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, 1999
[ ] 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, 1999 were $9,293,363.
The aggregate market value of the voting stock held by non-affiliated
of the registrant as of March 24, 2000 was $2,340,463.
The number of shares outstanding of the registrant's common stock as of
March 24, 2000 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 2000 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, 1999, 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 and capital, 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 and 17 drivers, the National Football League,
Major League Baseball, the National Basketball Association, the
National Hockey League, World Championship Wrestling, Jack Daniels and
over 70 Colleges and 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. In 1999 the
company signed new 2 year agreements with Harley-Davidson, Chevrolet
and Ford. As 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 experience an increase in inventory levels during the
third quarter of the year followed by an increase in accounts
receivable during the fourth quarter. Inventory levels at December
31,1999 were slightly higher by $86,913 when compared to December 31,
1998. The raw materials used in the manufacture of the Company's
centrifugally cast products are readily available from numerous
sources. Extension of credit terms to its customers range from normal
30 days terms to 90 days from the date of invoice.
<PAGE>
Marketing and Distribution
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. As of
December 31, 1999, the Company's sales force and related support staff
numbered 11 persons. The Company also utilizes approximately 80
independent, commissioned sales representatives. The 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 cast products. The
Company has experienced reduced production costs. Sales to markets
outside the USA have declined as the market for belt buckles has
declined both internationally and domestically.
Major Customers
The Company has over 4,000 customers. One major customer
accounted for 18% of sales in 1999. The top 10 customers represent
49.7% of the company's revenues.
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 84 full time people, of whom 21 are engaged in
sales and administration, 5 in creative design and 58 in manufacturing,
assembly, shipping, and warehousing.
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.
<PAGE>
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.
Approximate Area Lease Monthly
Type of Facility in Square Feet Expiration Rental
---------------- -------------- ---------- ------
Manufact/Warehouse-Texas 40,000 12/31/10 $14,557
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. A court date of May 1, 2000 has been scheduled
for the trial by jury
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
<PAGE>
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.
High Bid Low Bid
--------- ---------
1999 4th Quarter $ 7 /16 $12 /32
3rd Quarter 151/2 /32 12 /32
2nd Quarter 121/2 /32 11 /32
1st Quarter 7 /16 7 /32
1998 4th Quarter $121/2 /32 $ 61/2 /32
3rd Quarter 15 /32 7 /32
2nd Quarter 15 /32 7 /32
1st Quarter 13 /32 9 /32
Holders
------- Approximate number of holders
Title of Class of record as of March 2000
-------------- --------------------------
Common Stock, par value 328
$.001 per share
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.
Liquidity and Capital Resources
The Company has a current ratio in 1999 of 2.2 to 1, which was no
change to 1998 ratio of 2.2 to 1. Net cash decreased by $1,985 in
1999.
<PAGE>
Operating activities provided $145,530 of cash in 1999, which
includes a $270,905 increase in net working capital. Net working
capital increased principally due to the $370,643 increase trade
accounts receivable. The account receivable increase was due primarily
to holiday orders being shipped later in the season. The inventory
increase is attributed to scheduled early January shipments for Super
Bowl items.
Investing activities used $238,811 primarily for capital
expenditures. Financing activities provided $91,296 that relates to
proceeds needed to cover cash overdraft resulting from day-to-day
activities.
On April 3, 1998 the Company entered into a banking relationship
with Norwest Business Credit, 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 borrower, minimum
debt service coverage ratio, minimum net losses, and proceeds from sale
of real property. The negative covenants include liens and
indebtedness, guaranties, investments and subsidiaries, dividends, and
capital expenditures. As of December 31, 1999 the outstanding loan
balance was $769,219.
Results of Operations
1999 versus 1998
Net sales for the year ending December 31, 1999, increased
$978,355 or 11.8% as compared to 1998. The growth in revenues is due
to the introduction of new products and excellent sell-through which is
generating faster reorders. Foreign sales for 1999 decreased from 1998
by $148,497 or 53%. Buckles have represented the majority of foreign
sales. The market for buckles both domestic and foreign is declining.
Gross profit increased $384,571 or 10.5% in 1999 over 1998. Gross
profit margins remain virtually the same, 43.6% vs. 44.1%. Sales to
one major customer were below our forecasted margin. The liquidation
and closeout of dated merchandise also impacted our forecast of 46%
gross profit margin.
Selling, general and administrative expenses increased $454,925
or 14.5% over 1998. Royalties paid on licensed merchandise sales is a
selling expense. Royalties increased from $585,172 to $684,536. The
sales staff wages and associated expenses also increased from 1998 by
$176,379, due to an increase in staffing levels. The Company also
incurred $115,000 in legal expense in 1999 as opposed to $26,906 in
1998. This expense was associated with the Perma Bond lawsuit. Interest
expense decreased in 1999 by $110,438 from $246,142 in 1998 to $135,704
in 1999. Interest expense, despite higher interest rates, was lower
because of the overall reduction of debt and lower levels of borrowing.
<PAGE>
Operating income for the year was $459,739 as compared to $530,093
in 1998; a decline of $70,354. This is attributed to slightly lower
gross profit margin and higher SG&A expenses previously mentioned.
Net income was $231,192 in 1999 as compared to $523,849 in 1998.
In 1998, the gain on sales of Broadview facility contributed $244,579
to the net profit. The reduction in the deferred income tax valuation
allowance reduce income tax expense in 1998 by $182,000 compared to
1999.
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.
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.
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 completed all Y2K compliance in ample time and did
not incur any difficulties. The cost associated with the Y2K
compliance did not exceed the $10,000 budgeted.
<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.
The Company modified or replaced portions of its software so that
its computer systems would properly utilize dates beyond December 31,
1999. The Company's telephone system was also upgraded 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. The Company was informed during the 4th Qtr of
1999, that the current computer hardware and software would no longer
be serviced effective July 2000. Therefore the Company decided to
purchase a new hardware and software package. It was initially
estimated to cost $150,000 to $200,000. In actuality, the Company
spent $85,000 for the complete conversion. The company implemented the
new hardware and software on March 6, 2000. The company has not
incurred any difficulties.
Item 7. Financial Statements and Supplementary Data
See financial statements set forth in Item 13 of this annual
report.
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 adoption of SOP 98-5 did not have a material
effect the Company's financial statements.
<PAGE>
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 adoption of SFAS No. 135 did not have a material effect on
the Company's financial statements
Part III
Item 10. 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:
Name Age Position
------------------- --- ------------------------------------
Roger R. Tuttle 52 Chairman of the Board of Directors,
and Chief Executive
Officer and President of Great
American Products
Jeffrey L. Smith 44 Secretary, Vice President and
General Manager of Great
American Products, and a Director
Mark Gottsacker 43 Treasurer, Vice President of Sales &
Marketing of Great
American Products, and a Director
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 11. 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, 1999, and 1998 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 1999 $139,229 ---- ---- ----
Chairman of the 1998 $141,163 ---- ---- ----
Board of Directors, 1997 $138,500 ---- $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, 1999 for all executive officers as a group and
for Mr. Tuttle were $354,420 and $301,186 respectively.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management
<TABLE>
The following table provides information as of December 31, 1999
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:
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 Tuttle Investments LTD 3,406,778 41.6%
1661 S. Seguin
New Braunfels, TX 78130
Common Stock All Directors and 3,498,778 42.8%
Officers as a Group
</TABLE>
(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. In 1999 Mr.
Tuttle formed Tuttle Investments LTD, a family limited
partnership. 3,300,000 shares were gifted to the partnership
in which Tuttle is the general partner and retains control.
Item 13. 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 12/31/00
both principal and accrued interest payable
to the major stockholder, interest at prime
plus /% (8.75% at December 31, 1999) $509,758
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 $14,557. The lease expires December
31, 2010.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on
Form 8-K
(a) 1. Financial Statements:
Page
----
Dyna Group International, Inc. and Subsidiary
Report of Independent Certified Public Accountants 16
Consolidated Balance Sheets - December 31, 1999 and 1998 11
Consolidated Statements of Operations - for the years
ended December 31, 1999and 1998 11
Consolidated Statements of Changes in Stockholders'
Equity - for the years ended December 31, 1999
and 1998 11
Consolidated Statements of Cash Flows - for the
years ended December 31, 1999 and 1998 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 Date: March 29,2000
------------------- -------------------
Roger R. Tuttle, Chairman of the Board and
Chief Executive Officer
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 Date: March 29,2000
------------------- -------------------
Roger R. Tuttle, Chairman of the Board and
Chief Executive Officer
By /s/ Jeffrey L. Smith Date: March 29,2000
------------------- -------------------
Jeffrey L. Smith, Secretary and Director
By /s/ Mark Gottsacker Date: March 29,2000
------------------- -------------------
Mark Gottsacker, Treasurer and Director
<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).
27 Financial Data Schedule
<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, 1999 and 1998 F-3
Consolidated Statements of Income for the Years Ended
December 31, 1999 and 1998 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 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 sheets
of Dyna Group International, Inc. and Subsidiary (the
"Company") as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders'
equity, and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Dyna Group
International, Inc. and Subsidiary as of December 31, 1999
and 1998, and the consolidated results of their operations
and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Certified Public Accountants
March 7, 2000
San Antonio, Texas
<PAGE>
<TABLE>
DYNA GROUP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash $ 10,496 $ 12,481
Receivables:
Trade - net of allowance for doubtful
accounts of $102,000 in 1999 and 1998 1,619,976 1,249,333
Sale of joint venture 83,064 -
Inventories 2,398,037 2,311,124
Prepaid expenses and other 265,525 207,389
Deferred income taxes 120,084 138,340
---------- ----------
Total current assets 4,497,182 3,918,667
Property and equipment - net 446,361 408,093
Investment in joint venture - 83,064
Cash surrender value of life insurance 103,234 103,074
---------- ----------
Total assets $5,046,777 $4,512,898
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 146,110 $ -
Revolving line of credit 769,219 771,339
Current maturities of long-term debt 15,689 4,779
Note payable to related party 483,292 512,304
Accounts payable 183,653 284,247
Accrued expenses 162,510 131,460
Due to joint venture 284,040 32,774
--------- ---------
Total current liabilities 2,044,513 1,736,903
Deferred income taxes 3,285 18,608
Long-term debt - less current maturities 17,626 8,130
--------- ---------
Total liabilities 2,065,424 1,763,641
Stockholders' equity:
Common stock, $0.001 par value,
100,000,000 shares authorized;
8,179,704 shares issued; 7,480,925
shares outstanding (7,497,925
shares in 1998) 8,180 8,180
Additional paid-in capital 974,313 974,313
Retained earnings 2,143,747 1,912,555
Unearned compensation (2,315) (10,030)
--------- ---------
3,123,925 2,885,018
Treasury stock - 698,779 and 681,779
shares at cost for 1999 and 1998,
respectively (142,572) (135,761)
--------- ---------
Total stockholders equity 2,981,353 2,749,257
--------- ---------
Total liabilities and stockholders'
equity $ 5,046,777 $ 4,512,898
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
DYNA GROUP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 9,293,363 $ 8,315,008
Cost of sales 5,239,259 4,645,475
--------- ---------
Gross profit 4,054,104 3,669,533
Selling, general, and administrative expenses 3,594,365 3,139,440
--------- ---------
Operating income 459,739 530,093
--------- ---------
Other income (expense):
Interest and other income 38,427 33,575
Interest expense (135,704) (246,142)
Gain on sale of assets 7,910 244,579
--------- ---------
Total other income (expense) (89,367) 32,012
--------- ---------
Income before provision for income taxes 370,372 562,105
Provision for income taxes 139,180 38,256
--------- ---------
Net income $ 231,192 $ 523,849
========= =========
Earnings per common share-basic and
assuming dilution $ 0.03 $ 0.07
========= =========
Weighted-average common shares outstanding 7,497,687 7,493,295
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
DYNA GROUP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Additional
Common Paid-In Retained Treasury Unearned
Stock Capital Earnings Stock Compensation Total
------- -------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
Purchase of treasury stock -- -- -- (6,811) -- (6,811)
Amortization -- -- -- -- 7,715 7,715
Net income -- -- 231,192 -- -- 231,192
------- -------- -------- --------- ---------- ---------
Balance at December 31, 1999 $ 8,180 $ 974,313 $2,143,747 $ (142,572) $ (2,315) $2,981,353
======= ======== ========= ========== ========== =========
Common Stock
-----------------------------
Share Amounts Issued Treasury
------------- ---------- -----------
<S> <C> <C>
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
Purchase of treasury stock -- 17,000
--------- ---------
Balance at December 31, 1999 8,179,704 698,779
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
DYNA GROUP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 231,192 $ 523,849
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 235,730 272,696
Amortization of unearned compensation 7,715 7,715
Deferred income taxes 2,933 (119,732)
Gain on sale of assets (7,910) (244,579)
Noncash interest 10,000 88,959
Changes in assets and liabilities:
Trade accounts receivables (370,643) 794,552
Inventories (86,913) 402,315
Prepaid expenses and other (56,067) (58,797)
Refundable income taxes and income taxes payable (14,923) 369,023
Accounts payable (100,594) (99,713)
Accrued expenses 43,744 (253,777)
Due to joint venture 251,266 329,646
--------- ---------
Net cash provided by operating activities 145,530 2,012,157
Cash flows from investing activities:
Proceeds from sale of property 7,910 855,680
Capital expenditures (246,721) (232,864)
Distributions from unconsolidated affiliate-net -- 11,842
Increase in other assets -- (57,329)
--------- ---------
Net cash provided by (used in) investing
activities (238,811) 577,329
--------- ---------
Cash flows from financing activities:
Cash overdraft 146,110 --
Payments on long-term debt (6,871) (693,688)
Proceeds from notes payable -- 79,936
Payments on note payable (39,012) (2,940,828)
Proceeds from revolving line of credit 9,061,915 10,213,612
Repayment of revolving line of credit (9,064,035) (9,442,273)
Purchase of treasury stock (6,811) (11,622)
--------- ---------
Net cash provided by (used in) financing
activities 91,296 (2,794,863)
--------- ---------
Net decrease in cash (1,985) (205,377)
Cash at beginning of year 12,481 217,858
--------- ---------
Cash at end of year $ 10,496 $ 12,481
========= =========
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 106,600 $ 224,284
Income taxes 138,500 $ 148,710
NONCASH INVESTING AND FINANCING ACTIVITIES:
See Notes 14 and 17
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
</TABLE>
<PAGE>
DYNA GROUP INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Background and Basis of Presentation
Dyna Group International, Inc. (the "Parent") is a Nevada corporation
and conducts all its business through its wholly-owned subsidiary,
Great American Products, Ltd. (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 a Mexican company, in which the Company was a joint
venture partner until December 1999.
Effective September 15, 1999, the Parent's wholly-owned subsidiary,
Great American Products, was converted to a Texas Limited Partnership,
now named Great American Products, Ltd. (the "Ltd."), and Dyna Group of
Texas L.L.C (the "L.L.C.") was created using capital contributions from
the Parent. In connection with this, the Parent contributed 1% of its
stock in the Ltd. to the L.L.C. The conversion allows the Ltd. to be
taxed in the state of Texas as a partnership. Accordingly, no Texas
franchise tax will be incurred after September 15, 1999.
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.
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 year ended December 31,
1998. During December 1999, the Company sold its interest in the joint
venture. For the years ended December 31, 1999 and 1998, the joint
venture produced exclusively for the Company. Accordingly, the
Company's pro rata share of the 1998 profits is reflected in the
accompanying consolidated financial statements as a reduction of
inventory and cost of sales for the year ended December 31, 1998.
<PAGE>
2. Summary of Significant Accounting Policies
Earnings Per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 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.
2. Summary of Significant Accounting Policies (continued)
Earnings Per Common Share (continued)
Following is a summary of the basic and diluted earnings per share
calculations:
<TABLE>
Years Ended
December 31,
1999 1998
----------------------
<S> <C> <C>
Basic and Diluted
Net income as reported $ 231,192 $ 523,849
Weighted-average common shares outstanding 7,497,687 7,493,295
Basic and diluted earnings per share 0.03 0.07
</TABLE>
<PAGE>
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 No. 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. 107 excludes certain
financial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the
underlying value of the Company.
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 these 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."
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 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 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 consolidated financial statements.
Statement of Financial Accounting Standards No. 135, "Rescission of
Financial Accounting Standards Board No. 97 ("SFAS No. 75") and
Technical Corrections" ("SFAS No. 135"), 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 adoption of SFAS No. 135 did 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.
<PAGE>
Reclassifications
Certain amounts have been reclassified from prior presentations at
December 31, 1998 to conform to classifications at December 31, 1999.
There is no effect on previously reported net income or retained
earnings.
3. Inventories
<TABLE>
The major components of inventories are as follows:
December 31,
1999 1998
-----------------------
<S> <C> <C>
Raw materials $ 516,308 $ 557,914
Work in progress 55,079 64,723
Finished goods 1,815,764 1,678,062
Retail store 10,886 10,425
--------- ---------
$2,398,037 $2,311,124
</TABLE>
4. Property and Equipment
<TABLE>
Property and equipment consist of the following:
December 31,
1999 1998
----------------------
<S> <C> <C>
Building improvements $ 49,210 $ 40,938
Machinery, equipment, and furnishings 402,234 329,040
Molds and dies 2,640,808 2,448,276
--------- ---------
3,092,252 2,818,254
Less accumulated depreciation and amortization 2,645,891 2,410,161
--------- ---------
$ 446,361 $ 408,093
</TABLE>
<PAGE>
5. Revolving Line of Credit
During 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%
(8.50% and 7.75% base rate at December 31, 1999 and 1998,
respectively). The line of credit is secured by equipment,
intangibles, inventories, 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. The 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 limitations on
capital expenditures, and it limits the amount of cash dividends that
may be paid on the Company's stock to $50,000 per year. At December
31, 1999 and 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 8.50% unsecured promissory note to the major stockholder was
extended to December 31, 2000 and is subordinate to the revolving line
of credit discussed in note 5.
Interest expense relating to this note for the years ended December 31,
1999 and 1998 was $44,905 and $33,345, respectively, of which $26,466
and $8,229 remained unpaid at December 31, 1999 and 1998, respectively.
7. Long-Term Debt
<TABLE>
Long-term debt consists of the following:
Monthly Interest Payable December 31,
Collateral Installment Rate Through 1999 1998
----------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Bank installment loan-car $1,243 8.75% 2001 $ 25,181 $ --
Finance company-equipment 438 8.75% 2001 8,134 12,909
------- ------
33,315 12,909
Less current maturities 15,689 4,779
------- -------
$ 17,626 $ 8,130
======= =======
</TABLE>
<PAGE>
8. Income Tax and Deferred Income Tax
<TABLE>
The provision for taxes on income consists of and represents the tax
effect of the following:
Years Ended
December 31,
1999 1998
------------------------
<S> <C> <C>
Current:
Federal $ 128,271 $ 140,247
State 7,976 17,741
Deferred 2,933 (119,732)
--------- ----------
$ 139,180 $ 38,256
</TABLE>
8. Income Tax and Deferred Income Tax (continued)
<TABLE>
Income tax expense from continuing operations differs from the amount
which would be provided by applying the statutory federal income tax
rates because of the following:
Years Ended
December 31,
1999 1998
---------------------
<S> <C> <C>
Computed at the expected statutory rate $ 125,926 $ 191,116
State income taxes 5,264 11,709
Permanent differences 6,710 6,000
Reduction in valuation allowance -- (182,000)
Other 1,280 11,431
-------- --------
$ 139,180 $ 38,256
======== ========
The temporary differences that result in deferred tax assets are as
follows:
December 31,
1999 1998
----------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 34,680 $ 37,740
Accruals 12,227 6,237
Inventories 22,630 23,763
Contributions carryforward 50,547 70,600
--------- ---------
Gross deferred tax assets 120,084 138,340
Valuation allowance -- --
--------- ---------
Total deferred tax assets 120,084 138,340
Deferred tax liabilities-depreciation (3,285) (18,608)
--------- ---------
Net deferred tax asset $ 116,799 $ 119,732
========= =========
</TABLE>
<PAGE>
9. Accrued Expenses
<TABLE>
Accrued expenses consist of the following:
December 31,
1999 1998
-----------------------
<S> <C> <C>
Salary, payroll taxes, and other $ 33,722 $ 22,389
Interest 35,962 16,858
Accrued commissions and royalties 91,978 79,050
Sales taxes 848 469
Income taxes payable -- 12,694
--------- ---------
$ 162,510 $ 131,460
========= =========
</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 a $36,800 contribution during
1999 (no contribution made in 1998).
11. Commitments
Operating Leases
The Company leases its facility under an operating lease agreement with
the majority stockholder which expires in 2010. The Company also
leases its computer equipment from the majority 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 $162,899 and $135,416 for the years ended
December 31, 1999 and 1998, respectively, of which $149,903 and
$123,600, respectively, was to the related party.
Future minimum rental commitments as of December 31, 1999 were as
follows:
<TABLE>
Related
Party Other Total
-------- -------- --------
<S> <C> <C> <C>
Year ending December 31,
2000 $ 174,694 $ 14,280 $ 188,974
2001 185,135 6,684 191,819
2002 195,575 354 195,929
2003 205,356 205,356
2004 215,628 215,628
Thereafter 1,539,967 1,539,967
----------- --------- ---------
$ 2,516,355 $ 21,318 $2,537,673
========== ======== =========
</TABLE>
<PAGE>
11. Commitments (continued)
Future Royalty Guarantees
At December 31, 1999, commitments for royalty guarantees to sports
organizations and other commercial entities were as follows:
Year ending December 31,
2000 $ 59,000
2001 50,500
2003 65,500
----------
$ 175,000
The Company has entered into employment agreements with two key
employees. Additionally, the Company has entered into a stock
repurchase agreement with the majority stockholder of the Company.
Under these agreements, the Company and two employees are required to
purchase all or a portion of the shares held by the majority
stockholder upon his death. The agreements establish a purchase price
which is the average daily "asked price" over the six-month period
ending on the date of death. Any proceeds from existing life insurance
policies, owned by the Company for the benefit of the Company and the
two employees, on the life of the majority stockholder would be paid
toward the purchase price. At December 31, 1999, the Company owned
life insurance policies on the life of the majority stockholder with
face amounts totaling $1,250,000. Premiums paid on behalf of the two
employees will be repaid from the proceeds of the life insurance upon
death of the majority stockholder.
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,
1999 1998
------------------------
<S> <C> <C>
Europe $ 86,427 $ 207,614
Australia 23,976 44,502
Other 20,262 27,046
---------- ----------
$ 130,665 $ 279,162
</TABLE>
<PAGE>
12. Foreign Operations and Export Sales (continued)
In August 1994, the Company entered into a joint venture agreement with
Mexican individuals for the manufacturing and painting of its products.
In December 1999, the Company sold its ownership interest in the joint
venture to the joint venture partners for its carrying amount, which
approximated fair value. The Company's ownership interest in the joint
venture through the date of sale was 40%, with 60% held by Mexican
individuals. The investment was accounted for using the equity method
of accounting. The Company's portion of the income generated from this
joint venture through the date of sale 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 follows:
Current assets $ 275,928
Noncurrent assets 54,376
Current liabilities 107,410
Stockholders' equity 222,895
Net sales 2,541,742
Gross margin 527,990
Net income 458,028
For the years ended December 31, 1999 and 1998, the Company purchased
products from the joint venture of $2,292,601 and $2,541,742,
respectively.
13. Major Customers
The Company sells to over 5,000 customers and one accounted for 18% of
sales for the year ended December 31, 1999 (20% in 1998).
Additionally, this customer accounted for 6% and 3% of the outstanding
accounts receivable at December 31, 1999 and 1998, 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 income.
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.
<PAGE>
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.
In December 1999, the Company announced that they would purchase up to
a 1,000,000 shares of outstanding common stock. As of December 31,
1999, the Company purchased 17,000 shares of stock for $6,811.
16. Litigation
The Company is a plaintiff in a lawsuit filed against one of its
vendors for alleged sales of defective glue products used in
manufacturing. The Company has incurred legal fees in excess of
$100,000 related to this lawsuit, which have been expensed as incurred.
The case is expected to go to trial in May 2000 and management believes
a favorable outcome is likely.
17. Noncash Investing and Financing Activities
The consolidated statements of cash flows do not reflect the following
noncash investing and financing activities:
- Equipment was purchased in the year ended December 31, 1999 with
direct financing of $27,277.
- Accrued interest of $10,000 on the unsecured promissory note to
the majority stockholder was rolled over into the principal balance
of the note for the year ended December 31, 1999.
- The Company sold its investment in joint venture for a short-term
receivable.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,496
<SECURITIES> 0
<RECEIVABLES> 1,721,976
<ALLOWANCES> 102,000
<INVENTORY> 2,398,037
<CURRENT-ASSETS> 4,497,182
<PP&E> 446,361
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,046,777
<CURRENT-LIABILITIES> 2,044,513
<BONDS> 0
0
0
<COMMON> 8,180
<OTHER-SE> 3,115,745
<TOTAL-LIABILITY-AND-EQUITY> 5,046,777
<SALES> 9,293,363
<TOTAL-REVENUES> 9,293,363
<CGS> 5,239,259
<TOTAL-COSTS> 5,239,259
<OTHER-EXPENSES> 3,139,440
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,704
<INCOME-PRETAX> 370,372
<INCOME-TAX> 139,180
<INCOME-CONTINUING> 231,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231,192
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>