UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
------ ------
Commission File Number 000-29211
DAC Technologies Group International, Inc.
(Name of Small Business Issuer in its charter)
Florida 65-0847852
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer incorporation
or organization) Identification No.)
1601 Westpark Drive #4C Little Rock, AR 72204
(Address of principal executive offices) (Zip Code)
(501) 661-9100
(Issuer's telephone number)
19955 NE 38th Court, #601
Aventura, Florida 33180
-----------------------
(Former Address if Changed Since Last Report)
Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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.
(1) Yes [x] No [ ] (2) Yes [x ] No [ ]
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date. As of November 12, 2001,
5,648,956 shares of Common Stock are issued and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [x]
ii
TABLE OF CONTENTS
PART I .........................................................................................................4
ITEM 1. FINANCIAL STATEMENTS............................................................................4
PART F/S ................................................................................................5
SELECTED NOTES TO FINANCIAL STATEMENTS...................................................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PLAN OF OPERATION........................................................................................7
Background...............................................................................................7
DAC TECHNOLOGIES CORE BUSINESS...........................................................................9
Summit Training International (STI) and The Center for Law Enforcement Learning
(CLEL)..................................................................................................11
Liquidity and Capital Resources ........................................................................13
Trends..................................................................................................14
PART II ........................................................................................................14
ITEM 1. LEGAL PROCEEDINGS .............................................................................14
ITEM 2. CHANGES IN SECURITIES..........................................................................15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ...............................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS........................................................................................15
ITEM 5. OTHER INFORMATION .............................................................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 -K .............................................................15
SIGNATURES.......................................................................................................16
iii
PART I
ITEM 1. FINANCIAL STATEMENTS
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
BALANCE SHEET (CONSOLIDATED)
SEPTEMBER 30, 2001
Unaudited
Assets
------
Current assets
Cash $ 38,070
Accounts receivable 630,626
Inventories 552,435
Advances to employees 107,171
Prepaid expenses 116,962
-----------
Total current assets 1,445,264
-----------
Property and equipment
Furniture and fixtures 114,940
Molds, dies, and artwork 414,344
-----------
529,284
Accumulated depreciation (253,766)
-----------
Net property and equipment 275,518
-----------
Other assets
Patents and trademarks, net of
accumulated amortization of $12,512 128,345
Other 127,852
-----------
Total other assets 256,197
-----------
Total assets $ 1,976,979
===========
1
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
BALANCE SHEET (CONSOLIDATED)
SEPTEMBER 30, 2001
Unaudited
Liabilities and Stockholders' equity
------------------------------------
Current liabilities
Due to factor $ 388,084
Notes payable 739,014
Accounts payable-trade 159,139
Accrued payroll tax withholdings 145,423
Accrued expenses-other 13,354
Income taxes payable 2,283
-----------
Total current liabilities 1,447,297
-----------
Stockholders' equity
Common stock, $.001 par value; authorized
50,000,000 shares; issued and outstanding
5,398,956 shares 5,399
Preferred stock, $.001 par value; authorized
10,000,000 shares; none issued and outstanding
Additional paid-in capital 875,332
Stock subscriptions receivable (3,537)
Retained earnings (deficit) (347,512)
-----------
Total stockholders' equity 529,682
-----------
Total liabilities and stockholders' equity $ 1,976,979
===========
2
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS (CONSOLIDATED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Unaudited
Sept. 30, Sept. 30,
2001 2000
----------- -----------
Net sales $ 1,536,521 $ 1,726,523
Cost of sales 737,449 962,518
----------- -----------
Gross profit 799,072 764,005
----------- -----------
Operating expenses
Selling 387,758 116,170
General and administrative 532,348 458,719
----------- -----------
Total operating expenses 920,106 574,889
----------- -----------
Income from operations (121,034) 189,116
----------- -----------
Other income (expense)
Interest expense (64,663) (63,898)
----------- -----------
Income (loss) before income tax expense (185,697) 125,218
Provision for income taxes -- --
----------- -----------
Net income (loss) $ (185,697) $ 125,218
=========== ===========
Numerator - net income (loss) $ (185,697) $ 125,218
Denominator - weighted average number of shares outstanding 5,323,844 5,136,481
----------- -----------
Basic earnings (loss) per share $ (0.03) $ 0.02
=========== ===========
3
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS (CONSOLIDATED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Unaudited
Sept. 30, Sept. 30,
2001 2000
--------- ---------
Cash flows from operating activities
Net income (loss) $(185,697) $ 125,218
Adjustments to reconcile net income to
net cash provided (used in) operating activities:
Issuance of common stock for services 76,460
Depreciation 42,750 39,098
Amortization 2,250 1,455
Changes in assets and liabilities
Accounts receivable (166,430) 33,271
Inventories (189,166) (7,582)
Advances to employees (44,598) 0
Prepaid expenses (86,970) (101,028)
Other assets (106,450) (4,711)
Accounts payable - trade 73,322 (61,539)
Accounts payable - related party 0 (52,582)
Accrued payroll tax withholdings 39,884 38,284
Accrued expenses other (4,329) (8,150)
--------- ---------
Net cash provided by (used in) operating activities (363,277) (123,484)
--------- ---------
Cash flows from investing activities
Purchases of property and equipment (32,034) (27,910)
Proceeds from sale of property & equipment 19,750
Purchases of patents and trademarks (26,189)
--------- ---------
Net cash provided by (used) in investing activities (38,473) (27,910)
--------- ---------
Cash flows from financing activities
Increase (decrease) in due to factor 106,218 (30,487)
Payments on long-term debt (24,966) (64,438)
Net change in notes payable 471,369
Proceeds from issuance of common stock 46,463 109,174
Payments on stock subscriptions receivable 2,632
--------- ---------
Net cash provided by (used in) financing activities 599,084 16,881
--------- ---------
Increase (decrease) in cash 11,637 (9,295)
Cash - beginning of period 26,433 14,434
--------- ---------
Cash - end of period $ 38,070 $ 5,139
========= =========
4
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
STATEMENT OF OPERATIONS (CONSOLIDATED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Unaudited
Sept. 30, Sept. 30,
2001 2000
----------- -----------
Net sales $ 557,073 $ 499,916
Cost of sales 289,150 254,458
----------- -----------
Gross profit 267,923 245,458
----------- -----------
Operating expenses
Selling 202,317 46,203
General and administrative 166,921 151,615
----------- -----------
Total operating expenses 369,238 197,818
----------- -----------
Income from operations (101,315) 47,640
----------- -----------
Other income (expense)
Interest expense (25,866) (18,863)
----------- -----------
Income (loss) before income tax expense (127,181) 28,777
Provision for income taxes -- --
----------- -----------
Net income (loss) $ (127,181) $ 28,777
=========== ===========
Numerator - net income (loss) $ (127,181) $ 28,777
Denominator - weighted average number of shares outstanding 5,355,104 5,243,000
----------- -----------
Basic earnings (loss) per share $ (0.02) $ 0.01
=========== ===========
5
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS (CONSOLIDATED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Unaudited
Sept. 30, Sept. 30,
2001 2000
--------- ---------
Cash flows from operating activities
Net income (loss) $(127,181) $ 28,777
Adjustments to reconcile net income to
net cash provided (used in) operating activities:
Issuance of common stock for services 7,955
Depreciation 14,250 13,515
Amortization 750 485
Changes in assets and liabilities
Accounts receivable (86,910) 163,138
Inventories (98,336) 32,525
Advances to employees (3,182) 0
Prepaid expenses (20,926) (6,815)
Other assets 2,353 0
Accounts payable - trade 19,682 (42,144)
Accounts payable - related party 0 (33,214)
Accrued payroll tax withholdings (15,789) (319)
Accrued expenses other 470 (5,260)
--------- ---------
Net cash provided by (used in) operating activities (179,683) 121,911
--------- ---------
Cash flows from investing activities
Purchases of property and equipment (5,986) (7,269)
--------- ---------
Net cash provided by (used) in investing activities (5,986) (7,269)
--------- ---------
Cash flows from financing activities
Increase (decrease) in due to factor 143,537 (169,029)
Payments on long-term debt 0 (601)
Net change in notes payable 148,429
Proceeds from issuance of common stock 46,463 0
--------- ---------
Net cash provided by (used in) financing activities 338,429 (169,630)
--------- ---------
Increase (decrease) in cash 25,579 (26,211)
Cash - beginning of period 12,491 31,350
--------- ---------
Cash - end of period $ 38,070 $ 5,139
========= =========
6
PART F/S
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
SELECTED NOTES TO FINANCIAL STATEMENTS
NATURE OF BUSINESS
DAC Technologies Group International, Inc. (the "Company"), a Florida
corporation, is in the business of developing, manufacturing and marketing
various consumer products, patented and unpatented, which are designed to
provide security for the consumer and their property. In addition, the Company
has developed a wide range of security and non-security products for the home,
automobile and individual. The majority of the Company's products are
manufactured and imported from mainland China and are shipped to the Company's
central warehouse facility in Little Rock, Arkansas, and fulfillment houses on
the East coast and West coast. These products, along with other items
manufactured in the United States, are sold primarily to mass merchants and
sporting goods retailers throughout the United States and international
locations.
The Company also, through its wholly-owned subsidiary, Summit Training
International, Inc., provides training and educational seminars for law
enforcement and corporate communities. The accompanying financial statements
reflect the financial condition and results of operations on a consolidated
basis.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and basis of presentation - The Company was incorporated
as a Florida corporation in July 1998 under the name DAC Technologies of
America, Inc. In July 1999, the Company changed its name to DAC Technologies
Group International, Inc.
The Company's official headquarters has been changed to its corporate
offices in Arkansas at 1601 Westpark Drive, Suite 4C, Little Rock, AR 72204.
Unaudited interim financial statements - The accompanying financial
statements of the Company for the nine months ended September 30, 2001 and 2000
and for the three months ended September 30, 2001 and 2000 are unaudited, but,
in the opinion of management, reflect the adjustments, all of which are of a
normal recurring nature, necessary for a fair presentation of such financial
statements in accordance with generally accepted accounting principles. The
significant accounting policies applied to these interim financial statements
are consistent with those applied to the Company's December 31, 2000 audited
financial statements included in the Company's Form 10K-SB. The results of
operations for an interim period are not necessarily indicative of the results
for a full year.
7
EQUITY TRANSACTIONS
In August 2001, the Company began efforts to raise additional capital
through the private placement of the Company's common stock. Parameters for the
sale called for restricted stock to be sold in units of 50,000 shares at $1.00
per share. If fully subscribed, the Company will raise $1.5 million from this
offering. This offering is open until December 31, 2001.
As of November 12, 2001, the Company had raised $300,000 from the
offering.
SUMMARY FINANCIAL INFORMATION
The accompanying financial statements are presented on a consolidated
basis and include the financial condition and results of operation for the
Company (DAC) and its wholly owned subsidiary Summit Training International,
Inc. (STI). The following summary financial information is provided for each
company separately without elimination of intercompany transactions which
accounts for the differences between the figures set forth below and the figures
on the Company's consolidated balance sheet.
Balance Sheet: DAC STI
---------- ---------
Current assets $1,593,084 $ 1,680
Property & equipment, net 275,518
Other assets 168,792 87,405
---------- ---------
Total assets $2,037,394 $ 89,085
---------- ---------
Liabilities $1,445,114 $ 151,683
Stockholders' equity 592,280 (62,598)
---------- ---------
Total liabilities &
Stockholders' equity $2,037,394 $ 87,405
---------- ---------
Results of operations for the periods ended September 30, 2001:
Nine Months Three Months
DAC STI DAC STI
Revenues $ 1,480,684 $ 55,837 $ 551,075 $ 5,998
Cost of sales 737,449 289,150
----------- --------- --------- --------
Gross profit 743,235 55,837 261,925 5,998
Operating expenses 805,261 114,845 280,307 88,931
----------- --------- --------- --------
Income/(loss) from operations (62,026) (59,008) (18,382) (82,933)
Interest expense (61,073) (3,590) (23,581) (2,285)
----------- --------- --------- --------
Net income/(loss) $ (123,099) $ (62,598) $ (41,963) $(85,218)
----------- --------- --------- --------
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
The following Management Discussion and Analysis of Financial Condition
is qualified by reference to and should be read in conjunction with our
Financial Statements and the Notes thereto as set forth at the end of this
document. We include the following cautionary statement in this Form 10Q-SB for
any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, expectations, future events or performances and underlying
assumptions and other statements which are other than statements of historical
facts. Certain statements contained herein are forward-looking statements and,
accordingly, involve risks and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. The Company's expectations, beliefs and projections are expressed in
good faith and are believed by the Company to have a reasonable basis, including
without limitations, management's examination of historical operating trends,
data contained in the Company's records and other data available from third
parties, but there can be no assurance that management's expectations, beliefs
or projections will result or be achieved or accomplished.
(a) BACKGROUND
SUMMARY
We are in the business of developing, marketing and outsourcing the
manufacture of various consumer products designed to enhance and provide
security for the consumer and his property. We have placed particular emphasis
on gun safety because it has become a prominent national issue due to incidents
of school and workplace violence. Handgun sales have increased dramatically due
to personal security concerns caused by the terrorist attack on America on
September 11, 2001. Many Americans purchasing these handguns are also concerned
for the safe storage of these firearms in the home environment.
In the third quarter, the Company's core business of safety and
security products strengthened its competitive position in a challenging market
and revenue increased by 10% as compared to the third quarter of 2000.
Aggressive efforts to increase our "footprint" and availability of our products
to consumers resulted in an increase in the number of wholesale distributors and
retail dealers who sell these items. Through our field sales representatives and
our own marketing efforts, we identified and sold products to a number of new
customers. In particular, the number of new distributors is encouraging, since
these distributors already have established retail dealer networks to whom they
sell their products. We hope that this strategy will result in faster growth and
demand for our products.
9
In the third quarter, we also completed the development of a new
product, the DAC SportSafe. This is an exciting new product and we have already
received a verbal commitment from a mass merchant customer for 5,000 units for
delivery in the fourth quarter. We expect to receive a purchase order shortly.
This should have an immediate, positive impact on revenue and profitability in
the fourth quarter and beyond. During the fourth quarter, we will introduce this
new product to other mass merchants and traditional sporting goods stores and
expect this product to provide substantial revenue in 2002.
We continue to incur substantial expenses related to the development of
new products and their start up costs that we will market in 2002 and beyond. We
will continue to innovate to exploit market niches where we can be successful.
We also operate a non-core business, Summit Training International
(STI), our wholly owned subsidiary that conducts law enforcement training. STI
is a startup company that began operations in February 2001. The original
business plan called for the company to conduct national seminars in centralized
locations. This strategy relied on the desire for training and the ease and
availability of travel to these conferences. The general downturn in the economy
resulted in severe pressure being placed on travel and training budgets for
government agencies. As a result, conferences held in the third quarter were
poorly attended despite intensive marketing efforts. While revenues exceeded
costs for each conference, total revenue fell significantly short of
expectations. As a result, it was necessary in August to suspend the use of our
consultants and our marketing firm to reduce expenses. In addition, the
terrorist attack on the United States in September effectively stopped most
discretionary air travel and required law enforcement officials to stay at home
to provide increased security. This had an immediate negative effect on STI
operations and it was necessary to cancel a course scheduled in October for
which substantial marketing expenses had already been incurred. STI operations
continue with one full-time employee, our cadre of contract instructors and
administrative support from DAC personnel.
During this quarter, we initiated a private placement offering of the
company's stock. We plan to raise $1,500,000 through the offering of restricted
stock to provide for our continued growth. If fully subscribed, the proceeds
will result in our company being virtually debt-free, with productive mature
accounts, exciting new products and an aggressive business plan. As of November
9, 2001, we have raised $300,000 from this offering.
DAC TECHNOLOGIES CORE BUSINESS
We are in the business of developing, marketing and outsourcing the
manufacture of various consumer products, patented and unpatented, designed to
enhance and provide security for the consumer and his property. We have placed
particular emphasis on gun safety because it has become a prominent national
issue due to incidents of school and workplace violence. In particular, our
products consist of gun locks, trigger locks, security safes, specialty safes,
personal protection devices and items for the health care industry. A
significant portion of our
10
business is with mass market retailers such as Wal-Mart, Walgreens and K-Mart.
However, initiatives to develop a nation-wide cadre of manufacturer's
representatives will allow us to penetrate the entire sporting goods market,
which consists of many thousands of smaller gun shops and sporting goods stores.
The majority of our products are manufactured and imported from mainland China
and shipped to a central location in Little Rock, Arkansas. We have also entered
into relationships with two companies to provide fulfillment services on the
East coast and West coast to reduce freight costs and increase our ability to
service our customers.
The Company's business model and strategy for growth focus on:
- increased penetration of our existing markets;
- aggressive targeting and penetration of other markets, i.e.
sporting goods retailers;
- diversification of products and services to provide a base for
continued growth; adoption of new technologies for safety and
security products;
- adoption of new product lines;
- identification and recruitment of effective manufacturer's
representatives to actively market these products on a
national and international basis;and
- aggressive cost containment
The principal key to increasing the rate of the Company's growth is the
availability of capital to maintain additional inventory, develop or acquire new
products and secure motivated, professional employees. In this regard, the
Company began efforts in August 2001 to raise $1.5 million through the private
placement of its common stock. Funds generated from this stock offering will be
used for the reduction of the Company's debt and increases in the Company's
inventory, marketing activities, research and development and operating capital.
As of November 9, 2001, we have raised $300,000 in new capital.
We believe that continued growth for the Company will require us to
continually innovate and improve our existing line of products and services to
meet consumer, industry and governmental demands. In addition, we must continue
to develop or acquire new and unique products that will appeal to gun owners.
To diversify our product offerings while following our core business,
we have identified and developed a line of security safes that we believe will
provide the Company with a favorable niche in the marketplace. These safes are
of strong, all-steel construction for the storage of handguns, long-guns or
valuables. The line will consist of four floor safes, four wall safes and one
specialty safe. Consistent with our corporate philosophy, these are high-quality
items offered at reasonable prices.
During the third and fourth quarters of 2001, we will be completing the
development of new items to be included in our principal line of products for
2002. In addition, we also have under development a unique safe designed for the
automotive and recreational markets which we expect to bring to market in early
2002. We continue to incur extra expenses related to the
11
research and development of gun locks to meet government standards and have also
incurred various marketing expenses, including attendance at several trade
shows. These expenses impacted our profitability during the third quarter of
2001, but were necessary for the effective rollout of new products and to
prepare the Company for future growth.
The DAC SportSafe is a unique product which will be marketed to mass
merchants as well as to the general sporting goods market. When compared to the
existing products of other manufacturers, the DAC SportSafe has more features,
stronger construction, better security and a significantly lower price. We
anticipate excellent customer response to these new products and already have a
verbal commitment for the purchase of 5,000 units of the DAC SportSafe, which
should have an immediate, positive impact on revenue and profitability in the
fourth quarter. We believe this new product will be very attractive in 2002 and
beyond to consumers shopping at mass merchants as well as traditional sporting
goods stores.
In addition to firearm and personal safety devices, we are actively
pursuing the expansion of our line of products for the health care industry.
The Company is moving from a business model with a tightly focused line
of products sold primarily through large retailers to a model involving a
significantly diversified line of products and services, marketed and sold
throughout several industries by an active, motivated sales force.
In September, 2000, Mr. James R. Pledger joined the Company as its
President. On July 11, 2001, Mr. Pledger was named Chairman and CEO, due to the
resignation of David A. Collins, the Company's founder. Mr. Collins will
maintain a relationship with the Company and will continue to handle key
accounts, such as Wal Mart, Kmart and others on a consulting basis.
In addition to our traditional products, our management is actively
pursuing initiatives which may add complementary businesses, products and
services. These initiatives are intended to broaden the base of revenues to make
us less dependent on particular products. By developing businesses which focus
on products and services which complement our current line of products,
management hopes to leverage these opportunities to not only develop new sources
of revenue, but to strengthen the demand for our existing products.
SUMMIT TRAINING INTERNATIONAL (STI) AND THE CENTER FOR LAW ENFORCEMENT LEARNING
(CLEL)
In February 2001, we entered into the business of providing training
and consulting services primarily to law enforcement, but also to corporate
clients by forming a wholly-owned subsidiary, Summit Training International
(STI), an Arkansas corporation. STI's objective is to provide quality,
affordable training on contemporary issues facing the law enforcement and
corporate communities. Instructional content, communicated through vehicles such
as courses, seminars and conferences, will address issues such as Recruiting and
Retention of Employees,
12
Ethics and Integrity, Racial Profiling, Hate Crimes, Police and Community Joint
Partnerships and Violence in the Workplace. Other courses and consulting
activities will address issues related to Assessment Centers in Law Enforcement
Promotions, and will provide training for both attendees and assessors of law
enforcement assessment centers.
We also have affiliated STI with a non-profit corporation, The Center
for Law Enforcement Learning (CLEL), also incorporated in Arkansas in February
2001. STI entered into a memorandum of understanding with CLEL on April 9, 2001,
pursuant to the memorandum, STI will conduct the seminars and training programs
for CLEL. For these services, CLEL agrees to pay a fee equal to 75-90% of the
per student fee for the training event. CLEL will service clients, typically law
enforcement agencies, who can only engage non-profit entities to provide
training. STI will also enlist corporate "sponsors," who will pay a fee to
exhibit their products at the various seminars. These "sponsors" see great value
in the ability to exhibit their products to a large group of law enforcement
management officials, many of whom may be decision makers for purchasing
matters.
The STI/CLEL partnership conducted its first training seminars in June,
2001 and generated its first revenue in the second quarter. The original
business plan called for the Company to conduct national seminars in centralized
locations. This strategy relied on the desire for training and the ease and
availability of travel to these conferences. The general downturn in the economy
resulted in severe pressure being placed on travel and training budgets for
government agencies. As a result, travel for our targeted customers was
curtailed significantly and conferences held in the third quarter were poorly
attended despite intensive marketing efforts. While revenues exceeded costs for
each conference, total revenue fell significantly short of expectations. As a
result, it was necessary in August to curtail the use of our consultants and our
marketing firm to reduce expenses. Operations of STI/CLEL continue with one
full-time employee, the cadre of contract instructors and administrative support
from DAC personnel.
The tragic terrorist attack on America in September 2001 also had
several negative effects on STI/CLEL activities. First, law enforcement agencies
are on high-alert and fewer personnel can be freed from normal police activities
to attend outside conferences. Second, fewer people are able or willing to
travel by air for other than mandatory reasons due to security concerns. These
two factors will have a significant impact on STI/CLEL training courses in the
short term. In fact, one course originally scheduled for October 9, 2001, in
Fairfax, Virginia, was canceled due to the terrorist action against the Pentagon
since potential attendees were needed for law enforcement duties.
Future training courses for the short term will be regional in nature
where attendees can drive to the course location. One example of this change in
strategy is the scheduling of a Seminar on Racial Profiling that will be held in
Arkansas in November 2001. This seminar is being marketed exclusively to law
enforcement in Arkansas and cities in surrounding states within driving
distance. STI has several pending matters involving bids for training services
13
with major law enforcement organizations or agreements in principle where STI or
CLEL will provide training services on an ongoing basis.
We also plan to develop certain items of police equipment. We believe
that our association with law enforcement through the presentation of courses,
seminars and conferences will provide us with unique opportunities to present
our law enforcement products to a select group of law enforcement professionals.
The synergy to be developed between the training opportunities and the
presentation of our products may provide increased sales of new and existing
products.
We believe that our strategic business plan provides a comprehensive
approach to varied market opportunities and will increase revenues, profits and
shareholder value.
(b) FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
For the nine months ended September 30, 2001, the Company had net sales
revenues of $1,536,521 as compared to $1,726,523 for the nine months ended
September 30, 2000. For the three months ended September 30, 2001, the Company
had net sales revenues of $557,073 as compared to $499,916 for the three months
ended September 30, 2000. While year-to-date numbers are down, we were pleased
to achieve a solid 10% increase in revenue for the third quarter. The decrease
in year-to-date revenue was caused by a number of factors, including the general
downturn of the U.S. economy and a severe decline in sales of firearms in the
shooting sports industry during the summer which impacted gun lock sales. The
increase in revenue for the third quarter was the result of increased marketing
efforts and several substantial sales of OEM gun locks to firearm manufacturers.
The increased marketing and introduction of the DAC SportSafe in the fourth
quarter provide for even greater growth.
While the terrorist attack and subsequent business uncertainty hurt
sales of certain products, Americans began to buy firearms in record numbers
following this tragic incident. During late September, we saw an increase in
sales of firearm safety products, primarily gun safes, which was undoubtedly
related to increased firearm sales.
The Company continues to experience difficulty with suppliers of its
electronic car alarms and this segment of the Company's business has not
returned to its normal level since switching manufacturers in late 2000. In
particular, product quality issues related to the manufacture of these items
have inhibited sales until the manufacturer corrects these problem areas. We are
working closely with these suppliers to ensure we receive the best possible
product for the best possible price.
Despite the decrease in sales of $190,002 for the nine months ended
September 30, 2001, the Company's gross profit increased $35,067 as compared to
the same nine month period of 2000. Because the Company obtained new
manufacturers during 2000, which substantially reduced the costs of the
Company's products, gross margins increased from 44% for the nine
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month period ended September 30, 2000, to 52% for the nine month period ended
September 30, 2001.
Operating expenses for the nine month and three month periods ended
September 30, 2001 were $920,106 and $369,238, as compared to $574,889 and
$197,818 for the preceding year. These increases are due primarily to an
increase in the number of salaried personnel over the previous year, freight
costs for the sale of safes, operations of STI/CLEL training courses, additional
expenses incurred related to the research and development of new products and
various marketing expenses, including attendance at several trade shows.
While DAC's overall business showed an increase in revenue of over 10%
over the prior quarter, STI/CLEL operations showed substantially reduced
results. This shortfall in STI/CLEL revenue contributed to the loss reported in
the consolidated financial statement.
(c) LIQUIDITY AND CAPITAL RESOURCES
Our primary source of cash is funds from our operations. We believe
that external sources of liquidity could easily be obtained in the form of bank
loans, letters of credit, etc. We maintain an account receivable factoring
arrangement in order to insure an immediate cash flow. The factor may also, at
its discretion, advance funds prior to the collection of our accounts. Advances
are payable to the factor on demand. Should our sales revenues significantly
decline, it could affect our short-term liquidity. For the period ending
September 30, 2001, we owed our factor approximately $388,084.
In August 2001, the Company began efforts to raise additional capital
through the private placement of the Company's common stock. Parameters for the
sale called for restricted stock to be sold in units of 50,000 shares at $1.00
per share. If fully subscribed, the Company will raise $1.5 million from this
offering. As of November 9, 2001, the Company has raised $300,000 from this
offering. This offering is open until December 31, 2001.
(d) TRENDS
Ongoing publicity involving firearms has caused gun safety to become a
prominent issue nationally. Gun violence, especially in schools has prompted the
President, as well as national and state legislators, to debate legislation
requiring gun safety locks on all firearms. Threatened litigation against gun
manufacturers has caused them to seriously consider placing gun safety locks on
the guns they manufacture. We believe sales revenues in this area will grow
significantly.
The tragic terrorist attack against the United States on September 11,
2001, caused many Americans to become concerned about their personal security.
As a result, many people are purchasing firearms to maintain for home defense
purposes. While they are purchasing handguns, many are also concerned with the
safe storage of the firearm in the home and want to
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purchase affordable, effective gun locks or gun safes to increase security. As a
result, we have seen an increase in revenue due to additional purchases of our
products.
PART II
ITEM 1. LEGAL PROCEEDINGS
We are the Plaintiff in a legal action instituted by us against our
former manufacturer Skit International, Ltd., Uni-Skit Technologies, Inc. and
Uni-Tat International, Inc. The suit, commenced in August 2000, alleges breach
of a manufacturing contract which required the defendants to manufacture certain
of our products within the range of "competitive pricing," a defined term. We
are seeking damages and rescission of 165,000 shares of our common stock as part
of the compensation paid to the defendants. The defendants have denied the
allegations and have counterclaimed for an outstanding balance of $182,625, for
rescission of the manufacturing agreement and for damage to its business
reputation. We have denied, and believe there is no merit to the counterclaim's
material allegations. We have replaced the defendants as manufacturers of our
products. This matter is currently in the discovery phase.
In March 2001, we instituted suit in Arkansas along with The Collins
Family Trust, in which David Collins, the former Chairman and CEO claims a
beneficial interest, and DAC Technologies of America, Inc., our predecessor,
against Larry Legel, our former Certified Public Accountant, Director and the
Trustee of The Collins Family Trust. The suit alleges we transferred 180,000 of
our shares of common stock for services which the Defendant did not provide. The
suit also alleges that the Defendant breached an agreement not to sell his
shares before certain private investors had recouped their investment. We are
seeking equitable rescission, damages, and injunctive relief. The Company has
filed a Motion for Default Judgment against the Defendant, and is awaiting the
Court's ruling.
In July 2001, Larry Legel, our former officer and director, and others,
filed suit in Florida against the Company alleging the failure by the Company
and its officers to permit the sale of his Company shares. The suit contains
issues similar to those raised in the Arkansas suit where Mr. Legel is a
defendant. A Motion to Dismiss was filed and granted. The Legels have not yet
filed an Amended Complaint.
ITEM 2. CHANGES IN SECURITIES
In August 2001, the Company began efforts to raise additional capital
through the private placement of the Company's common stock. Parameters for the
sale called for restricted stock to be sold in units of 50,000 shares at $1.00
per share. If fully subscribed, the Company will raise $1.5 million from this
offering. As of November 9, 2001, 2001, the Company has raised $300,000 in new
capital. This offering is open until December 31, 2001.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 -K
The following documents are incorporated by reference from Registrant's
Form 10Q-SB filed with the Securities and Exchange Commission (the "
Commission"), File No. 000-29211, on January 28, 2000:
Exhibits
2 Acquisition Agreement
3(i) Articles of Incorporation
3(ii) By-laws
The following documents are incorporated by reference from
Registrant's Form 10Q-SB filed with the Securities and Exchange Commission (the
"Commission"), File No. 000-29211, on August 17, 2001.
Exhibits
3(iii) Amendment to the Articles of Incorporation
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized
DAC Technologies Group International, Inc.
By: /s/ James R. Pledger
James R. Pledger, Chairman and CEO
Date: XXXXX, 2001
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