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 June 30, 2002
[ ] 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)
Check whether the Issuer (1) has filed all reports required to be filed
by the 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 August 9, 2002,
5,763,956 shares of Common Stock are issued and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [x]
TABLE OF CONTENTS
PART I........................................................................3
ITEM 1. FINANCIAL STATEMENTS..................................................3
PART F/S..................................................................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
Summary....................................................10
Financial Condition and Results of Operations..............12
Liquidity and Capital Resources............................13
Trends.....................................................13
PART II .....................................................................15
ITEM 1. LEGAL PROCEEDINGS ..................................................15
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
2
PART I
ITEM 1. FINANCIAL STATEMENTS
Our financial statements are contained in pages __ through __
following.
3
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Balance Sheet (Consolidated)
June 30, 2002
Unaudited
Assets
Current assets
Cash $ 10,661
Accounts receivable 578,045
Inventories 473,757
Advances to related parties 107,196
Prepaid expenses 95,489
Current deferred income tax benefit 15,150
-----------------
Total current assets 1,280,298
-----------------
Property and equipment
Furniture and fixtures 121,677
Molds, dies, and artwork 450,585
-----------------
572,262
Accumulated depreciation (294,104)
-----------------
Net property and equipment 278,158
-----------------
Other assets
Patents and trademarks, net of
accumulated amortization of $24,360 126,888
Deferred income tax benefit 233,450
-----------------
Total other assets 360,338
-----------------
Total assets $ 1,918,794
=================
4
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Balance Sheet (Consolidated)
June 30, 2002
Unaudited
Liabilities and Stockholders' equity
Current liabilities
Due to factor $ 320,307
Notes payable 445,485
Notes payable - stockholders 200,000
Accounts payable-trade 180,905
Accrued payroll tax withholdings 147,045
Accrued expenses-other 16,257
-----------------
Total current liabilities 1,309,999
-----------------
Stockholders' equity
Common stock, $.001 par value; authorized
50,000,000 shares; issued and outstanding
5,763,956 shares 5,764
Preferred stock, $.001 par value; authorized
10,000,000 shares; none issued and outstanding
Additional paid-in capital 1,203,404
Retained earnings (deficit) (600,373)
-----------------
Total stockholders' equity 608,795
-----------------
Total liabilities and stockholders' equity $ 1,918,794
=================
5
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Operations (Consolidated)
For the Six Months Ended June 30, 2002 and 2001
Unaudited
June 30, June 30,
2002 2001
---- ----
Net sales $ 1,117,861 $ 979,448
Cost of sales 568,674 448,299
----------------- -----------------
Gross profit 549,187 531,149
----------------- -----------------
Operating expenses
Selling 214,034 185,441
General and administrative 328,472 365,426
----------------- -----------------
Total operating expenses 542,506 550,867
----------------- -----------------
Income from operations 6,681 (19,718)
----------------- -----------------
Other income (expense)
Interest expense (40,573) (38,797)
----------------- -----------------
Income (loss) before income tax expense (33,892) (58,515)
Provision for income taxes -- --
----------------- -----------------
Net income (loss) $ (33,892) $ (58,515)
================= =================
Numerator - net income (loss) $ (33,892) $ (58,515)
Denominator - weighted average number of shares outstanding 5,753,597 5,307,951
----------------- -----------------
Basic earnings (loss) per share $ (0.01) $ (0.01)
================= =================
6
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Operations (Consolidated)
For the Three Months Ended June 30, 2002 and 2001
Unaudited
June 30, June 30,
2002 2001
---- ----
Net sales $ 634,230 $ 494,608
Cost of sales 337,913 226,899
----------------- -----------------
Gross profit 296,317 267,709
----------------- -----------------
Operating expenses
Selling 97,191 122,963
General and administrative 148,100 184,429
----------------- -----------------
Total operating expenses 245,291 307,392
----------------- -----------------
Income from operations 51,026 (39,683)
----------------- -----------------
Other income (expense)
Interest expense (19,406) (19,979)
----------------- -----------------
Income (loss) before income tax expense 31,620 (59,662)
Provision for income taxes -- --
----------------- -----------------
Net income (loss) $ 31,620 $ (59,662)
================= =================
Numerator - net income (loss) $ 31,620 $ (59,662)
Denominator - weighted average number of shares outstanding 5,763,956 5,366,599
----------------- -----------------
Basic earnings (loss) per share $ 0.01 $ (0.01)
================= =================
7
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Cash Flows (Consolidated)
For the Six Months Ended June 30, 2002 and 2001
Unaudited
June 30, June 30,
2002 2001
---- ----
Cash flows from operating activities
Net income (loss) $ (33,892) $ (58,515)
Adjustments to reconcile net income to
net cash provided (used in) operating activities:
Issuance of common stock for services 68,505
Depreciation 30,405 28,500
Amortization 5,423 1,500
Changes in assets and liabilities
Accounts receivable (166,388) (79,520)
Inventories (58,641) (90,830)
Advances to employees (3,792) (41,416)
Prepaid expenses (16,284) (66,044)
Other assets 0 (108,803)
Accounts payable - trade 99,950 53,640
Accrued payroll tax withholdings (21,442) 55,673
Accrued expenses other (33,769) (4,800)
--------------- ---------------
Net cash provided by (used in) operating activities (164,538) (183,595)
--------------- ---------------
Cash flows from investing activities
Purchases of property and equipment (16,144) (26,048)
Proceeds from sale of property & equipment 0 19,750
Purchases of patents and trademarks (2,750) (26,189)
--------------- ---------------
Net cash provided by (used) in investing activities (18,894) (32,487)
--------------- ---------------
Cash flows from financing activities
Increase (decrease) in due to factor 43,195 (37,319)
Payments on long-term debt (24,966)
Net change in notes payable (27,843) 322,940
Net change in notes payable-related party 75,000 0
Proceeds from issuance of common stock 40,000
Payments on stock subscriptions receivable 25,000
--------------- ---------------
Net cash provided by (used in) financing activities 155,352 260,655
--------------- ---------------
Increase (decrease) in cash (61,972) (13,942)
Cash - beginning of period 72,633 26,433
--------------- ---------------
Cash - end of period $ 10,661 $ 12,491
=============== ===============
8
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Cash Flows (Consolidated)
For the Three Months Ended June 30, 2002 and 2001
Unaudited
June 30, June 30,
2002 2001
---- ----
Cash flows from operating activities
Net income (loss) $ 31,620 $ (59,662)
Adjustments to reconcile net income to
net cash provided (used in) operating activities:
Issuance of common stock for services 60,579
Depreciation 16,000 14,250
Amortization 2,800 750
Changes in assets and liabilities
Accounts receivable (182,257) 61,802
Inventories 28,656 (65,478)
Advances to employees (3,521) (3,555)
Prepaid expenses 10,940 (33,557)
Other assets 0 (67,489)
Accounts payable - trade (963) (10,298)
Accrued payroll tax withholdings (11,638) 35,811
Accrued expenses other (30,086) (8,272)
--------------- ---------------
Net cash provided by (used in) operating activities (170,069) (15,457)
--------------- ---------------
Cash flows from investing activities
Purchases of property and equipment (5,292) (8,062)
Proceeds from sale of property & equipment 0 19,751
Purchases of patents and trademarks 0 (25,289)
--------------- ---------------
Net cash provided by (used) in investing activities (5,292) (13,600)
--------------- ---------------
Cash flows from financing activities
Increase (decrease) in due to factor 64,625 (106,242)
Payments on long-term debt (25,182)
Net change in notes payable (16,189) 208,178
Net change in notes payable-related party 100,000 0
--------------- ---------------
Net cash provided by (used in) financing activities 148,436 76,754
--------------- ---------------
Increase (decrease) in cash 4,695 (11,965)
Cash - beginning of period 5,966 24,456
--------------- ---------------
Cash - end of period $ 10,661 $ 12,491
=============== ===============
9
PART F/S
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
SELECTED NOTES TO FINANCIAL STATEMENTS
o 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.
o 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.
Unaudited interim financial statements - The accompanying financial
statements of the Company for the six months ended June 30, 2002 and 2001 and
for the three months ended June 30, 2002 and 2001 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, 2001 audited financial
statements included in the Company's Form 10KSB. The results of operations for
an interim period are not necessarily indicative of the results for a full year.
o Equity Transactions
During the fourth quarter of the year ended December 31, 2001, the
Company initiated a private placement offering of the Company's common stock.
During the first quarter of 2002, the Company issued 40,000 shares of restricted
common stock at $1.00 per share. This offering expired on March 31, 2002.
Notes Payable
On March 12, 2002, the Company extended a line of credit with a local
bank in the principal amount of $149,500. Proceeds of this line of credit were
used to finance the start up costs associated with the Company's wholly-owned
subsidiary, Summit Training International, Inc. The principal balance of this
loan is now due October 12, 2002 and bears interest at 7.75%.
On May 1, 2002, the Company extended its $180,000 inventory line of credit with
a local bank. This line of credit matures October 31, 2002, and bears interest
at 7.75%.
10
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 10QSB 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) Summary
The Company has continued to be active in the research and development of new
security products for sale to our mass merchant, sporting goods and other
customers. As previously reported, the Company introduced and began shipments of
five new products during the second quarter, including all five items being
placed in Wal Mart's gun accessory module. Four of these items have been
approved for sale in the state of California, and are now being marketed toward
firearm manufacturers and national sporting goods chains. We are currently
negotiating with several firearm manufacturers to supply them with California
compliant gun locks for all their guns.
In addition to these items, the Company begun development of a new line of
windproof/waterproof butane lighters for the sporting goods market. The Company
has received verbal commitments from a large retailer for this new item, as well
as interest from gun manufacturers under a private label program. We have also
begun redesigning the packaging of our fast access portable safe (SportSafe) for
the automotive industry (Vehicle Vault).
The Company continues to identify and develop new security products for the gun
and sporting goods markets. Our ability to manufacture quality products at a low
cost has enabled us to have the most competitive pricing in these markets.
The introduction of these new items has enabled the Company to increase its
revenues during the second quarter by 28% over last year. This increase in
revenues and the Company's continued efforts to reduce expenses has resulted in
a return to profitability in the second quarter.
Details
We are in the business of developing, marketing and outsourcing the
manufacture of various consumer products, patented and non-patented, designed to
enhance and provide security for the consumer and for his property. We have
placed particular emphasis on gun safety because it has become a prominent
national issue due to the recent rash of school and workplace violence. In
particular, our
11
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 business is with mass market retailers such as Wal
Mart, Walgreens and Kmart. However, initiatives to develop a nationwide cadre of
manufacturer's representatives will allow us to penetrate the entire sporting
goods market, which consists of thousands of smaller gun shops and sporting
goods stores. We have also begun selling our products into many other markets
consisting of safe retailers, jewelry stores, truck stops, alarm companies, RV
retailers and computer retailers. Developing these markets and continuing to
focus attention on potential new ones will allow us to reduce our dependence on
our mass merchant customers.
The Company's business plan and strategy for growth focuses on:
o increased penetration of our existing market
o aggressive targeting and penetration of other
markets, i.e. sporting goods retailers
o diversification of products and services to provide a
base for continued growth
o adoption of new technologies for safety and security
products
o adoption of new product lines
o identification and recruitment of effective
manufacturer's representatives to actively market
these products on a national and international basis
o 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.
Management believes that continued growth will require the Company to
continually innovate and improve its 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.
With the passage of legislation in California requiring approval from the
California Department of Justice for a firearm safety device to be sold in that
state, many national gun manufacturers and sporting goods retailers looking into
using only California compliant devices. Recognizing this fact, the Company now
has 10 firearm safety devices (including the portable SportSafe) approved by the
California Department of Justice.
We have redesigned our website (www.dactec.com). All of our products are
available via e-commerce on this new site.
In February of 2002, Mr. Walt Howard joined the Company as Chief Operating
Officer and as a member of its Board of Directors. Mr. Howard will provide
increased emphasis toward production of revenue and the penetration of new
markets for the Company's products.
In May of 2002, Jim Pledger resigned as Chairman and CEO of the Company. The
Company's founder, David Collins, returned as Chairman and CEO. Mr. Collins
provides immediate knowledge and leadership that the role of Chairman and CEO
demands. Because of his past experience with the Company, the transition period
has been minimal.
In May of 2002, Ford Overton resigned from the Company's Board of Directors,
stating responsibilities with his current employer do not allow him to dedicate
the time needed to effectively serve on the Board.
12
(b) Financial Condition and Results of Operations
The Company had net income of $31,620 on net sales revenues of $634,230 for the
three months ended June 30, 2002, as compared to a net loss of $59,662 on net
sales revenues of $494,608 for the three months ended June 30, 2001. This
represents an increase in net income of $91,282 over the preceding year.
Revenues increased $139,622 over the preceding year, a 28% increase.
Operating expenses for the three months ended June 30, 2002 were $245,291 as
compared to $307,392 for the same period in 2001. This decrease of $62,101
represents a 20% decrease, and is a result of management's continuing efforts to
reduce expenses.
Gross margin percentages decreased from 54% for the three months ended June 30,
2001 to 47% for the three months ended June 30, 2002. This decrease is due to
the increase in sales of the Company's line of security safes from $53,150 for
the three months ended June 30, 2001 to $264,068 for the three month's ended
June 30, 2002. The security safe business is extremely competitive, and
therefore gross margins on these items average 41%, which is well below the
margins on other products the Company sells.
For the six months ended June 30, 2002, the Company had a net loss of $33,892 on
net sales revenues of $1,117,861 as compared to a net loss of $58,515 on net
sales revenues of $979,448 for the six months ended June 30, 2001. This
represents a decrease in the net loss of $24,623. The increase in revenues of
$138,413 represents an increase of 14% over the previous year.
Operating expenses for the six months ended June 30, 2002 were $542,506 as
compared to $550,867 for the same period in 2001. This slight decrease of $8,361
is more significant in light of the fact that first quarter operating expenses
were $53,738 higher than last year. The overall decrease for the six months is a
result of expense cuts made late in the first quarter of 2002.
(c) Liquidity and Capital Resources
Our primary source of cash is funds from our operations. We believe
that external sources of liquidity could 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 June
30, 2002, we owed our factor approximately $320,307.
In August 2001, the Company began efforts to raise additional capital through
the private placement of the Company's common stock. This offering expired March
31, 2002. A total of $415,000 in gross proceeds were generated from this
offering
On March 12, 2002, the Company extended a line of credit with a local bank in
the principal amount of $149,500. Proceeds of this line of credit was used to
finance the start up costs associated with the Company's wholly-owned
subsidiary, Summit Training International, Inc. The principal balance of this
loan is now due October 12, 2002 and bears interest at 7.75%.
On May 1, 2002, the Company extended its $180,000 inventory line of credit with
a local bank. This line of credit matures October 31, 2002, and bears interest
at 7.75%.
13
(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 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.
14
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 recission 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
recission 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.
In another matter, we instituted suit 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, commenced in March, 2001 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 recission, damages, and injunctive relief.
ITEM 2. CHANGES IN SECURITIES
None
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 10SB 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 filed herewith:
Exhibits
--------
99.1 Certification of Robert C. Goodwin
99.2 Certification of David A. Collins
15
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/ Robert C. Goodwin
---------------------------------------
Robert C . Goodwin, Chief Financial Officer
August 13, 2002
16