UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] Annual Report Pursuant to Section 13 or 15 (d) of the Securities
and Exchange Act of 1934.
For the fiscal year ended: December 31, 1998
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. (No fee required.)
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. Seguin Street New Braunfels, Texas 78130
(Address or principal executive offices) (zip code)
Registrant's telephone number, including area code: (830) 620-4400
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.001 par value per share
(Title of Class)
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.
Yes X No ________
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sect. 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-K (X).
The net sales for the year ended December 31, 1998 were $8,315,008.
The aggregate market value of the voting stock held by non-affiliated of
the registrant as of April 19, 1999 was $1,656,859.
The number of shares outstanding of the registrant's common stock as of
April 19, 1999 was 8,179,704.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
Part I
Item 1. Business
General
Dyna Group International, Inc. (the "Company") is a Nevada
corporation and conducts all of its business through its wholly owned
subsidiary, Great American Products, Inc. ("Great American"). The
Company was an inactive publicly held corporation (formerly Red Creek
Investments, Inc.) until August 22, 1986, when the Company acquired all
of the outstanding stock of Dyna Tour Corporation ("Dyna Tour") and
simultaneously changed its name to Dyna Group International, Inc. The
Company acquired Great American on December 15, 1986, XLM, Inc., ("XL")
on January 1, 1987 and Great American Marketing Services Corporation,
("American Marketing") on November 1, 1989.
In September 1989, the Company decided to discontinue the operations
of its Dyna Tour subsidiary. In September 1992, the Company decided to
discontinue the operations of its wholly owned subsidiary American
Marketing. In December 1992, the distributorship of the Company's wholly
owned subsidiary, XL, was discontinued, and in February 1993, XL
completed the sale of its tire inventory and backlog of orders to General
Tire, Inc. Great American Products remains the only operations of the
parent Dyna Group International, Inc.
In August 1994, the Company entered into a joint venture agreement
with Mexican individuals for the manufacturing of its products.
In January 1997, the Company leased a manufacturing/warehousing
facility in New Braunfels, Texas, to move its corporate offices and plant
operations from Broadview, IL to the Texas facility.
During 1998, the Company completed the move to Texas, sold the
Broadview, IL. facility and increased production in Mexico.
Financial projections for 1999 indicate that the Company will
increase revenues, increase gross profit margins and increase operating
profits. The Company does not expect any significant changes to occur in
its location, operations or marketing directions. The Company will
investigate acquisitions opportunities as they appear.
<PAGE>
Forward Looking Statements
This annual report for the year ended December 31, 1998 as well as
other public documents of the Company contains forward-looking statements
which involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievement of the
Company to be materially different from any future results, performance
or achievements expressed or implied by such forward looking statements.
Such statements include, without limitation, the Company's expectations
and estimates as to future financial performance, cash flows from
operations, capita; are urged to consider statements which use the terms
"believes", "intends," "expects," "plans," "estimates," "anticipated," or
"anticipates," to be uncertain and forward looking. IN addition to other
factors that may be discussed in the Company's following with the
Securities and Exchange Commission, including this report, the following
factors, among others could cause the Company's actual results to differ
materially.
Products and Sales
The Company designs, manufactures, and markets lines of consumer
products, as well as products for industry used as advertising
specialties and premiums, utilizing pewter centrifugally cast in rubber
molds. These products include belt buckles, model miniatures, key
chains, picture frames, as well as pewter decorated glassware, caps,
ceramic ware, pewter decorated wall and desk decor, and pewter enhanced
keepsake boxes. All of the Company's centrifugally cast products are
designed at the Company's New Braunfels, Texas facility. Most of the
manufacturing and painting of the cast products are performed in Mexico
with the remainder done in New Braunfels, Texas.
The Company's Great American subsidiary has obtained license
agreements with Nascar Drivers, the National Football Association, Major
League Baseball, the National Basketball Association, the National Hockey
League, World Wrestling, Jack Daniels and various Universities. The
Company is continuing its efforts to expand its license agreements in
other areas, as it is management's belief that licensed products will
enhance the Company's image and present new opportunities for market
expansion. As the license agreements must be periodically renewed it is
management's belief that future extensions will continue to allow the
Company to market licensed products, and management does not anticipate
any cancellations or non-renewals. The majority of the license
agreements have annual renewals. The remaining license agreements can
range from two years to automatic rollover renewals.
The business of the Company is affected by seasonal factors. The
Company does experienced an increase in inventory during the third
quarter of the year followed by an increase in accounts receivable during
the fourth quarter. Inventory levels at December 31, 1998 were reduced
by $402,315 when compared to December 31, 1997. Management believes
this is a reflection of better inventory controls. The raw materials
used in the manufacture of the Company's centrifugally cast products are
readily available from numerous sources.
<PAGE>
Extension of credit terms to its customers range from normal 30 days
terms to 180 days from the date of invoice. Management believes that
while these longer credit terms given to credit worthy customers do
result in extended collection periods, they also offer the Company an
effective sales tool.
Marketing and Distribution
As of December 31, 1998, the Company's sales force and related
support staff numbered 12 persons. The Company also utilizes
approximately 80 independent, commissioned sales representatives.
Products are sold through the Company's own sales force, including sales
made via telemarketing and direct sales, through independent commissioned
sales representatives, and through distributors. These products are also
produced for sales to the premium/advertising specialty industry, and are
also sold through independent commissioned sales representatives and
invoiced directly to ad specialty distributors or end users for purposes
of sales promotions and incentives.
Foreign operations and Export Sales
In August 1994, the Company entered into a joint venture agreement
with Mexican individuals for the production of its products. The
Company has experienced reduced production costs and expects to expand
sales to other Spanish speaking countries. The Company's ownership in
the joint venture is 40%, with 60% held by the Mexican individuals.
Accordingly, the Company's investment in the joint venture is being
accounted for using the equity method of accounting.
Major Customers
The Company has over 4,000 customers. One major customer accounted
for 24% of sales in 1997 and 20% in 1998.
Competition
Operations in the consumer goods industry involve the production and
sale of cast products, and pewter enhanced glassware. The Company
believes that it is a significant factor in the market for cast products
to Nascar and sports markets. It currently is not a significant factor
in the overall market for glassware. The Company competes in the
consumer goods industry primarily on the basis of quality workmanship and
competitive pricing. The Company also sells to the premium ad specialty
market, which is not a significant factor in the overall business.
Employees
The Company employs 75 full time people, of whom 20 are engaged in
sales and administration, 5 in creative design and 50 in manufacturing,
assembly, shipping, and warehousing.
<PAGE>
Equipment
The Company's New Braunfels, Texas, facility is equipped for
manufacturing, assembly, packaging, and shipping of centrifugally cast
pewter, consumer products and pewter enhanced glass and ceramic ware.
All of the Company's equipment is considered to be in good condition.
The Company's joint venture facility is equipped to cast and paint
its products.
Item 2. Property
The Company's executive office is located in a 40,000 square foot
facility leased from a major shareholder at 1661 S. Seguin, New
Braunfels, Texas 78130. The building is considered to be in excellent
condition.
The terms of this lease are summarized below.
<TABLE>
Approximate Area Lease Monthly
Type of Facility in Square Feet Expiration Rental
---------------- -------------- ---------- ------
<S> <C> <C> <C>
Manufact/Warehouse-Texas 40,000 01/01/03 $10,100
</TABLE>
In May of 1998 the Broadview, IL facility was sold.
Item 3. Legal Proceedings
The Company has filed a lawsuit with the courts of Comal County in
July 1998 against National Starch and its subsidiary Perma Bond for
losses realized as a result of the failure for its adhesive during June
through October of 1997. As of April 1999, both parties have agreed on
arbitration during the second quarter of 1999.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Market Information
The Company's Common Stock trades over the counter on the NASDAQ
bulletin board 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 and do not include retail markup,
markdown, or commissions.
<TABLE>
High Bid Low Bid
-------- -------
<S> <C> <C> <C>
1998 4th Quarter $12 1/2/32 $ 6 1/2/32
3rd Quarter 15/32 7/32
2nd Quarter 15/32 7/32
1st Quarter 13/32 9/32
1997 4th Quarter $ 19/32 $ 11/32
3rd Quarter 13/16 3/8
2nd Quarter 13/16 1/2
1st Quarter 1- 7/16 21/32
Holders
Approximate number of holders
Title of Class of record as of April 19, 1999
-------------- ------------------------------
Common Stock, par value $.001 per share 336
</TABLE>
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 will be retained to finance growth. Dividends are
restricted by the covenants stated in the Credit and Security Agreement
between the Company and Norwest Business Credit, Inc.
Item 6. 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.
<PAGE>
Liquidity and Capital Resources
The Company has a current ratio in 1998 of 2.2 to 1 compare to a
current ratio of 1.4 to 1 in 1997. Net cash decreased by $205,377 in
1998.
Operating activities provided $2,012,157 of cash in 1998, which
includes a $ 603,959 increase in net working capital. Net working
capital increased, as a result of large decrease in accounts receivable
and inventory, as well as a reduction in debt. The account receivable
decreases was due primarily to tighter restrictions on the use of
extended payment terms to customer and improved collection efforts on
current accounts, even though the accounts that are over 120 days past
due is of a significant amount. The inventory decrease is attributed to
tighter controls on raw material purchases and to the elimination of
unprofitable product lines. The Company had a reduction in its U.S.
labor force and shifted that manufacturing responsibility to Mexico in
the third quarter of 1998. This resulted in a lower cost of
manufacturing and a reduction of cost of the ending inventory
manufactured by Mexico.
Investing activities provided $ 577,329 primarily from the sale of
Broadview, Il. building, which was used to purchase additional assets in
amount of $ 290,193. Financing activities used $2,794,863, which
relates to the Notes Payable at the bank being paid off.
On April 3, 1998 the company entered into a banking relationship
with Norwest Bank, which provides a $4,000,000 line of credit, based upon
receivables and inventory. The borrowing base is calculated by taking
80% of eligible account receivables plus 55% of eligible inventory.
This credit line is subject to several affirmative and negative
covenants. The affirmative covenants include report requirements, books
and records inspection, account verification, compliance with laws,
payment of taxes and other claims, maintenance of properties, insurance,
preservation of existence, delivery of instruments, collateral account,
performance by the lender, minimum debt service coverage ratio, minimum
net losses, and proceeds from sale of real property. The negative
covenants include such topics as liens, indebtedness, guaranties,
investments and subsidiaries, dividends, and capital expenditures. As of
December 31, 1998 the outstanding loan balance was $771,339.
Results of Operations
1998 versus 1997
Net sales for the year ended December 31, 1998 decreased by $964,735
or 10.4 % as compared to 1997. The decrease was a result of several
factors. First the Company decided to reduce its marketing efforts to
the gift and ad specialty markets, which had been losing money. Sales
were also negatively impacted by the product failure of the Perma Bond
adhesive discussed in legal proceedings, which occurred in the third and
fourth quarters of 1997, and carried over into 1998. The loss of
revenues in these areas was offset by increases in revenues in NASCAR,
and other licensed products sales.
<PAGE>
Gross profit margins increased from 33.1% in 1997 to 44.1% in 1998
as a result of lower cost of goods produced by our Mexico joint venture
and a focus on higher profit margin products and markets. Reduction in
U.S. labor resulted in shifting production to Mexico in the last six
months.
Selling, general, and administration expenses decreased $561,321 or
15.2% as a direct result of the changes previously mentioned and our
prompt shipping, which reduce backorders and related customer service
costs.
Interest expense decreased $87,773 as a result of lower borrowing
levels throughout the year. Increased profitability, reduced inventory
and reduced account receivables have contributed to reducing the debt.
The joint venture plant produced an estimated 80% of our production
in the first six months of 1998, however U.S. production still generated
a loss. In the second half of the year, the U.S. production decreased,
and the Mexico production was increased resulting in profitable
operations.
Net earnings increased from a year-to-date loss of $706,241 in 1997
to a net income of $523,849, in 1998 despite reduced revenues. The
increase in net income had earnings per share effect of a $(.09) per
share loss in 1997 versus a $.07 per share net earnings in 1998.
1997 versus 1996
Net sales for the year ended December 31, 1997 decreased by
$1,611,454 or 14.8% as compared to 1996. 1997 foreign sales decreased
from then 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 of 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 express $431,000 less than 1996.
The substantial decrease in selling, general and administrative expense
is primarily due to three areas; a reduction in sales staff, lower bad
debt expense and lower shipping material expenditures.
<PAGE>
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 $1,377,296. This significant
decrease in margin was partially offset by the lower selling, general and
administrative expense of $431,059 and the change in income tax provision
of $220,576.
In 1997, the total cost of relocating the Company from Illinois
includes a one-time charge of approximately $400,000. These cost 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 were in excess
of $250,000 in 1997. These fixed costs should be substantially less in
1998, with the sale of the facility in Illinois. This sale was completed
on May 1, 1998.
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 remaining equipment that isn't Y2K compliant is listed below
with an estimated date and cost associated to be 2000 compliant:
January 1999-Y2K software installation and testing on mainframe $2,000
February 1999- purchase, install and test Y2K software on all PC's 50
March 1999- label machine software to be purchased and implemented 800
April 1999-Y2K letter to be sent to all vendors 100
May 1999- NRF site is to become complaint 100
-----
Total estimate of additional costs $3,050
The Company's Executone phone system is pending year 2000 compliant
in response to a demand letter sent to Claricom, from whom the phone
system was purchased. The Company expects the phone system to be year
2000 compliant with little to no expense.
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.
<PAGE>
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's telephone system will also require an upgrade to 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 plans to complete the Year 2000 project no later than
September 30, 1999. The total remaining cost of the Year 2000 project is
estimated at $5,000 and is being funded through operating cash flows. To
date, the Company has incurred and expensed approximately $10,000 related
to the assessment of, and preliminary efforts in connection with, its
Year 2000 project and the development of a remediation plan.
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.
Item 7. Financial Statements and Supplementary Data
See financial statements set forth in Item 13 of this annual report.
<PAGE>
New Accounting Pronouncements
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES requires companies to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure them at
fair value. If certain conditions are met, a derivative may be
specifically designed as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not
designed as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Historically,
the Company has not entered into derivative contracts either to hedge
existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to have a material effect on
its financial statements
SOP 98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES," requires
all start-up and organizational costs to be expensed as incurred. It
also requires all remaining historically capitalized amounts of these
costs existing at the date of adoption to be expensed and reported as the
cumulative effect of a change in accounting principles. SOP 98-5 is
effective for all fiscal years beginning after December 31, 1998. The
Company believes that the adoption of SOP 98-5 will not have a material
effect on its financial statements.
SFAS No. 135, " RECISSION OF FINANCIAL ACCOUNTING STANDARDS
BOARD NO. 75 ("SFAS NO. 75") AND TECHNICAL CORRECTIONS," rescinds SFAS
No. 75 and amends Statement of Financial Accounting Standards Board No.
35. SFAS No. 135 also amends other existing authoritative literature to
make various technical corrections, clarify meanings, or describe
applicability under changed conditions. SFAS No. 135 is effective for
financial statements issued for fiscal years ending after February 15,
1999. The Company believes that the adoption of SFAS No. 135 will not
have a material effect on its financial statements
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
In October 1998, the Board of Directors of the Company approved the
engagement of Padgett, Stratemann and Company, L.L.P as the independent
accountants for Dyna Group International, Inc., "the Company,".
BDO Seidman, L.L.P was previously the principal accountants for the
Company. On May 13, 1998 the Company terminated their relationship with
BDO Seidman, L.L.P. The decision to change accountants was approved by
the Board of the Directors.
In connection with the audit of the year ended December 31, 1997,
there were no disagreements with BDO Seidman, L.L.P on any matter of
accounting principles or practices, financial statements disclosure, or
Auditing scope or procedures, which disagreements if not resolved to
their satisfaction would have caused them to make reference in connection
with their opinion to the subject matters of disagreement.
<PAGE>
Part III
Item 9. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company are listed in
the table below, and brief summaries of their business experience and
certain other information with respect to them are set forth thereafter:
<TABLE>
Name Age Position
---- --- --------
<S> <C> <C>
Roger R. Tuttle 51 Chairman of the Board of Directors,
and Chief Executive Officer and
President of Great American Products
Jeffrey L. Smith 43 Secretary, Vice President and General
Manager of Great American Products,
and a Director
Mark Gottsacker 42 Treasurer, Vice President of Sales &
Marketing of Great American Products,
and a Director
</TABLE>
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. Subject to their
contract rights as to compensation, a majority may remove with or without
cause, officers at any time of the Board Directors.
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 from 1974 to September 1989. In
December 1991, Mr. Tuttle resumed the President's position at Great
American.
Jeffrey L. Smith has served as Vice President and General Manager of
Great American Products since October 1991. Prior to this and since 1985
Mr. Smith served as the General Manager of Great American's Retail
division. Mr. Smith was appointed Secretary and a Director in October
1992.
Mark Gottsacker has served as Treasurer and a Director since July
1998. Mr. Gottsacker has served has Vice President of Sales of Great
American Products. Since June 1997, which is when he began his
employment with Great American Products. From 1993 to 1997, Mr.
Gottsacker was the general manager of Alamo Harley Davidson.
<PAGE>
Item 10. Executive Compensation
Cash Compensation
The following table sets forth all cash compensation paid or accrued
by the Company for services rendered during the years ended December 31,
1998, and 1997 to each director and executive officer of the Company
whose aggregate cash compensation exceeded $100,000:
<TABLE>
Other Annual Long Term
Name Year Salary Bonus Compensation Compensation
---- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Roger R. Tuttle 1998 $141,163 ---- ------ --------
Chairman of the 1997 $138,500 ---- $3,850 --------
Board of Directors, 1996 $141,000 ---- $3,850 --------
And Chief Executive
Officer
</TABLE>
The Company provides certain executive officers and employees with
fringe benefits. These benefits, valued at their incremental cost, for
any individual do not exceed 10% of reported cash compensation for such
individual.
Directors currently are not paid any fees for attendance at meetings
of the Board of Directors.
Compensation Pursuant to Plan
The Company has a 401k Profit Sharing Plan and Trust for eligible
employees. Employees of the Company who have completed six months 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 6 years of
employment with the Company. The annual contributions and forfeitures
allotted to any participant may not exceed the lesser of $10,000 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, 1998 for all executive officers as a group and for Mr.
Tuttle were $254,025 and $227,020 respectively.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table provides information as of December 31, 1998 for
each person who owned more than five (5%) percent of the Company's Common
Stock beneficially and by each director and each officer and all officers
and directors as a group:
<TABLE>
Name and Amount and
Title Address of Nature of Percent
Of Class Beneficial Owner Beneficial Ownership of Class
-------- ---------------- -------------------- --------
<S> <C> <C> <C>
Security Ownership of Management:
Common Stock Roger R. Tuttle (1) 3,327,000 44.37%
1661 S. Seguin
New Braunfels, TX 78130
Common Stock All Directors and 3,408,000 45.45%
Officers as a Group
(1) Starting in 1994 to January 1999, Mr. Tuttle has gifted
103,000 shares to each of his children. Mr. Tuttle has
guardianship and retains the voting rights.
</TABLE>
Item 12. Certain Relationships and Related Transactions
The Company has a note payable to Roger R. Tuttle, the Chairman of
the Board, which is summarized as follows:
Unsecured promissory note, due 12/31/99
both principal and accrued interest payable
to the major stockholder, interest at prime
plus 1/2% (8.75% at December 31, 1998) $520,533
This note payable is subordinate to Norwest Business Credit. Mr.
Tuttle is also a guarantor of the line of credit at Norwest Business
Credit.
The Company leases the New Braunfels, Texas facility from Mr. Tuttle
for a monthly rental fee of $10,100. The lease expires January 1, 2003.
The Company also leases their computer system from Mr. Tuttle for a
monthly rental fee of $1,500.This lease is on a month-to-month basis.
<PAGE>
PART IV
Item 13. Exhibits, Financial Statements Schedules, and Reports on Form
8-K
(a) 1. Financial Statements: Page
Dyna Group International, Inc. and Subsidiary
Reports of Independent Certified Public Accountants 16
Consolidated Balance Sheets - December 31, 1998 and 1997 18
Consolidated Statement of Operations -- for the years ended
December 31, 1998 and 1997 19
Consolidated Statement of Changes in Stockholders'
Equity _ forthe years ended December 31, 1998 and 199 20
Consolidated Statement of Cash Flows - for the years ended
December 31, 1998 and 1997 21
Notes to Consolidated Financial Statements 22
2. Exhibits:
Reference is made to "Exhibit Index" beginning on page 31 herein.
(b) Reports on Form 8-K
An 8-K was filed in October 1998, notifying the change of
auditors.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(b) of the
Securities and 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)
By /s/ Roger R. Tuttle
-------------------------------------------------------------------------
Roger R. Tuttle, Chairman of the Board and Chief Executive Officer
Date: April 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the date indicated.
By /s/ Roger R. Tuttle
-------------------------------------------------------------------------
Roger R. Tuttle, Chairman of the Board and Chief Executive Officer
By /s/ Jeffrey L. Smith
-------------------------------------------------------------------------
Jeffrey L. Smith, Secretary and Director
By /s/ Mark Gottsacker
-------------------------------------------------------------------------
Mark Gottsacker, Treasurer and Director
Date: April 30, 1999
<PAGE>
DYNA GROUP INTERNATIONAL, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Dyna Group International, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of
Dyna Group International, Inc. and Subsidiary (the "Company")
as of December 31, 1998, and the related consolidated
statements of operations, changes in stockholders' equity, and
cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit 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 financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Dyna Group International,
Inc. and Subsidiary as of December 31, 1998, and the
consolidated results of their operations and their cash flows
for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Padgett, Stratemann and Company, L.L.P.
Certified Public Accountants
March 19, 1999
San Antonio, Texas
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
of Dyna Group International, Inc.
We have audited the accompanying consolidated balance sheet of Dyna
Group International, Inc. and subsidiary as of December 31, 1997 and the
related consolidated statements of operations, stockholders' equity, and
cash flows for the year 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 audit
We conducted our audit 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 audit provides 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 subsidiary at December 31, 1997 and
the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Houston, Texas
April 2, 1998, except for Note 15,
which is as of May 1, 1998.
<PAGE>
<TABLE>
DYNA GROUP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<CAPTION>
ASSETS 1998 1997
---------- -----------
<S> <C> <C>
Current assets:
Cash $ 12,481 $ 217,858
Trade accounts receivable, net of allowance
for doubtful accounts of $102,000 and
$92,000, respectively 1,249,333 2,043,885
Inventories 2,311,124 2,713,439
Prepaid expenses and other 133,216 74,419
Refundable income taxes 14,671 371,000
Deferred income taxes 138,340 -
Due from joint venture - 296,872
Land and building held for resale - 548,167
---------- -----------
Total current assets 3,859,165 6,265,640
Property and equipment, net 408,093 510,859
Investment in joint venture 83,064 94,906
Cash surrender value 103,074 77,578
Royalties 59,502 27,669
---------- -----------
Total assets $ 4,512,898 $ 6,976,652
========== ===========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 771,339 $ -
Current maturities of long-term debt 4,779 693,688
Note payable to bank - 2,747,142
Note payable to related party 512,304 550,000
Accounts payable 363,297 463,014
Accrued expenses 39,716 293,493
Income taxes payable 12,694 -
Due to joint venture 32,774 -
---------- -----------
Total current liabilities 1,736,903 4,747,337
Deferred income taxes 18,608 -
Long-term debt, less current maturities 8,130 -
---------- -----------
Total liabilities 1,763,641 4,747,337
Stockholders' equity:
Common stock, $0.001 par value, 100,000,000
shares authorized; 8,179,704 shares issued
and outstanding 8,180 8,180
Additional paid-in capital 974,313 974,313
Retained earnings 1,912,555 1,388,706
Treasury stock - 681,779 shares, at cost (135,761) (131,084)
Unearned compensation (10,030) (10,800)
---------- -----------
Total stockholders' equity 2,749,257 2,229,315
---------- -----------
Total liabilities and stockholders' equity $ 4,512,898 $ 6,976,652
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
DYNA GROUP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---------- -----------
<S> <C> <C>
Net sales $ 8,315,008 $ 9,279,743
Cost of sales 4,645,475 6,208,374
---------- -----------
Gross profit 3,669,533 3,071,369
Selling, general, and administrative expenses 3,139,440 3,700,761
---------- -----------
Operating income (loss) 530,093 (629,392)
---------- -----------
Other income (expense):
Interest and other income 33,575 -
Interest expense (246,142) (333,915)
Gain on sale of assets 244,579 -
---------- -----------
Total other income (expense) 32,012 (333,915)
---------- -----------
Income (loss) before provision for
income taxes 562,105 (963,307)
---------- -----------
Provision (benefit) for income taxes 38,256 (257,066)
---------- -----------
Net income (loss) $ 523,849 $ (706,241)
========== ===========
Earnings (loss) per common share - basic and
assuming dilution $ 0.07 $ (0.09)
========== ===========
Weighted average common shares outstanding 7,493,295 7,500,425
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
DYNA GROUP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
Additional
Common Paid-In Retained Treasury Unearned
Stock Capital Earnings Stock Compensation Total
------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
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
Purchase of treasury stock - - - (11,622) - (11,622)
Issuance of treasury stock - - - 6,945 (6,945) -
Amortization - - - - 7,715 7,715
Net income - - 523,849 - - 523,849
------- ---------- ---------- ---------- ------------ ----------
Balance at December 31, 1998 $ 8,180 $ 974,313 $ 1,912,555 $ (135,761) $ (10,030) $ 2,749,257
======= ========== ========== ========= ============ ==========
Common Stock
Share Amounts Issued Treasury
-----------------------------
<S> <C> <C>
Balance at December 31, 1996 8,179,704 696,779
Shares issued as compensation - (15,000)
--------- -------
Balance at December 31, 1997 8,179,704 681,779
Purchase of treasury stock - 27,778
Shares issued as compensation - (27,778)
--------- -------
Balance at December 31, 1998 8,179,704 681,779
========= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 523,849 $ (706,241)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 272,696 350,211
Amortization of unearned compensation 7,715 9,838
Deferred income taxes (119,732) 75,973
Gain on sale of assets (244,579) -
Noncash interest 88,959 -
Other - 3,096
Changes in assets and liabilities:
Receivables 794,552 844,930
Inventories 402,315 1,100,636
Prepaid expenses and other (58,797) 52,032
Refundable income taxes and income
taxes payable 369,023 (243,567)
Accounts payable (99,713) (337,203)
Accrued expenses (253,777) 8,795
Due to (from) joint venture 329,646 (385,261)
------------ -----------
Net cash provided by operating activities 2,012,157 773,239
------------ -----------
Cash flows from investing activities:
Proceeds from sale of property 855,680 -
Capital expenditures (232,864) (320,201)
Distributions from unconsolidated affiliate, net 11,842 -
Increase in other assets (57,329) -
------------ -----------
Net cash provided by (used in) investing activities 577,329 (320,201)
------------ -----------
Cash flows from financing activities:
Payments on long-term debt (693,688) (52,141)
Payments on note payable (2,940,828) (522,000)
Proceeds from revolving line of credit 10,213,612 -
Repayment of revolving line of credit (9,442,273) -
Proceeds from notes payable 79,936 -
Purchase of treasury stock (11,622) -
------------ -----------
Net cash used in financing activities (2,794,863) (574,141)
------------ -----------
Net decrease in cash (205,377) (121,103)
Cash at beginning of year 217,858 338,961
------------ -----------
Cash at end of year $ 12,481 $ 217,858
============ ===========
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 224,284 $ 279,066
Income taxes $ - $ 284,738
NONCASH INVESTING AND FINANCING ACTIVITIES:
See Note 15
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
DYNA GROUP INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Background and Basis of Presentation
Dyna Group International, Inc. is a Nevada corporation and conducts all
its business through its wholly-owned subsidiary, Great American
Products, Inc. (collectively, the "Company").
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. A substantial portion of the Company's products are
manufactured by its unconsolidated Mexican joint venture.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, after elimination of intercompany
accounts and transactions.
Restricted Cash
Balances in the Company's lockbox account are considered to be
restricted.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method)
or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on
the straight-line and accelerated methods based on the following
estimated useful lives: Building improvements - 40 years; machinery,
equipment, and furnishings - 5 to 7 years; and molds and dies - 3
years.
Investment in Joint Venture
The Company's investment in the joint venture is being accounted for
using the equity method of accounting. For the years ended December 31,
1998 and 1997, the joint venture produced exclusively for the Company.
Accordingly, the Company's pro rata share of the profits is reflected in
the accompanying consolidated financial statements as a reduction to the
inventories' value and cost of sales.
<PAGE>
2. Summary of Significant Accounting Policies
Earnings (Loss) Per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128") provides for calculation of "Basic" and "Diluted" earnings
per share. Basic earnings per share includes no dilution and is computed
by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity similar to fully diluted
earnings per share.
Following is a summary of the basis and diluted earnings per share
calculations:
<TABLE>
Years Ended
December 31,
1998 1997
----------------------
<S> <C> <C>
Basic and Diluted
Net income (loss) as reported $ 523,849 $ (706,241)
Weighted average common shares outstanding 7,493,295 7,500,425
Basic and diluted earnings (loss) per share 0.07 (0.09)
</TABLE>
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and accounts
receivable. The Company places its cash with high credit quality
financial institutions.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure About
Fair Value of Financial Instruments" ("SFAS 107"), requires disclosure of
fair value information about financial instruments, whether or not
recognized in the consolidated balance sheet, for which it is practicable
to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected
by the assumption used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many
cases, could not be realized in immediate settlement of the instrument.
SFAS No. 197 excludes certain financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Company.
<PAGE>
Fair values of financial instruments were estimated by the Company using
the following methods and assumptions:
Carrying amounts approximate fair values of the following instruments
because of the short maturity and/or frequent repricing of those
instruments:
Cash
Accounts receivable, including trade and employee receivables
Accounts payable
Notes payable
The carrying value of the Company's long-term debt is estimated to
approximate fair value based on the quoted market prices for the same
or similar issues or on the current rates available to the Company for
debt of the same remaining maturities with similar collateral
requirements.
Business Segments
The Company presently operates in one business segment, "Consumer Goods."
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), requires
companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated
as a hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are
attributable to the hedge risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of
change. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
Historically, the Company has not entered into derivative contracts
either to hedge existing risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new standard to have a
material effect on its consolidated financial statements.
Statement of Opinion, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), requires all start-up and organizational costs to be
expensed as incurred. It also requires all remaining historically
capitalized amounts of these costs existing at the date of adoption to be
expensed and reported as the cumulative effect of a change in accounting
principle. SOP 98-5 is effective for all fiscal years beginning after
December 31, 1998. The Company believes that the adoption of SOP 98-5
will not have a material effect on its consolidated financial statements.
<PAGE>
Statement of Financial Accounting Standards No. 135, "Rescission of
Financial Accounting Standards Board No. 97 ("SFAS 75") and Technical
Corrections," rescinds SFAS 75 and amends Statement of Financial
Accounting Standards Board No. 35. SFAS 135 also amends other existing
authoritative literature to make various technical corrections, clarify
meanings, or describe applicability under changed conditions. SFAS 135
is effective for financial statements issued for fiscal years ending
after February 15, 1999. The Company believes that the adoption of SFAS
135 will not have a material effect on the consolidated financial
statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts or revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
Reclassifications
Certain amounts have been reclassified from prior presentations at
December 31, 1997 to conform to classifications at December 31, 1998.
There is no effect on previously reported net loss or retained earnings.
3. Inventories
<TABLE>
The major components of inventories are as follows:
December 31,
1998 1997
------------ -----------
<S> <C> <C>
Raw materials $ 557,914 $ 609,757
Work in progress 64,723 252,156
Finished goods 1,678,062 1,851,526
Retail store 10,425 -
------------ -----------
$ 2,311,124 $ 2,713,439
============ ===========
</TABLE>
<PAGE>
4. Property and Equipment
<TABLE>
Property and equipment consist of the following:
December 31,
1998 1997
------------ -----------
<S> <C> <C>
Building improvements $ 40,938 $ 188,802
Machinery, equipment, and furnishings 329,040 724,770
Molds and dies 2,448,276 2,260,982
------------ -----------
2,818,254 3,174,554
Less accumulated depreciation 2,410,161 2,663,695
------------ -----------
$ 408,093 $ 510,859
============ ===========
</TABLE>
5. Revolving Line of Credit
During the 1998, the Company secured a revolving line of credit with a
banking facility with a maximum borrowing limit of $4,000,000. The line
of credit carries a floating interest rate of prime plus 1.5% through
December 31, 1998 (7.75% base rate at December 31, 1998). The interest
is reduced to prime plus 1% after December 31, 1998 if certain criteria
are met. The line of credit is secured by equipment, intangibles,
inventory, receivables, investment property, and the lockbox bank
account. The Company is required to deposit any and all collections of
accounts receivable and all other proceeds of collateral into the lockbox
account. The funds in the lockbox account are then applied as a paydown
on the line of credit. Any remaining balance, if any, in the lockbox
account is transferred to the Company's operating account. The line of
credit is guaranteed by the majority stockholder. The agreement contains
certain restrictive covenants concerning the maintenance of certain
financial statement ratios and limits the amounts of cash dividends that
may be paid on the Company's stock to $50,000 per year. At December 31,
1998, the Company was in compliance with all debt covenants or had
obtained a waiver. The note requires a minimum monthly interest charge
of $5,000 and matures on March 31, 2001. The line of credit is subject
to certain prepayment penalties.
6. Note Payable to Related Party
The 8.75% unsecured promissory note to the major stockholder was extended
to December 31, 1999 and is subordinate to the revolving line of credit
discussed in Note 5.
Interest expense for the years ended December 31, 1998 and 1997 was
$33,345 and $38,912, respectively, of which $8,229 and $53,127 remained
unpaid at December 31, 1998 and 1997, respectively
<PAGE>
7. Long-Term Debt
<TABLE>
Long-term debt consists of:
Monthly Interest Payable December 31,
Collateral Installment Rate Through 1998 1997
---------- ----------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Bank installment
loans:
Building (A) Prime plus 1998 $ - $ 693,688
1/4%
Finance company:
Equipment 438 8.75% 2001 12,909 -
-------- ---------
12,909 693,688
Less current
maturities 4,779 693,688
-------- ---------
$ 8,130 $ -
======== ========
(A) Principal and interest paid in full during 1998.
</TABLE>
8. Income Tax and Deferred Income Tax
The provision (benefit) for taxes on income consists of and represents
the tax effect of the following:
<TABLE>
Years Ended
December 31,
1998 1997
--------- ---------
<S> <C> <C>
Current:
Federal $ 140,247 $ (287,000)
State 17,741 (46,039)
Deferred (119,732) 75,973
--------- ---------
$ 38,256 $ (257,066)
========= =========
</TABLE>
<PAGE>
Income tax expense (benefit) from continuing operations differs from the
amount which would be provided by applying the statutory federal income
tax rates because of the following:
<TABLE>
Years Ended
December 31,
1998 1997
-------- ---------
<S> <C> <C>
Computed at the expected statutory rate $ 191,116 $ (327,524)
State income taxes, net of federal income
tax benefit 17,741 39,000
Goodwill amortization - 5,069
Permanent differences 6,000 -
Reduction in valuation allowance (182,000) -
Other 5,399 26,389
-------- ---------
$ 38,256 $ (257,066)
======== =========
</TABLE>
The temporary differences that result in deferred tax assets are as
follows:
<TABLE>
December 31,
1998 1997
-------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 37,740 $ 35,000
Accruals 6,237 36,000
Inventories 23,763 31,000
Contributions carryforward 70,600 80,000
-------- ---------
Gross deferred tax assets 138,340 182,000
Valuation allowance - (182,000)
-------- ---------
Total deferred tax assets 138,340 -
Deferred tax liabilities:
Depreciation (18,608) -
-------- ---------
Net deferred tax asset $ 119,732 $ -
======== =========
</TABLE>
<PAGE>
9. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
December 31,
1998 1997
-------- --------
<S> <C> <C>
Salary, payroll taxes, and other $ 22,389 $ 115,555
Interest 16,858 83,959
Sales taxes 469 93,979
-------- --------
$ 39,716 $ 293,493
======== ========
</TABLE>
10. Employee Benefit Plan
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. The Company made no contribution during 1998
($25,000 in 1997).
11. Commitments
Operating Leases
The Company leases its facility under an operating lease agreement with
the major stockholder which expires during 2002. The Company also leases
its computer equipment from the major stockholder on a month-to-month
basis. The Company leases other equipment from outside sources in the
normal course of business with various expiration dates. Total rent
expense was $135,416 and $95,861 for the years ended December 31, 1998
and 1997, respectively, of which $123,600 and $90,000, respectively, was
to the related party.
Future minimum rental commitments as of December 31, 1998 were as
follows:
<TABLE>
Related
Party Other Total
---------- -------- ---------
<S> <C> <C> <C>
Year ending December 31,
1999 $ 121,200 $ 12,996 $ 134,196
2000 121,200 12,996 134,196
2001 121,200 5,828 127,028
2002 121,200 354 121,554
---------- -------- ---------
$ 484,800 $ 32,174 $ 516,974
========== ======== =========
</TABLE>
<PAGE>
Future Royalty Guarantees
At December 31, 1998, commitments for royalty guarantees to sports
organizations and other commercial entities were as follows:
Year ending December 31,
1999 $ 83,000
2000 59,000
---------
$ 142,000
=========
12. Foreign Operations and Export Sales
The Company markets its product both domestically and internationally
from its facility in New Braunfels, Texas. Export sales were as follows:
<TABLE>
Years Ended
December 31,
1998 1997
--------- ---------
<S> <C> <C>
Europe $ 207,614 $ 286,281
Australia 44,502 94,697
Other 27,046 124,499
--------- ---------
$ 279,162 $ 505,477
========= =========
</TABLE>
In August 1994, the Company entered into a joint venture agreement with
Mexican individuals for the manufacturing and painting of its products.
The Company's ownership interest in the joint venture is 40% with 60%
held by Mexican individuals. The Company receives 70% of the joint
venture's earnings based on a cost-sharing agreement. The investment is
being accounted for using the equity method of accounting. The Company's
portion of the income generated from this joint venture is reflected in
the accompanying consolidated financial statements as a reduction of
inventory and cost of sales because the joint venture produced
exclusively for the Company. Financial information for this joint
venture as of and for the year ended December 31, 1998 and 1997 follows:
<TABLE>
(Unaudited)
1998 1997
--------- ----------
<S> <C> <C>
Current assets $ 275,928 $ 362,692
Noncurrent assets 54,376 44,507
Current liabilities 107,410 89,140
Stockholders' equity 222,895 318,059
Net sales 2,541,742 1,902,706
Gross margin 527,990 581,225
Net income 458,028 292,268
</TABLE>
<PAGE>
For the years ended December 31, 1998 and 1997, the Company purchased
products from the joint venture of $2,541,742 and $1,902,706,
respectively.
13. Major Customers
The Company sells to over 5,000 customers. One accounted for 20% of
sales in 1998, 24% in 1997. This customer accounted for 3% and 30% of
the outstanding accounts receivable at December 31, 1998 and 1997,
respectively.
14. Sale of Land and Building
On May 1, 1998, the Company sold land and a building in Illinois. The
proceeds of the sale were used to payoff related mortgage and sales
expenses. The Company received approximately $110,000 in cash from the
sale. The transaction resulted in a gain of $288,819 which has been
included in the consolidated statement of operations.
15. Stockholders' Equity
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.
In the third quarter of 1998, the Company issued 27,778 shares of
treasury stock to employees as a bonus. In connection with this
transaction, the Company has recorded $6,945 in unearned compensation
which is being amortized over three years.
16. 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.
<PAGE>
EXHIBIT INDEX
2(a) Plan and Articles of Merger between Red Creek Investments, Inc. and
Dyna Group International, Inc. dated August 22, 1986 (incorporated
by reference to Exhibit 2 (a) to Form 10 Registration Statement File
No. 0-17385).
(b) Agreement and Plan of Reorganization between Red Creek Investments,
Inc. and Dyna Tour Corporation dated August 22, 1986 (incorporated
by reference to Exhibit 2 (b) to Form 10 Registration Statement File
No. 0-17385)
(c) Agreement and Plan of Reorganization between Dyna Group
International, Inc. and Great American Products, Inc. dated December
26, 1986 (incorporated by reference to Exhibit 2 (c) to Form 10
Registration Statement File NO. 0-17385).
(d) Agreement and Plan of Reorganization between Dyna Group
International, Inc. and XL Marketing Corporation dated January 1,
1997 (incorporated by reference to Exhibit 2 (d) to Form 10
Registration Statement File No. 0-17385).
3(a) Articles of Incorporation (incorporated by reference to Exhibit 3
(a) to Form 10 Registration Statement File No. 0-17385).
(b) By-Laws (incorporation by reference to Exhibit 3 (b) to Form 10
Registration Statement File NO. 0-17385).
4(a) Specimen Common stock Certificate (incorporated by reference to
Exhibit 4 (a) to Form 10 Registration Statement File NO. 0-17385).
10(a) Asset Purchase Agreements between General Tire, Inc. and Hibdon
Tire Centers, Inc. dated February 26, 1993 (incorporated by
reference to Exhibit 10.1 and 10.2 to Form 8-K dated February 26,
1993, Commission File NO. 0-17385).
10(b) Joint Venture Agreement and Manufacturing Agreement between Dyna
Group International, Inc. and Promociones GAP, S.A. De C.V. dated
August 6, 1994 (incorporated by reference to Exhibits 10.3 and 10.4
to Form 10-K dated March 22, 1995).
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,481
<SECURITIES> 0
<RECEIVABLES> 1,351,333
<ALLOWANCES> 102,000
<INVENTORY> 2,311,124
<CURRENT-ASSETS> 3,859,165
<PP&E> 2,818,254
<DEPRECIATION> 2,410,161
<TOTAL-ASSETS> 4,512,898
<CURRENT-LIABILITIES> 1,736,903
<BONDS> 0
0
0
<COMMON> 8,180
<OTHER-SE> 2,741,077
<TOTAL-LIABILITY-AND-EQUITY> 4,512,898
<SALES> 8,315,008
<TOTAL-REVENUES> 8,593,162
<CGS> 4,645,475
<TOTAL-COSTS> 4,645,475
<OTHER-EXPENSES> 3,139,440
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246,142
<INCOME-PRETAX> 562,105
<INCOME-TAX> 38,256
<INCOME-CONTINUING> 523,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 523,849
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
