the Company.
The Company's total Year 2000 project costs are based on presently
available information. However, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not
have material adverse effects on the Company. The Company has
determined it has no exposure to contingencies related to the Year 2000
issue for products it has sold.
The Company will utilize both internal and external resources to
reprogram, or replace and test the software for Year 2000 modifications.
The Company completed the Year 2000 project, during the third quarter.
The cost of the Year 2000 project was $15,000 and was funded through
operating cash flows.
<PAGE>
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources,
third-party modification plans, and other factors. However, there can
be no guarantee these estimates will be achieved and actual results
could differ materially from those plans. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar
uncertainties.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNA GROUP INTERNATIONAL, INC.
(Registrant)
Date: November 15, 1999 /s/ Roger R. Tuttle
(Signature) Roger R.Tuttle,
Chairman of the Board and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> (145,388)
<SECURITIES> 0
<RECEIVABLES> 2,417,963
<ALLOWANCES> 132,856
<INVENTORY> 2,391,990
<CURRENT-ASSETS> 4,700,981
<PP&E> 2,906,944
<DEPRECIATION> 2,601,439
<TOTAL-ASSETS> 5,262,420
<CURRENT-LIABILITIES> 2,229,930
<BONDS> 0
0
0
<COMMON> 8,180
<OTHER-SE> 2,997,572
<TOTAL-LIABILITY-AND-EQUITY> 5,262,420
<SALES> 6,903,630
<TOTAL-REVENUES> 6,903,630
<CGS> 3,945,915
<TOTAL-COSTS> 3,945,915
<OTHER-EXPENSES> 2,567,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,176
<INCOME-PRETAX> 288,830
<INCOME-TAX> 97,603
<INCOME-CONTINUING> 191,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 191,227
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
