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: June 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
June 30, 1999 was 8,179,704.
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DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
June 30, December 31,
1999 1998
(Unaudited)
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ (126,707) $ 12,481
Accounts receivable, less allowance
For doubtful accounts of $102,000 1,589,722 1,249,333
Inventories 2,632,380 2,311,124
Prepaid expenses and other 69,743 236,290
Refundable income taxes ----- 14,671
Deferred tax assets 138,340 138,340
Due from joint venture 1,518 -----
---------- ----------
4,304,996 3,962,239
---------- ----------
PROPERTY AND EQUIPMENT Net 342,659 408,093
---------- ----------
OTHER ASSETS:
Investment in joint venture 83,064 83,064
Other 157,914 59,502
---------- ----------
240,978 142,566
---------- ----------
$ 4,888,633 $ 4,512,898
========== ==========
See accompanying notes.
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DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND
STOCKHOLDERS' EQUITY June 30, December 31,
1999 1998
(Unaudited)
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Revolving line of credit $ 997,856 $ 771,339
Notes payable related party 501,647 512,304
Accounts payable 281,903 363,297
Accrued expenses 204,810 39,716
Current maturities of long-term debt ----- 4,779
Income taxes payable 34,009 12,694
Due to joint venture ----- 32,774
---------- ----------
Total current liabilities $ 2,020,225 $ 1,736,903
---------- ----------
Deferred income taxes 18,608 18,608
Long-term debt, less current maturities 8,130 8,130
---------- ----------
Total liabilities 2,046,963 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 2,004,968 1,912,555
Treasury stock - 681,779 and 696,779
shares, at cost (135,761) (135,761)
Unearned compensation (10,030) (10,030)
---------- ----------
2,841,670 2,749,257
---------- ----------
$ 4,888,633 $ 4,512,898
========== ==========
See accompanying notes.
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DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended June 30,
1999 1998
---------- ----------
<S> <C> <C>
NET SALES $ 2,358,508 $ 2,183,443
COST OF GOODS SOLD 1,376,507 1,232,471
---------- ----------
Gross profit 982,001 950,972
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 882,602 940,798
---------- ----------
Operating Income/(Loss) 99,399 10,174
INTEREST EXPENSE 34,233 73,902
GAIN ON SALE OF PROPERTY ----- 284,652
---------- ----------
Income/(Loss) before income taxes 65,166 220,924
PROVISION(CREDIT) FOR INCOME TAXES 22,160 86
---------- ----------
NET INCOME/(LOSS) $ 43,006 $ 221,010
========== ==========
INCOME/(LOSS) PER COMMON SHARE $ .01 $ .02
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,497,925 7,497,925
See accompanying notes.
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DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Six Months Ended June 30,
1999 1998
---------- ----------
<S> <C> <C>
NET SALES $ 4,055,081 $ 3,672,563
COST OF GOODS SOLD 2,224,998 2,035,827
---------- ----------
Gross profit 1,830,083 1,636,736
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,628,687 1,519,167
---------- ----------
Operating Income/(Loss) 201,396 117,569
INTEREST EXPENSE 61,339 159,167
GAIN ON SALE OF PROPERTY ----- 284,652
---------- ----------
Income/(Loss) before income taxes 140,057 243,054
PROVISION(CREDIT) FOR INCOME TAXES 47,621 ( 86)
---------- ----------
NET INCOME/(LOSS) $ 92,436 $ 243,140
========== ==========
INCOME/(LOSS) PER COMMON SHARE $ .01 $ .02
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,497,925 7,497,925
See accompanying notes
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DYNA GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six months Ended June 30,
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $ 92,436 $ (41,983)
Adjustments to reconcile loss to net
cash used by operating activities -
Depreciation and amortization 136,205 115,407
Provision for losses on accounts
receivable 7,714 22,655
Amortization of unearned compensation ----- -----
Change in assets and liabilities:
Increase in accounts receivable (348,103) 541,620
Increase in inventories (321,236) 308,961
Decrease in prepaid expenses and other 20,874 15,185
Increase in accounts payable 6,221 75,404
Increase in accrued expenses 99,439 75,506
Increase in due to joint venture (34,312) (35,202)
Decrease (increase) in other assets 61,932 314,332
---------- ----------
Cash provided (used) by
operating activities (278,830) 1,391,885
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditure (65,270) (80,000)
Sale of land & building ----- 117,000
---------- ----------
Cash used by investing activities (65,270) 37,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (5,474) (684,113)
Increase (decrease) in notes payable 210,386 (962,260)
Issue treasury stock ----- 16,200
---------- ----------
Cash provided (used) by financing
activities 204,912 (1,630,173)
DECREASE IN CASH (139,188) (201,288)
---------- ----------
CASH, beginning of period 12,481 217,858
---------- ----------
CASH, end of period $ (126,707) 16,570
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for-
Interest $ 27,107 96,122
Income Taxes 15,500 -----
See accompanying notes
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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 June 30, 1999 and for
the six months ended June 30, 1999 and June 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:
June 30, 1999 December 31, 1998
Raw materials and work
in process $144,792 $ 557,914
Work in process 64,723
Finished goods 2,415,142 1,688,487
$ 2,559,934 $ 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 June 30, 1999 decreased to 2.2
from to 2.3 at December 31, 1998. Cash in bank decreased by $139,188
during the period.
For the second quarter ended June 30, 1999, operating activities used
cash flow of $278,830. Changes in assets and liabilities used $515,185.
The net increase related to assets and liabilities was primarily due to
significant increase of account receivables and inventory.
During the second quarter of 1999, financing activities provided
$204,912 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 June 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 June 30, 1999 as compared to the
quarter ended June 30, 1998 increased $175,065 or 8%. This increase in
sales primarily relates to the sports market, and over-all broadening of
the customer base.
The gross margin percent increased to 45.1% as compared to 38.6% in
1998. This was due to a greater portion of production being produced in
Mexico at a lower cost.
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The total selling, general and administrative expenses increased
7.2%, from $1,519,167 in 1998 to $1,628,687 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 $97,828 as a result of lower average
borrowing levels in 1999 when compared to last year, despite slightly
higher interest rate.
For the second quarter of 1999 the Company's pre-tax income was
$92,436 as compared to the income for 1998 of $243,140. 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.
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's Executone phone system is pending year 2000 compliance
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.
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.
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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.
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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: August 11, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> (126,707)
<SECURITIES> 0
<RECEIVABLES> 1,691,722
<ALLOWANCES> 102,000
<INVENTORY> 2,632,380
<CURRENT-ASSETS> 4,304,996
<PP&E> 2,883,524
<DEPRECIATION> 2,540,865
<TOTAL-ASSETS> 4,888,633
<CURRENT-LIABILITIES> 2,020,225
<BONDS> 0
0
0
<COMMON> 8,180
<OTHER-SE> 2,833,490
<TOTAL-LIABILITY-AND-EQUITY> 4,888,633
<SALES> 4,055,081
<TOTAL-REVENUES> 4,055,081
<CGS> 2,224,998
<TOTAL-COSTS> 2,224,998
<OTHER-EXPENSES> 1,628,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,339
<INCOME-PRETAX> 140,057
<INCOME-TAX> 47,621
<INCOME-CONTINUING> 92,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,436
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
