UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________to __________
Commission File Number 000-29211
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DAC Technologies Group International, Inc.
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(Name of Small Business Issuer in its charter)
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Florida 65-0847852
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3200 N. Ocean Blvd., Suite 1006, Ft. Lauderdale, FL 33308
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(Address of principal executive offices) (Zip Code)
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(954) 375-0119
(Issuer's telephone number)
Securities registered under Section 12(b) of the Act:
None
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Name of each exchange on which registered
Not applicable
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Securities registered under Section 12(g) of the Act:
Common Stock, par value $0.001
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Check whether the issuer (1) 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
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required to file such reports), and (2)has been subject to such filing
requirements for the past 90 days. Yes [ ] No [x]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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-KSBor any amendment to this Form 10-KSB. [x]
State issuer's revenues for its most recent fiscal year. $2,136,887
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State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. The aggregate market value of the voting stock held by
non-affiliates as of April 1, was approximately $-0-.
State the number of shares outstanding of each of the issuer's class
of common equity, as of the latest practicable date. As of April 1, 2000,
5,054,500 shares of Common Stock are issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) of
the Securities Act of 1933 ("Securities Act"). Not Applicable.
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TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS.......................................................................1
ITEM 1. DESCRIPTION OF BUSINESS.................................................................1
History and Business Development...............................................1
Business Plan ................................................................2
Products ......................................................................2
Competition....................................................................6
Principal Suppliers and Manufacturers..........................................7
Customers......................................................................9
Intellectual Property..........................................................9
Governmental Regulations......................................................10
Research and Development......................................................11
Environmental Laws............................................................11
Employees.....................................................................11
Reports to Security Holders...................................................11
ITEM 2. DESCRIPTION OF PROPERTY................................................................12
ITEM 3. LEGAL PROCEEDINGS......................................................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................12
PART II. .......................................................................................12
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKOLDER MATTERS............................................................12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION..........................................................13
Background....................................................................14
Financial Condition and Results of Operations.................................15
ITEM 7. FINANCIAL STATEMENTS...................................................................19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS..........................................19
PART III .......................................................................................20
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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT......................................20
ITEM 10. EXECUTIVE COMPENSATION.................................................................21
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................................................22
Security Ownership of Certain Beneficial Owners...............................23
Security Ownership of Management..............................................23
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................23
Acquisition of Our Predecessor's Assets and Liabilities.......................23
DAC Arkansas..................................................................24
Contractual Relationships.....................................................24
Promoters and Founders........................................................25
Factoring Agreement...........................................................25
Line of Credit/ Loans.........................................................26
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K.......................................................26
SIGNATURES............................................................................27
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FORWARD-LOOKING STATEMENTS
This discussion in this Annual Report regarding our company and its
business and operations contains "forward-looking statements." Such statements
consist of any statement other than a recitation of historical fact and can be
identified by the use of forward-looking terminology such as "may," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The reader is cautioned that all
forward-looking statements are necessarily speculative and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in such forward looking statements. We do not
have a policy of updating or revising forward- looking statements and thus it
should not be assumed that silence by its management over time means that actual
events are bearing out as estimated in such forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) History and Business Development.
We were incorporated as a Florida corporation in July 1998, under the
name DAC Technologies of America, Inc. for the purpose of succeeding to the
interest of DAC Technologies of America, Inc., an Arkansas corporation ("DAC
Arkansas"). In September 1998, we purchased substantially all of the assets of
DAC Arkansas. DAC Arkansas, formed as an Arkansas corporation in 1993, may be
deemed to be a predecessor of our company. DAC Arkansas commenced operations
with the manufacture of various safety products, which were eventually acquired
by us. Our principal owners and management held similar positions with DAC
Arkansas. We have continued the operations of DAC Arkansas without any
significant changes. In July 1999, we changed our name to DAC Technologies Group
International, Inc.
Between July 1998 and April 1999, we sold an aggregate of 5,054,500
shares of our Common Stock to approximately 30 accredited or otherwise
sophisticated investors with whom we had pre-existing relationships and who had
access to relevant information concerning the Company in a series of
transactions exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"). We received gross proceeds of approximately
$234,400 from these transactions. The funds have been used to fund our business
plan and we anticipate needing additional capital to complete the plan.
We have not been involved in any bankruptcy, receivership or similar
proceeding. Except as set forth herein, we have not been involved in any
material reclassification, merger,
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consolidation, or purchase or sale of a significant amount of assets not in the
ordinary course of business.
(b) Business Plan
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 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. We
believe that there will be a continual public mandate for our federal, state and
local governments to pass gun safety legislation on all guns manufactured. With
over 220 million firearms in the U.S. alone, we believe we will be a major
presence in the gun lock market. With respect to all our products we:
o develop and design
o out source the manufacturing to unaffiliated third parties
o distribute and market
o use our private label
In addition, we have developed a wide range of security and
non-security products for the home, automobile and person including various
plastic injection and leather products. We primarily sell to mass market
retailers such as Wal-Mart, Walgreens and K-Mart. The majority of our products
had been manufactured and imported from mainland China and shipped to a central
location for distribution in Little Rock, Arkansas. We have recently entered
into a manufacturing contract with a domestic company, which we expect will
significantly increase the volume of our products manufactured in the U.S.
In order to build a database from which we might select products to
market and distribute, we presently anticipate that we will solicit proposals
from inventors who have substantially completed their product development but
lack the expertise or capital to market or distribute it. We expect that we will
utilize advertisements in trade and other publications, networking, referrals
from persons with whom we may have pre-existing relationships and our Web site
as methods of soliciting these proposals. We may also acquire existing
businesses with complimentary operations as a method of expanding our business
and operations.
(c) Products
(1) Security Products
Our products can be grouped into three main categories (a) home, auto
and personal
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security, (b) gun safety locks, and (c) non-security devices. In developing
these products, we focus on developing features, establishing patents, and
formulating pricing to obtain a competitive edge. We currently design and
engineer our safety products with the assistance of our Chinese and domestic
manufacturers, who are also responsible for the tooling, manufacture and
packaging of the products.
(A) Gun Safety. We currently market four gun safety products:
o "Trigger Lock Value Pack," a patented product, which
contains three ABS plastic trigger locks with metal
locking device and keys. This lock fits virtually all
handguns and prevents unwanted or accidental
discharge of the firearm.
o "Lever Hammer Lock," constructed of ABS plastic with
a metal locking device and key, is designed to
prevent cocking of lever action rifles.
o "Gun Lock," a steel lock with keyed locking device,
that fits over the entire trigger guard of virtually
all handguns.
o "Metal Trigger Lock," is similar to our Trigger Lock
Value Pack, but is made of metal instead of plastic
with a more secure locking system. The lock is
available at the retail level in a three-piece value
pack and as a single unit. It is also available in
bulk without retail packaging for gun manufacturers.
We have a patent pending on this product.
(B) Personal Security. We carry a wide range of electronic
alarms designed to protect the consumer and personal property.
o "Body Alarm," a 130-decibel alarm, is
designed to be carried or worn whenever the user
faces the possibility of attack. An original product
of DAC Arkansas, it has been redesigned to include a
built-in flashlight and accessories so it can be used
as a door or window alarm.
o "Key Alert," a patented product, is
a small, 120 decibel alarm with key chain and
built-in flashlight. This unit, easily activated by a
push button, will enhance protection any time its
user feels threatened.
o "Pepper Spray," packaged in an
attractive leather holster with key ring, this
canister contains 14 grams of 5% oleoresin capsicum
red pepper, and will debilitate an attacker on
contact with his eyes.
o "Protect All," a vibration activated,
130 decibel alarm, this unit can be attached to
virtually anything, i.e. television, stereo,
microwave. Not much larger than a beeper, this alarm
can protect personal property at home, office or
virtually any location.
o "Patient Alert," designed
specifically for the health care industry, this alarm
is similar to our Body Alarm, but with attachments to
mount the unit onto a bed or wheelchair and the pull
strap to the patient. Decibel level of this alarm is
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only 100-105, as its intended use is not to scare off
an attacker but to alert nursing staff when a patient
attempts to get out of bed or wheelchair.
(C) Automotive Safety. We currently offer the following car
alarms:
o "SWAT Steering Wheel Alarm," a
patented product, is a 130-decibel alarm which mounts
to virtually any vehicle steering wheel. Locking the
alarm to the steering wheel arms the alarm, and a
delay timer allows the driver 15 seconds to exit the
vehicle without activating the alarm. Vibration
activated, this alarm has an automatic reset,
sensitivity settings, and a blinding strobe light.
Selling for $25-$30 at the retail level, this alarm
is perfect for consumers who do not want to invest in
more expensive vehicle alarms. The SWAT Steering
Wheel Alarm is also manufactured with remote control
for arming and disarming.
o "SWAT II Talking Car Alarm," a more
traditional, under the hood car alarm, can easily be
installed by the consumer. The alarm can be mounted
under the hood by screws , tape, or simply strapped
to the car battery, all provided. Alligator clips
allow for easy attachment to battery for power. Two
remote controls come with the unit, which are used to
arm and disarm the alarm, as well as set sensitivity
levels and spoken warnings in both English and
Spanish. Alarm has nine voice commands programmed,
car finder, and a panic button. Retailing in the
$80-$100 range, this alarm is less expensive than
most competitors models, and does not require
professional installation.
o "Warning Module," is a simple battery
operated device that mounts on the dashboard, with
two red LED lights that flash when activated. Sold
separately, it is also included in the packaging with
the SWAT II Talking Car Alarm.
(D) Home Safety. We carry a full line of home security alarms,
packaged both as a complete unit, and with individual pieces
to add on.
o "Strobe Alarm Security System," is a
complete, wireless, motion detection home
security package. Wall mounted motion
detector with 120E radius, emits a
120 decibel alarm and sends RF signal to an
outside alarm as well. Two remote controls
included. Companion pieces include:
o The Glass/Window Alert
o Mini-Magnetic Door/Window alarm
o Glass Breakage Commander
o Magnetic Sensor Commander
o Additional Remote Controls
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(2) Non Security Products.
We out source the manufacture and market the following
non-security consumer products:
o "Clampit Cupholder", a licensed
product, designed as a plastic, adjustable cupholder,
with a unique clamping arm that allows the user to
attach to virtually anything. Perfect for lawn
chairs. The cupholder clamp can be adjusted so that
the holder is always upright.
o "Clampit Plateholder", a licensed
product, designed as a plastic holder for paper or
plastic plates, has the same patented clamp as the
Cupholder, allowing user to attach to almost anything
and at any angle. Perfect for lawn chairs so you no
longer have to hold your plate in your lap.
o "Horizontal Phone Case", patent
pending, is a uniquely designed, leather cell phone
case that attaches to a user's belt horizontally.
User no longer has to worry about getting jabbed in
the side by cell phone when sitting down. Available
in three sizes.
(d) Manufacturing and Distribution.
We, through our foreign and domestic manufacturing agents, manufacture,
design and build our tooling, molds and products. Our administrative offices are
located in Little Rock, Arkansas and Ft. Lauderdale, Florida. Additionally, we
have a distribution facility in Hong Kong, provided to us as an accommodation by
one of our suppliers. We sub-contract our manufacturing for tooling and
production in Shenchen, China, Temple City, California and Sandwich, Illinois.
We distribute all of the domestic and certain of our international business out
of our Little Rock facility, most international business is shipped directly to
the customer from our Hong Kong location. We believe we can provide low-cost
quality products because labor-intensive products are manufactured in China,
where labor costs are lower. Our plastic injection and gun lock products can be
manufactured competitively in the U.S. due to automation. Our central warehouse
facility is in Little Rock where following manufacture, with the exception of
our international business as previously noted, products are delivered complete
and ready for delivery to our customers.
Our distribution strategy includes direct selling and marketing. We do
not currently utilize commissioned independent sales representatives. We
anticipate that we will develop sales promotion and sales development activities
which will be directed towards giving selling assistance to the independent
sales representatives through aids such as brochures, product samples and
demonstration products. We will establish a Web site which will serve both as an
additional marketing tool, and will provide a platform from which we will be
able to provide various support services to our independent sales
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representatives. We also anticipate that we will seek to motivate our
independent sales representatives through the use of special incentive programs
that reward superior sales performance. We also anticipate utilizing trade
shows, both on a local and national level to promote our products and to attract
qualified sales representatives.
Our management will attempt to maintain sufficient inventory levels to
meet customer's demands but there can be no assurance that we will be successful
in doing so. Turnaround time from the date an order is placed until received in
our distribution center normally is between four to six weeks. This quick
turnaround time allows us to maintain minimum inventory levels. However since we
out source our manufacturing, a good portion of which is done in China, it is
difficult to predict the efficiency of our vendors.
(e) Competition.
We operate in a very competitive industry, dominated by national and
international companies with well-established brands all of whom are better
capitalized, have more experience in our industry and have established varying
degrees of consumer loyalty. There are no assurances we will ever be successful
in establishing our brands or penetrating our target markets. Some of our
competitors in the business sectors which we will be operating in are:
o Gun safety competitors include: Master Lock (which presently
controls 60-70% of the market), Noble Security and Shot Lock.
o Automotive security competitors include: Bulldog, Rally and
Code Alarm.
o Personal security competitors are varied and mostly smaller
vendors.
o Non-security product competitors include: various small and
large vendors participate in this field.
We are subject to competition that is expected to intensify in the
future because we believe that the number of competitors is increasing. There
are no significant barriers to entry into our markets. We feel our greatest
difficulties in competing come in areas such as gun safety where our competitors
are bigger, better known, and have greater resources including capital and
personnel. We realize it is important to achieve brand name recognition in
establishing market share, which, in turn generates additional market share
giving consumers preferences for brand names. We believe that while brand names
operate effectively in mainstream product distribution, there is significant
opportunity for lesser known names with specific products and solutions that
appeal to consumers.
It is critical for us to be selective in the products we select to
bring to market, and management has been effective in developing products that
can be priced advantageously and obtain consumer acceptance as well as approval
from the mass merchandisers whose relationships we have, over the years,
cultivated. In addition, we believe that impulse buying is more prominent when
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products are sold below the $20 threshold. We believe that consumers have
responded favorably to our lower priced products. Accordingly, the keys to our
maintaining a competitive position are product design, pricing quality of
product and the maintenance of favorable relationships with various mass
merchandisers.
(f) Principal Suppliers and Manufacturers.
Our principal suppliers and manufacturers are:
o Uni Skit Technologies, Inc., a Chinese company which
manufactures our auto and body alarm systems.
o Uni Tat International, Inc., a Chinese company which
manufactures the gun locks and auto alarm systems.
o Security Limited, a Little Rock, Arkansas company,
manufactures the Pepper Spray.
o Taico Designs, a company located in Chicago, Ill. manufactures
the cup and plateholder.
o Emsal Tekin a company located in Istanbul, Turkey,
manufactures the horizontal phone case.
o Nimax Los Angeles Corporation, a Temple City, California
company which manufactures gun locks.
The Company derived the following percentage of products from each of
the named suppliers for the period January 1, 1999 to March 1, 2000, as follows:
Uni Skit Technologies, Inc. - 41%
Uni Tat International, Inc. - 46%
Security Limited - 7%
Taico Designs - 6%
With the exception of Nimax Los Angeles Corporation and Uni Skit
Technologies, Inc., we have no contractual relationship with our manufacturers.
For the past two years Uni Skit and Uni Tat have supplied approximately 80% of
our products. We believe our relationships with our suppliers and manufacturers
is satisfactory, however should any of them cease providing for us, we believe
they can be replaced within 30 days, without difficulty and at competitive cost.
On May 12, 1997, we contracted with Uni Skit to manufacture certain of
our products, and to share ownership rights, research and development costs with
respect to all products developed on a joint basis. The contract provides for
the following:
the parties will equally share ownership
rights and related project costs
Uni Skit shall have the exclusive right of
manufacture, subject to competitive pricing
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DAC has exclusive rights to market and sell
in North and South America
Uni Skit has exclusive rights to market and
sell in Asia and the Pacific Rim; except
that Uni Skit may not solicit DAC's existing
customers in Japan
the parties may otherwise solicit business
anywhere not otherwise excluded; except that
Uni Skit shall honor DAC's existing
exclusive contracts in Germany and England
Neither party may solicit the other's
customers as they may exist at the time of
the agreement
all intellectual property rights developed
for the products subject to this agreement,
are considered owned by both parties
Because we did not conduct any material business activities in the
areas in which Uni Skit has exclusivity, and because Uni Skit is precluded from
interfering with our existing customers, we do not believe that this arrangement
has cut off any former sources of revenue.
The products currently being offered by us and which are subject to
the Uni Skit Agreement are the following:
o Strobe Alarm Products
o Key Alert
o Body Alarm
o Protect All
o SWAT Auto Alarm
o SWAT II Talking Car Alarm
o SWAT II Non-Talking Car Alarm
o Warning Module
Our manufacturing arrangements with Uni Tat, Taico Design, and Security
Limited are all on a fixed-priced, per unit basis. With Uni Tat, we own all of
the gun-lock tooling and molds. We have no written arrangements with these
manufacturers.
In March 2000, we negotiated an agreement with Nimax Los Angeles
Corporation, to manufacture our gun lock products. The prices negotiated will
permit us to realize savings over the costs paid to our current manufacturer.
The terms of the agreement include:
o DAC will pay for and own all tooling and molds which will be used
exclusively for DAC's products;
o Nimax will not manufacture any product which infringes on DAC's
patents or patent's pending; or which are identical to, derived
from, or copies of DAC's gun locks;
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o Nimax may continue to manufacture gun locks for Shot Lock, a
DAC competitor, and DAC agrees not to contest any patent
infringement action against Shot Lock;
o the agreement may be renegotiated every two years;
o the agreement may be terminated after six months of business
inactivity, although Nimax will continue to honor DAC's patent
rights.
We expect to begin receiving product from Nimax in July 2000.
(g) Customers.
Although we have numerous customers, we sell on the basis of purchase
orders, primarily to national retail chains such as Wal-Mart, K-Mart, Walgreens,
Pep Boys, Discount Auto, Advance Auto Sales and Radio Shack. In 1998 Wal-Mart
accounted for 14% of our gross revenues and 28% in 1999. In 1999, K-Mart
accounted for 17% of our gross revenues.
We have entered into a "Blanket Purchase Order" with Savage
Arms(Canada) Inc., a significant national gun manufacturer which provides for
the following:
o the contract runs for a period of one year but may be
terminated on three months notice.
o we are required to maintain an inventory equal to three weeks
of requirements relative to the most recent scheduled release.
o the contract provides for 90,000 pieces of the trigger lock
mechanism.
In April, 2000 we received a $20,880 Walgreens purchase order for
10,440 Steel Trigger Locks. We are advised by Walgreens that it intends to
distribute this product among all 3000 of its stores.
In addition, our customer base also includes numerous regional and
national distributors and smaller retailers. We also sell to distributors in
Europe, Asia, South and Central America and the Far East, including the
following:
o Germany - SWAT II Talking Car Alarm (speaks German), SWAT
Steering Wheel Alarm w/remote, Warning Module and Key Alert.
o England - SWAT II Talking Car Alarm, both SWAT Steering
Wheel Alarms.
o Japan - SWAT Steering Wheel Alarm, Glass/Window Alarm.
(h) Intellectual Property.
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We believe that protection of proprietary rights to our products is
important because, as we are in a highly competitive market, a patent provides
us with a competitive advantage by limiting or eliminating similarly designed
competitive products.
To this end, we have obtained U.S. patents on certain of our products
as follows:
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Model Patent No. Expiration
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TVP 095 Trigger Lock Value Pack Des. 375,342 2009
SWA 03 SWAT Steering Wheel Alarm Des. 365,774 2009
KAL 201 Personal Safety Alarm Des. 355,863 2008
Key Chain Alarm 5,475,368 2008
GWA 001 Glass/Window Alarm Des. 371,086 2009
Defense Spray and Flashlight Des. 375,994 2009
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In addition, we have patents pending on our steel trigger gun lock and
horizontal phone case products. We have entered into a licensing agreement
giving us the exclusive right to sell the patented Clampit Cup and Plate Holder
in the U.S., with certain minor exceptions.
We intend to register our product names, although we may not be
successful in doing so particularly because of their generic character. As we
develop trademarks, trade names, copyrights or other intellectual property
rights, we may seek to protect these, as well as those related to the products
listed above, by registration in the United States and other countries where
these products may be marketed.
Depending upon the development of our business, we may also wish to
develop and market products which incorporate patented or patent-pending
formulations, as well as products covered by design patents or other patent
applications.
While we may seek to protect our intellectual property, in general,
there can be no assurance that our efforts to protect our intellectual property
rights through copyright, trademark and trade secret laws will be effective to
prevent misappropriation of our products. Our failure or inability to protect
our proprietary rights could materially adversely affect our business, financial
condition and results of operations. Moreover, inasmuch as we will often seek to
out source manufacture products which are similar to those being manufactured by
others, it is also critical for us to insure that our manufactured products do
not infringe upon existing patents of others.
(i) Governmental Regulations.
We have obtained the required approval from the Federal Communications
Commission for the Rf signals emitted by our remote control units. We are not
aware of any other required governmental approvals on any of our products.
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While not directly affecting our business, there is a likelihood of
governmental regulations requiring trigger locks on guns. If such regulations
are passed, they presumably will serve to increase the demand for our products
and sales in the gun safety area. Government regulations may, however, be
promulgated to regulate these devices.
(j) Research and Development.
We do not incur any research and development costs. We develop our
products internally, utilizing the expertise of our manufacturers, and input
from our customers. Any R & D cost incurred by our manufacturers is passed on to
us in the pricing of the tooling and molds. We do not pass such costs on to our
customers. Because of our close relationships with our customers, we are able to
determine the level of interest in a particular product before investing
significant time or capital in its development. Once a potential new product is
identified, we utilize the services of a patent attorney to assure that we do
not infringe upon anyone's patent rights. We also design our own packaging
internally.
Working closely with our manufacturers' engineers, a final design for a
product and cost estimations are completed. If management determines that a
product can be produced at competitive prices, and the interest level justifies
production, we proceed with having a mold made. We own the molds for all of our
gun-lock products. After pre-production samples are made and approved, full
production begins.
(k) Environmental Laws.
We incur no costs and suffer no adverse effects by complying with
environmental laws (federal, state and local).
(l) Employees.
We currently employ five employees, all of whom are full-time:
President & Chief Executive Officer, Chief Financial Officer, salesman,
receptionist, & shipping clerk. There are no collective bargaining agreements or
contracts.
(m) Reports to Security Holders
Copies of this report, including exhibits to the Report and other
materials filed with the SEC that is not included herein, may be inspected and
copied, without charge, at the Public Reference Room,450 Fifth Street, N.W.,
Washington, DC 20549. Information on the operation of the Public Reference Room
may be obtained by calling the Commission at 1-800-SEC-0330. In addition, the
Commission maintains an Internet site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
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ITEM 2. DESCRIPTION OF PROPERTY
Our corporate headquarters are located at 3200 N. Ocean Blvd, Suite
1002, Ft. Lauderdale, FL 33308 consisting of 500 square feet, with telephone
number (954) 375-0119. The lease term is month to month at a $1,400 per month
rent.
We have a 5,000 square foot office/warehouse at 1601 Westpark Dr.,
Suite 4C, Little Rock, AR 72204. Approximately 1,500 square feet is office and
3,500 square feet is warehouse. All of the accounting and shipping functions are
performed out of this location, as well as some sales. This space is leased for
two years, expiring February 1, 2001, with monthly rent of $2,325. There are no
renewal options. We believe there are adequate alternative facilities at
reasonably competitive prices in the event these leases terminate.
ITEM 3. LEGAL PROCEEDINGS
We are currently unaware of any pending legal proceeding or any
proceeding contemplated by a governmental authority in which we may be involved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public trading market for our common stock. We have no
outstanding options, warrants or other securities that could be converted into
common stock. As of March 31, 2000, there were approximately 29 holders of
record of our 5,024,500 shares of common stock outstanding.
We have not paid a cash dividend on the common stock since inception.
The payment of dividends may be made at the discretion of our Board of Directors
and will depend upon, among other things, our operations, our capital
requirements and our overall financial condition. Although there is no
restriction to pay dividend, as of the date of this registration statement, we
have no intention to declare dividends.
On July 31, 1998, we issued 3,630,000 founders' shares of common stock
to principally the same stockholders, and in the same ratio as the ownership
ratio of the DAC Arkansas. Because these persons had a preexisting relationship
12
<PAGE>
with us and access to relevant information concerning us, the issuance of such
securities was exempt from the registration requirements of the Securities Act
pursuant to the exemption set forth in Section 4(2) of the Securities Act..
These shares were issued for our par value, $0.001. These shares may only be
sold in compliance with Rule 144. Of these 5,054,500 shares currently
outstanding, 3,825,000 shares are restricted securities within the meaning of
Rule 144(a)(3) promulgated under the Securities Act of 1933, as amended, because
such shares were issued and sold by the Company in private transactions not
involving a public offering.
On December 31, 1998, pursuant to an offering, we sold 1,000,000 shares
of our common stock for $200,000 or $0.20 per share to 15 investors who were
either accredited or otherwise sophisticated investors with whom we had
pre-existing relationships and access to relevant information concerning the
Company in a private placement exempt from registration under the Securities Act
in reliance on Rule 504 of Regulation D of the Securities Act. Approximately
500,000 shares of the offering were made to affiliates of the Company. At the
same time, we issued 30,000 shares of common stock for legal services to our
former securities counsel, Atlas, Pearlman, Trop and Borkson, P.A.
On December 23, 1998, Uni Skit, one of our major suppliers, agreed to
convert $251,936 of its debt to 165,000 of our common shares. The transaction
was made in reliance on Section 4(2) of the Securities Act, as the purchaser was
sophisticated, has full access to all material information and took the shares
for investment purposes.
In April 1999, pursuant to a private placement, we sold 199,500 shares
of our common stock for $39,500 or $0.20 per share to 3 investors who were
either accredited or otherwise sophisticated and with whom we had a pre-existing
relationship and who had access to all material information. The transaction was
exempt under and Rule 504 of Regulation D of the Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR 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 10KSB 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
13
<PAGE>
parties, but there can be no assurance that management's expectations, beliefs
or projections will result or be achieved or accomplished.
(a) Background
DAC Arkansas was formed in 1993, and began selling its Body Alarm, a
small, beeper sized, 130 decibel, electronic personal security alarm, which
retails for under $10. In 1994, we brought to market our patented Key Alert, a
110 decibel hand held alarm with key chain and built-in flashlight. Other
products followed over the next few years, including the patented SWAT Steering
Wheel Alarm, SWAT II Talking Car Alarm, and the patented Clampit Cupholder and
Plateholder.
In 1994, we developed our patented Trigger Lock, an inexpensive,
plastic trigger lock for handguns. Recognizing the public's and government's
concern for gun safety, we have developed a new Metal Trigger Lock, a steel Gun
Lock, and a Lever Hammer Lock for lever action rifles. All of these gun safety
devices are currently carried by Wal Mart, Walgreens and K Mart. We have devoted
a significant amount of time and effort the past year in establishing ourselves
in the area of gun safety.
o Develop a National Sales Force
We have in the past utilized national and regional manufacturing sales
representatives, with varied success. We believe use of such sales
representatives is a cost-effective method of reaching mid-sized and regional
retail outlets as well as national distributors. To properly monitor and
motivate these sales representatives, we intend to hire a national sales
manager.
o Develop New Products.
Our success has been due, in part, to our ability to continue
developing new consumer products. We currently offer over thirty products in
personal, home and automotive security, gun safety, and non-security products
such as our patented Clampit Cupholder and Plateholder. In addition to the Metal
Trigger Lock, we have also recently completed development of a leather
horizontal cell phone case. This new product will be available early in 2000. We
believe that with our relationships with major retailers such as Wal Mart, K
Mart, and Walgreens, and the capabilities of our manufacturers, we can continue
to identify consumer products that we can produce that are of high quality and
competitively priced.
o Internet
We have entered into an agreement with Anaxis Internet Services,
located in North Little Rock, Arkansas, to develop and design a Web site for our
company. We have acquired the rights to several Internet domain names, most
notably dactec.com and dactechnologies.com.
14
<PAGE>
We are still in the initial design stages for our Web site, but
anticipate it will include a company profile, product information and E-commerce
capabilities. We have targeted June 30, 2000 for completion of this project.
o Direct Mailings
We have had success in identifying specific target groups and utilizing
mass mailings and faxing. Sales of our Patient Alert, used by nursing homes and
hospitals to alert staff when confined patients attempt to get out of their bed
or wheelchair, has been developed and continues to increase as a result of this
type of advertisement. We have begun similar efforts to leading gun
manufacturers and distributors, as well as police, sheriff and state law
enforcement agencies with regards to our gun safety locks. We intend to continue
to use direct mailings whenever specific target groups can be identified as
potential purchasers of any of our products.
o Expansion/Upgrade of Accounting and Management Systems.
Current accounting and management systems have been satisfactory in
maintaining accurate accounting data and in aiding management decisions. With
anticipated growth in sales and products, it will be necessary to upgrade these
systems to insure accurate data and to properly control costs, manage inventory,
track cash flows, as well as provide timely information required for quarterly
SEC filings.
(b) Financial Condition and Results of Operations .
Year Ended December 31, 1999 compared to the year ended December 31,
1998.
At December 31, 1999, the Company had working capital of $124,472 as
compared to $58,931 at December 31, 1998. This increase of $65,541 was due to
the increase in current assets of $290,651, offset by an increase in current
liabilities of $225,110. The significant items causing these increases are as
follows:
Current Assets
Cash decreased $53,608, from a balance of $68,042 at December 31, 1998
to a balance of $14,434 at December 31, 1999. As noted in the Notes to
Financial Statements, the Company factors its receivables. The Company
funds its cash needs by borrowing from its factor against these
receivables. The Company typically only borrows sufficient cash funds
to meet its short-term cash needs, thereby saving interest charges on
funds borrowed. The December 31, 1998 cash balance was higher than what
the Company normally maintains due to the $200,000 cash raised in
December 1998 through the sale of company stock.
Accounts receivable balances at December 31, 1999 were $453,384 as
compared to $204,805 at December 31, 1998, an increase of $248,579.
Payment terms of the Company's customers are typically 30 to 60 days.
15
<PAGE>
Sales for the last two months of 1999 were $377,264 as compared to
$247,974 for the last two months of 1998. This increase was primarily
due to the sales of gun locks, of which the new metal trigger lock was
first shipped to customers in December 1999.
Inventories increased $77,515 from $305,924 at December 31, 1998 to
$383,439 at December 31, 1999. This increase was due to the purchases
by the Company of its new metal trigger lock for anticipated orders
during the first quarter of the year 2000.
Current liabilities
Funds borrowed from our factor increased $146,562. Balances were
$298,709 and $157,147 at December 31, 1999 and December 31, 1998,
respectively. This increase was due to the Company's increased cash
needs to pay for the higher inventory levels, as noted above.
Current maturities of long-term debt increase $80,191, from $88,191 at
December 31, 1998 to $168,652 at December 31, 1999. This increase was
due primarily to the classification of the Company's bank loan, which
matured February 14, 2000. At December 31, 1998, most of the loan
balance of $230,029 was classified as a long-term debt, whereas all of
the balance of $155,492 at December 31, 1999 was classified as
short-term debt.
Sales revenues for the year ended December 31, 1999 were $2,136,887 as
compared to $2,044,634 for the year ended December 31, 1998, an increase of
$92,253. Sales revenues for the Company's gun locks increased $645,599 from
$276,448 for the year ended December 31, 1998 to $922,047 for the year ended
December 31, 1999. Sales revenues for the Company's security products decreased
$453,187, from $1,479,808 for the year ended December 31, 1998 to $1,026,621 for
the year ended December 31, 1999. Sales revenues for the Company's non-security
products decreased by $100,159, from $288,378 to $188,219 for the same period.
While overall sales revenues did not change significantly, the changes by
business segments reflects the results of management's decision to concentrate
sales and marketing efforts on its gun lock products.
Operating expenses were $715,137 for the year ended December 31, 1999
as compared to $777,914 for the year ended December 31, 1998. This decrease of
$62,777 is a result of the Company's efforts to reduce operating expenses in all
areas, without harming its ability to operate efficiently.
Interest expense was $82,255 for the year ended December 31, 1999 as
compared to $137,604 for the year ended December 31, 1998, a decrease of
$55,349. This decrease was a result of the contribution by Company shareholders
of $348,867 of debt to the capital of the Company on September 30, 1998.
16
<PAGE>
Net income for the year ended December 31, 1999 was $121,405 as
compared to a net loss of $57,659 for the year ended December 31, 1998, an
increase of $179,064. This increase was a result of the increase in sales and
decreases in operating expenses and interest expense as described above.
Net income for security products was $829 for the year ended December
31, 1999 as compared to a net loss of $125,671 for the year ended December 31,
1998, an increase of $126,500. This increase was realized despite the $455,187
decrease in sales revenues for security products. The Company allocates
operating expenses to the various business segments based on sales revenues.
Because of the decrease in sales revenues for security products and the increase
in sales revenues for gun locks, a much smaller percentage of operating expenses
have been allocated to security products for the year ended December 31, 1999 as
compared to the year ended December 31, 1998.
Net income from gun locks was $92,360 for the year ended December 31,
1999 as compared to $34,612 for the year ended December 31, 1998, an increase of
$57,748. This increase is due to the increase in sales revenues for gun locks of
$645,599, offset by the increase in operating expenses allocated to gun locks,
as described above.
Net income for non-security products was $28,216 for the year ended
December 31, 1999 as compared to $33,400 for the year ended December 31, 1998.
This decrease of $5,184 is a result of the decrease in sales revenues on
non-security products.
Year Ended December 31, 1998 compared to the year ended December 31,
1997.
At December 31, 1998, the Company had working capital of $58,931 as
compared to a working capital deficit of $26,584 at December 31, 1997. The
increase in working capital of $85,515 can be attributed to the cash infusion of
$200,000 from the private sale of 1,000,000 shares of the Company's common stock
in December, 1998.
Sales revenues for the year ended December 31, 1998 were $2,044,634
compared to $2,501,368 for the year ended December 31, 1997, decrease of
$456,734. Sales revenues of security products decreased $785,576 from $2,265,384
for the year ended December 31, 1997 to $1,479,808 for the year ended December
31, 1998. Sales revenues for gun locks increased $61,901, from $214,547 for the
year ended December 31, 1997 to $276,448 for the year ended December 31, 1998.
These changes are result of management's decision to concentrate the Company's
efforts into developing, designing and marketing the Company's line of gun
safety products which significantly affected sales of Company's security
products. The benefits to be realized in future sales of gun locks will not be
fully realized until the year 2000.
Sales revenues of Non-security products was $288,378 for the year ended
December 31, 1998 as compared to $21,437 for the year ended December 31, 1997,
an increase of $266,941. The only products in this business segment are the
Clampit Cupholder and Plateholder which were first sold in December 1997. The
year ended December 31, 1998 was the first full year of production and sales of
these products.
17
<PAGE>
Operating expenses for the year ended December 31, 1998 were $777,913
compared to $730,376 for the year ended December 31, 1997. This increase of
$47,537 was due primarily to an increase in consulting fees
The Company had a net loss of $57,659 for the year ended December 31,
1998 as compared to net income of $190,245 for the year ended December 31, 1997,
a decrease of $247,904. This decrease is due to the decrease in sales revenues
of $456,734.
The Company had a net loss on security products of $125,671 for the
year ended December 31, 1998 as compared to net income of $146,831 for the year
ended December 31, 1997. This decrease in net income of $275,502 is due to the
decrease of $785,576 in sales revenues from security products.
The Company had net income from gun locks of $34,612 for the year ended
December 31, 1998 as compared to net income of $43,242 for the year ended
December 31, 1997, a decrease of $8,630. The Company allocates operating
expenses to its business segments based on sales revenues. Because sales
revenues from security products decreased significantly and sales revenues of
gun locks increased, the percentage of operating expenses allocated to gun locks
increased significantly. This caused net income on gun locks to decrease despite
the increase in sales revenues.
The Company had net income from non-security products of $33,400 for
the year ended December 31, 1998 as compared to net income of $172 for the year
ended December 31, 1997. This increase of $33,228 was due to the increase in
sales of non-security products.
o 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 effect our short term liquidity. For the period ending
December 31, 1999, we owed our factor approximately $298,000. In 1994, DAC
Arkansas' shareholders and the Company obtained a $500,000 line of credit. The
notes reflecting the advances were consolidated and commencing March 1999, we
are required to pay $10,000 for 11 months, with a balloon payment of $137,301,
plus accrued interest due on February 14, 2000. The interest rate is 9.5% and
the loan is collateralized by our inventories and personal guarantees of our
founding stockholders. We believe our revenues will be sufficient to pay these
obligations. If not, we will seek to refinance them or request our shareholders
to pay their guarantees.
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<PAGE>
o Trends
The recent flurry of 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. Sales of our gun locks products for the fiscal
year ending December 3, 1999, totaled $922,047 as compared to $276,448 for the
fiscal year ending December 31,1998. Sales for the first quarter of 2000 were
$317,824.
ITEM 7. FINANCIAL STATEMENTS
Our financial statements are contained in pages _____through
________following.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Sweeney, Gates & Co. advised us on January 6, 2000, that it will
decline reappointment for the upcoming fiscal year. Sweeney, Gates & Co. report
on our financial statements for the past two (2) years has not contained an
adverse opinion or disclaimer of opinion or was qualified or modified, as to
uncertainty, audit, scope, or accounting principals. The decision to change
accountants was not recommended or approved by any audit committee or similar
committee of the Board of Directors or by the Board of Directors. During the two
most recent fiscal years and during any subsequent interim period preceding the
declination, there were no disagreements with Sweeney, Gates & Co. on any manner
of accounting principals or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Sweeney, Gates & Co., would have caused it to make a reference
to the subject matter of the disagreements in connection with its report. The
reason for the declination is that the bulk of our business and administration
is located in Little Rock, Arkansas, as opposed to Fort Lauderdale, Florida, and
as such we have engaged the CPA firm of Moore Stephens Frost, LLP to serve as
our independent accountants and prepare the audited statements included as
Exhibits hereto and for the upcoming fiscal year.
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<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following sets forth the names and ages of our executive officers
and directors. Directors are elected annually at our annual meeting of
stockholders, and serve for the one year term for which they are elected and
until their successors are duly elected and qualified. Our officers are
appointed by the board of directors and serve at the board's discretion.
<TABLE>
<CAPTION>
Name Age Position Term
- ---- --- -------- ----
<S> <C> <C> <C>
David A. Collins 54 President, CEO/Director 2000-2001
Robert C. Goodwin 43 CFO/Director 2000-2001
Larry Legel 53 Secretary/Director 2000-2001
John C. Collins 33 Vice President-Sales 2000-2001
</TABLE>
David A. Collins has served as the Company's President and CEO since
its inception in July 1998. From 1992 continuously until September 1998, Mr.
Collins was President and CEO of DAC Arkansas.
Larry Legel has been a Director of the Company since its inception in
July 1998, as well as a Director of DAC Arkansas. Mr. Legel is an independent
CPA, and has owned and managed a CPA firm, Larry Legal, CPA, continuously since
at least January 1995
Robert C. Goodwin has served as the Company's CFO since its inception
in July 1998, as well as DAC Arkansas continuously since 1993.
John C. Collins is the son of David A. Collins and has served as a
regional sales manager of the Company since July 1998, and DAC Arkansas
continuously since 1994.
Compliance With Section 16(a) of the Securities Act of 1934
-----------------------------------------------------------
Section 16(a) Beneficial Ownership Reporting Compliance Based
upon the Company's review of forms filed by directors, officers and certain
beneficial owners of the Company's common stock (the "Section 16 Reporting
Persons") pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company has identified the following Form 3
filings that were filed late by the Section 16 Reporting Persons during fiscal
2000
20
<PAGE>
o David A. Collins
o Larry Legal
o Collins Family Trust
o Dan R. Lasater
o Gerald E. Hannahs, Jr.
o Robert C. Goodwin
o Collins Children's Trust
The Company is not aware of any failures by the Section 16 Reporting
Persons to file the forms required to be filed by them pursuant to Section 16 of
the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation received for services rendered to us during the fiscal year ended
December 31, 1999. Other annual compensation consists of health insurance
premiums paid for by us on behalf of the named officers, and in some cases, the
spouse and dependents of the named officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name & Other Restricted Securities
Principal Annual Stock Underlying LTIP All other
Position Year Salary($) Bonus($) Compensation(5) Awards Options Payouts Compensation
- -------- ---- ------ ----- --------------- ------ ------- ------- ------------
($) ($) SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David A.
Collins, CEO 1999 52,000 3,827
52,000[1]
Robert C.
Goodwin, CFO 1999 54,000 5,089
John C.
Collins,
VP Sales 1999 36,000 19,175 2,509
</TABLE>
- ----------
[1] These funds were paid to Telephone Connections Network, Inc., a company
owned by the Collins Family Trust, as consulting fees.
Board Compensation
Our directors do not receive cash compensation for their services as
Directors.
21
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of December 31, 1999 by (a) each
person known by us to be the beneficial owner of five percent or more of the
outstanding common stock and (b) all executive officers and directors both
individually and as a group. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable, we believe that
each of the shareholders named in this table has sole or shared voting and
investment power with respect to the shares indicated as beneficially owned.
Applicable percentages are based upon 5,024,500 shares of common stock
outstanding.
(a) Security Ownership of Certain Beneficial Owners .
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent
Title of Class Beneficial Owner Beneficially Owned of Class
- -------------- ---------------- ------------------ --------
<S> <C> <C> <C> <C>
Common Stock Gerald E. Hannahs, Jr. 1,157,500 (1) 23%
17710 Leatha Lane
Little Rock, AR 72211
Common Stock Dan R. Lasater 1,157,500 (1) 24.4%
Hinson Rd.
Little Rock, AR
Common Stock David A. Collins 316,750 6.3%
3200 N. Ocean Blvd #1006
Ft. Lauderdale, FL 33308
Common Stock Ralph Coppess 316,500 (2) 6.3%
1004 Commerce St.
Little Rock, AR
Common Stock Collins Family Trust 816,750(3) 16%
c/o Larry Legel
1425 NE 57th Place
Ft. Lauderdale, FL 33334
Common Stock Collins Children's Trust 500,000(3) 9.95%
c/o Larry Legel
1425 NE 57th Place
Ft. Lauderdale, FL 33334
</TABLE>
(1) 88,390 and 205,640 shares are held respectively by H & L Holdings and
Phoenix Mortgage, companies jointly controlled by Gerald Hannahs, Jr. and Dan
Lasater, each has been allocated 1/2 the combined shares or 197,525 shares.
(2) These shares are held by Jasper Marketing, a corporation controlled by Ralph
Coppess.
(3) Larry Legel is the Trustee of both Trusts with full voting power. David
Collins claims neither beneficial ownership nor control of the shares held the
Trusts. The beneficiaries of the Collins Children's Trust are Payton P. Collins
and David A. Collins. Jr. The beneficiaries of the Collins Family Trust are
Payton P. Collins, David A. Collins, Jr. and John Christopher Collins.
22
<PAGE>
(b) Security Ownership of Management
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent
Title of Class Beneficial Owner Beneficially Owned of Class
- -------------- ---------------- ------------------ --------
<S> <C> <C> <C>
Common Stock Larry Legel 181,500(1) 3.6%
1425 NE 57th Place 1,498,250 26.2%
Ft. Lauderdale, FL 33334
Common Stock David A. Collins 316,750 6.3%
3200 N. Ocean Blvd #1006
Ft. Lauderdale, FL 33308
Common Stock Total Officers & Directors 498,250 9.9%
</TABLE>
- ----------
(1) Includes 181,500 shares of Common Stock held jointly with wife; 500,000
shares owned by the Collins Children's Trust and 816,750 owned by the Collins
Family Trust, both of which Mr. Legel is the Trustee with full voting power.
There are no arrangements which may result in a change in control of
the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Acquisition of Our Predecessor's Assets and Liabilities
o On September 30, 1998, and as amended on
September 27, 1999, the Company entered
into an asset purchase agreement, which
included the following provisions:
o we acquired assets of the DAC Arkansas,
totaling $939,150, and assumed liabilities
totaling $1,104,783. Not included in this
transaction was a receivable from David
Collins, certain bridge loans, stockholder
advances, an automobile, certain accounts
payable, accrued commissions and accrued
payroll. The assets included: inventory
valued at approximately $295,000; property,
plant and equipment at approximately
$300,000; accounts receivable valued at
approximately $309,000; patents and misc.
asset $35,000.
The liabilities included: assumption of
accounts payable of $475,000, accrued
interest of $27,000, payroll taxes of
approximately $67,000, approximately
$240,000 in commercial notes; and
approximately $293,000 outstanding balance
of a factoring agreement
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<PAGE>
Related parties to the transaction included
David Collins, our president; Gerald Hannahs
and Dan Lasater, principal shareholders; and
Larry Legal, our secretary/director.
In the opinion of management, the terms of
the asset purchase agreement were as
favorable as those that could have been
obtained from unrelated parties.
(b) DAC Arkansas
In previous periods, the DAC Arkansas had significant related party
transactions, including loans to and from stockholders.
o Prior to September 23, 1998, DAC Arkansas had loaned a principal
shareholder, the Collins Family Trust and Telephone Connections Network,
Inc.(1), a company wholly-owned by the Collins Family Trust, approximately
$340,000, and David Collins, the company president, approximately $143,000.
During the same period, Gerald Hannahs and Dan Lasater, principal shareholders
of the Company, loaned DAC Arkansas approximately $464,000.
o On September 23, 1998, Gerald Hannahs and Dan Lasater, the
Company's principal shareholders, purchased, from DAC Arkansas, $174,603 of
notes and accrued interest receivable owed by David Collins, our president, to
DAC Arkansas. The consideration was an equal amount of notes payable to these
stockholders.
o On September 30, 1998, Gerald Hannahs and Dan Lasater, our
principal shareholders, contributed $348,867 of notes payable and accrued
interest to the capital of the DAC Arkansas. Consulting fees of $52,000 and
$61,500 for the years ended December 31, 1999 and December 31, 1998,
respectively, are payments to Telephone Connections Network, Inc., a Company
consultant, for rendering the consulting services to DAC Arkansas and the
Company. These fees were paid primarily to David Collins, our president, who was
employed by Telephone Connections, Inc., and its only experienced personnel.
Taken along with his salary, in the opinion of management, the services rendered
for this compensation was at least as favorable to the Company as that which
could have been obtained from unrelated parties.
(c) Contractual Relationships
We and our predecessor have two major suppliers in China-Uni Skit
Technologies, Inc. and Uni Tat International, Inc.- from whom we purchase, on
average more than 80% of our products. On December 23, 1998, Uni Skit, one of
our major manufacturers and suppliers, agreed to convert $251,936 of its debt to
165,000 of our common shares. The transaction was made in reliance on Section
4(2) of the Securities Act, as the purchaser was sophisticated, has full access
to all material information and took the shares for investment purposes. As of
September 30, 1999, we owe this supplier $26,026. In 1997, we contracted with
Uni Skit to share ownership rights, research and development costs with respect
24
<PAGE>
to all parties developed on a joint basis. Uni Skit also has the exclusive right
of manufacturing certain products providing it can handle our requirements. The
contract also gives us the exclusive right to market and sell our joint products
in North and South America, and gives Uni Skit the same exclusive rights in the
Pacific Rim. The parties have non-exclusive rights to market and sell in other
parts of the world. Our contract with Uni Skit was negotiated arms-length, and
at the time, Uni Skit was an unrelated party.
On March 1, 1995, DAC Arkansas entered into a consulting agreement with
Telephone Connections Network Inc., a company controlled by the Collins Family
Trust, to provide sales and marketing advice to the Company. The Collins Family
Trust was created for the benefit of members of the family of David Collins, the
Company's president. Mr. Collins disclaims any beneficial interest in the trust.
The trustee of Trust is Larry Legal, the Company's Secretary and a director. The
fees paid under the consulting agreement are subject to agreement between the
parties. The agreement expires on March 1, 2000, but can be terminated on 30
days notice. In the opinion of management, the amount of consulting fees paid
were at least as favorable to the Company as those which would have been paid to
unrelated parties. Telephone Connections Network, Inc. is a Florida corporation
formed on November 8, 1993, by Larry Legel, our Secretary and director. The
original purpose of the company was to invest in multilevel marketing telephone
companies. It, however, did not engage in any such activities and remained
dormant until 1995. In 1995, the corporation through its officers Larry Legel
and David Collins, our president, provided consulting services to the Company,
its sole client. Billings have averaged between $4,000 and $6,000 per month. The
consulting arrangement was terminated on March 1, 2000 and will not be renewed.
(d) Promoters and Founders
On July 31, 1998 we issued 3,630,000 shares of our common stock to
principally the same shareholders of our predecessor, DAC Arkansas, i.e. Collins
Family Trust, Dan Lasater and Gerald Hannahs, for par value, in the same ratio
of ownership in the latter, in reliance on section 4(2) of the Securities Act.
Although this was a non-arms length transaction, at the time, in the opinion of
management was as favorable as could have been obtained from unrelated parties.
(e) Factoring Agreement
On April 10, 1995, DAC Arkansas entered into a factoring agreement that
is renewable annually. By agreement with the factor, CIT Group/Commercial
Services, Inc., we assumed this agreement on October 1,1998. The factoring fees
range from .65% to 1.8% monthly depending on the creditworthiness and location
of an account, i.e. domestic or foreign. An additional fee of .25% is charged
for each 30 day period, or part thereof, when the terms of sale exceed 30 days.
Fees are calculated on the gross face value of each invoice. In addition to the
factoring fees interest is charged on the outstanding funds in use at the
greater of 7% or 1.25% above prime. The amounts borrowed are secured by our
accounts receivable. For the year ending December 31, 1999, we owed our factor
approximately $298,000. This was an arms-length transaction.
25
<PAGE>
(f) Line of Credit/ Loans
On April 15, 1994, DAC Arkansas' stockholders entered into note
agreements with the Mercantile Bank in Little Rock, Arkansas for a line of
credit totaling $500,000. On February 12, 1999, several principal shareholders
and the Company jointly borrowed, for the benefit of the Company, $230,722
evidenced by a promissory note whose terms require 11 monthly payments of
$10,000, beginning March 12, 1999, with a balloon payment of $137,301 plus
accrued interest, due on February 14, 2000. The interest rate is 9.5%. The loans
are collateralized by our inventories. This was an arms-length transaction.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are incorporated by reference from the
Registrant's Form 10-SB filed with the Securities and Exchange Commission (the
"Commission") file #000-29211, on January 28, 2000 and not yet declared
effective.
Exhibit Description
- ------- -----------
2 Asset Purchase Agreement
3.1 Articles of Incorporation
3.2 Bylaws
10.1 Consulting Agreement
10.2 Lease
10.3 Factoring Agreement
10.4 Uni-Skit Agreement
16 Declination Letter of Sweeney, Gates & Co.
The following documents are filed as a part of this Report.
10.5 Nimax Los Angeles Corporation Agreement
PART F/S
26
<PAGE>
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,
thereunto duly authorized.
DAC Technologies Group International, Inc.
By: David A. Collins
----------------------
President
Date: April 13, 2000
27
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
December 31, 1999 and 1998
Financial Statements
With
Independent Auditor's Report
<PAGE>
Independent Auditor's Report
----------------------------
Board of Directors and Stockholders
DAC Technologies Group International, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying balance sheet of DAC Technologies
Group International, Inc. as of December 31, 1999 and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements as of December 31, 1998 were audited by
other auditors whose report dated September 30, 1999, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of DAC Technologies
Group International, Inc. as of December 31, 1999, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Certified Public Accountants
Little Rock, Arkansas
February 4, 2000
F-1
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
------ ----------- --------
<S> <C> <C>
Current assets
Cash $ 14,434 $ 68,042
Accounts receivable, less allowance for doubtful
accounts of $19,649 and $23,682 in 1999 and
1998, respectively 453,384 204,805
Inventories 383,439 305,924
Prepaid expenses 24,525 6,360
----------- ---------
Total current assets 875,782 585,131
----------- ---------
Property and equipment
Furniture and fixtures 99,197 96,643
Molds, dies, and artwork 336,937 319,906
Vehicles 34,709 32,209
----------- ---------
470,843 448,758
Accumulated depreciation (173,781) (124,063)
----------- ---------
Net property and equipment 297,062 324,695
----------- ---------
Other assets
Patents and trademarks, net of
accumulated amortization of $2,528 and $589 in
1999 and 1998, respectively 32,516 27,469
Other 5,700 --
----------- ---------
Total other assets 38,216 27,469
----------- ---------
Total assets $ 1,211,060 $ 937,295
=========== =========
</TABLE>
F-2
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1999 1998
------------------------------------ ----------- ---------
<S> <C> <C>
Current liabilities
Due to factor $ 298,709 $ 152,147
Accounts payable-trade 128,120 86,762
Accounts payable-related parties 52,582 98,186
Accrued payroll tax withholdings 76,147 56,352
Accrued expenses other 27,100 44,562
Current maturities of long-term debt 168,652 88,191
----------- ---------
Total current liabilties 751,310 526,200
----------- ---------
Long-term debt, less current maturities 60,133 173,781
----------- ---------
Stockholders' equity
Common stock, $.001 par value; authorized 10,000,000 shares; issued and
outstanding 5,024,500 and 4,825,000 shares at December 31, 1999
and 1998, respectively 5,024 4,825
Additional paid-in capital 633,821 594,120
Stock subscription receivable (2,632) (3,630)
Retained earnings (deficit) (236,596) (358,001)
----------- ---------
Total stockholders' equity 399,617 237,314
----------- ---------
Total liabilities and stockholders' equity $ 1,211,060 $ 937,295
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Operations
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 2,136,887 $ 2,044,634
Cost of sales 1,243,695 1,186,775
----------- -----------
Gross profit 893,192 857,859
----------- -----------
Operating expenses
Selling 281,215 383,862
General and administrative 433,922 394,052
----------- -----------
Total operating expenses 715,137 777,914
----------- -----------
Income from operations 178,055 79,945
----------- -----------
Other income (expense)
Interest expense (82,255) (137,604)
Other income 25,605 --
----------- -----------
Total other income (expense) (56,650) (137,604)
----------- -----------
Income (loss) before income tax expense 121,405 (57,659)
Provision for income taxes -- --
----------- -----------
Net income (loss) $ 121,405 $ (57,659)
=========== ===========
Numerator - net income (loss) $ 121,405 $ (57,659)
Denominator - weighted average number of shares outstanding 4,975,308 3,644,348
----------- -----------
Basic earnings (loss) per share $ 0.02 $ (0.02)
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Stockholders' Equity
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional Stock
--------------------- Paid-in Subscription Retained
Shares Amount Capital Receivable Earnings Total
------ ------ ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances - December 31, 1997 3,630,000 $ 3,630 $ 300 $ (3,630) $ (300,342) $ (300,042)
Contribution of related party
debt to capital -- -- 349,067 -- -- 349,067
Assets not acquired -- -- (200,488) -- -- (200,488)
Conversion of debt to equity 165,000 165 251,771 -- -- 251,936
Issuance of stock for cash 1,000,000 1,000 187,500 -- -- 188,500
Issuance of stock for services 30,000 30 5,970 -- -- 6,000
Net loss -- -- -- -- (57,659) (57,659)
--------- ------- --------- -------- ----------- ----------
Balances - December 31, 1998 4,825,000 4,825 594,120 (3,630) (358,001) 237,314
Issuance of stock for cash 199,500 199 39,701 -- -- 39,900
Payments on subscription
receivable -- -- -- 998 -- 998
Net income -- -- -- -- 121,405 121,405
--------- ------- --------- -------- ----------- ----------
Balances - December 31, 1999 5,024,500 $ 5,024 $ 633,821 $ (2,632) $ (236,596) $ 399,617
========= ======= ========= ======== ========== ==========
</TABLE>
The accompanying notes are integral part of these financial statements.
F-5
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 121,405 $ (57,659)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 49,718 46,642
Amortization 1,939 589
Changes in assets and liabilities
Accounts receivable (248,579) 10,191
Inventories (77,515) 465
Prepaid expenses (18,165) (1,875)
Other assets (5,700) --
Accounts payable - trade 41,358 (296,432)
Accounts payable - related party (45,604) 98,186
Accrued payroll tax withholdings 19,795 18,196
Accrued expenses other (17,462) (37,610)
--------- ---------
Net cash provided by (used in) operating activities (178,810) (219,307)
--------- ---------
Cash flows from investing activities
Purchases of property and equipment (22,085) (92,783)
Purchases of patents and trademarks (6,986) --
Increase in notes receivable - related party -- (17,400)
--------- --------
Net cash provided by (used in) investing activities (29,071) (110,183)
--------- ---------
Cash flows from financing activities
Increase (decrease) in due to factor 146,562 (69,002)
Net change in notes payable-related parties 3,000 121,073
Proceeds on long-term debt -- 144,687
Payments on long-term debt (36,187) --
Proceeds from issuance of common stock 39,900 194,500
Payments on stock subscription receivable 998 --
--------- ---------
Net cash provided by (used in) financing activities 154,273 391,258
--------- ---------
Increase (decrease) in cash (53,608) 61,768
Cash - beginning of year 68,042 6,274
--------- ---------
Cash - end of year $ 14,434 $ 68,042
========= =========
</TABLE>
The accompanying notes are integral part of these financial statements.
F-6
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1999 and 1998
1. 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. These
products, along with other items manufactured in the United States, are sold
primarily to major retail chains in the United States and Germany.
2. Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
a. 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. Effective September 30, 1998, the
Company acquired certain assets from and assumed certain liabilities of a
related company, DAC Technologies of Arkansas, Inc. ("DAC Arkansas"),
formerly known as DAC Technologies of America, Inc., an Arkansas
corporation. On September 17, 1999, DAC Arkansas changed its name to DAC
Technologies of Arkansas, Inc. The ownership of both companies was the
same as of the date of the transaction (September 30, 1998). Since the
companies were under common control, the combination was accounted for in
a manner similar to a pooling of interest and the companies have been
shown as combined for all periods presented.
b. 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 as of the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
c. Cash equivalents - The Company considers all highly liquid investments
with original maturities of three months or less at the time of purchase
to be cash equivalents.
d. Inventories - Inventories are stated at the lower of average cost or
market. Costs include freight and applicable customs fees.
e. Property and equipment - Property and equipment are stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets that range from five to eleven years.
f. Patents and trademarks- Costs incurred in connection with the acquisition
of patents and trademarks are capitalized and amortized over their
estimated useful lives.
F-7
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1999 and 1998
2. Organization and Summary of Significant Accounting Policies (cont.)
-----------------------------------------------------------
g Income taxes - The Company utilizes the liability method of accounting for
deferred income taxes. The liability method requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between tax basis and financial
reporting basis of assets and liabilities. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount
that is expected to be realized.
Prior to September 30, 1998, the Company, with the consent of its
stockholders, had elected to be treated as an "S" Corporation under the
Internal Revenue Code. Accordingly, all taxable income or loss flowed
through to the stockholders. No income tax expense or liability was
recorded in the accompanying financial statements prior to September 30,
1998.
h. Revenue recognition - The Company records sales when merchandise is
shipped to the customer. Allowances are provided when merchandise is
returned.
i. Earnings per share - Earnings per share have been calculated using the
weighted average number of shares outstanding for each year. The Company
has no dilutive shares or options outstanding.
j. Advertising - Advertising costs are expensed as incurred. Total
advertising expenses were approximately $3,300 and $12,725 for the years
ended December 31, 1999 and 1998, respectively.
k. Reclassifications - Certain reclassifications have been made to the 1998
balances in order to conform to the 1999 presentation.
l. Recent applicable accounting pronouncement - In April 1998, the Accounting
Standards Executive Committee of the AICPA issued Statement of Position
98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP
98-5 requires that start-up costs, including organization costs, be
expensed as incurred. The effect of adoption of this pronouncement was
immaterial.
3. Inventories
-----------
Inventories consist of:
1999 1998
---- ----
Finished goods $ 251,288 $ 222,277
Inventory in transit 113,882 59,348
Parts 18,269 24,299
------- ---------
$ 383,439 $ 305,924
========= =========
F-8
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1999 and 1998
4. Factoring Agreement
-------------------
On October 1, 1998, the Company assumed a factoring agreement from the
Predecessor. This agreement, which is renewable annually, provides for
factoring fees of .65% to 1.8% monthly depending on the creditworthiness and
location of an account (domestic or foreign). An additional fee of 1/4 of 1%
is charged for each thirty-day period, or part thereof, when the terms of
sale exceed ninety-days. Fees are calculated on the gross face value of each
invoice. In addition to factoring fees, interest is also charged on the
outstanding funds in use. The interest rate is the greater of 7% or 1.25%
above prime (8.5% at December 31, 1999). The amounts borrowed are
collateralized by the Company's accounts receivable.
5. Long-Term Debt
--------------
Long-term debt consists of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Note payable to bank; payable $10,000 monthly, including interest at
9.5%, with remaining balance due February 2000, secured by
inventory and by personal guarantees of the Company's
stockholders. $ 155,492 $ 230,029
Note payable to a financing company; payable in monthly installments
of $524, including interest at 9.75%, with remaining balance due
November 2001; secured by certain vehicles. 28,626 31,943
Note payable to a financing company; payable in monthly installments
of $9,000, including interest at 16%; with the remaining balance
due June 2000; secured by equity in factored receivables. 41,667 --
Note payable to shareholder; payable on demand, unsecured. 3,000 --
--------- ---------
228,785 261,972
Less current maturities 168,652 88,191
--------- ---------
Long-term debt, less current maturities $ 60,133 $ 173,781
========= =========
</TABLE>
F-9
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1999 and 1998
5. Long-Term Debt (cont.)
--------------
Aggregate maturities of long-term debt are as follows:
Year Ended
----------
2000 $ 168,652
2001 60,133
---------
$ 228,785
=========
The Company made interest payments on long-term debt totaling
approximately $47,600 and $51,400 during the years ended December 31, 1999
and 1998, respectively.
6. Equity
------
On July 31, 1998, the Company issued 3,630,000 founders' shares of
common stock to principally the same stockholders, in the same ratio as the
ownership ratio of DAC Arkansas. Amounts owed on these shares are reflected
as stock subscriptions receivable in the accompanying financial statements.
On September 30, 1998, the minority stockholders contributed $349,067
of notes payable and accrued interest to the capital of the Company.
On December 23, 1998, one of the Company's major suppliers agreed to
convert $251,936 of its debt to equity in the Company in exchange for 165,000
shares of common stock, thereby making it a related party.
On December 31, 1998, pursuant to a private placement offering, the
Company raised a net of $188,500 and issued 1,000,000 shares of common stock,
of which 500,000 shares were to companies affiliated with existing
stockholders. At the same time, the Company issued 30,000 shares of common
stock for legal services valued at $6,000 and charged the $6,000, and an
additional $5,500 of other expenses, against the proceeds of the offering.
In April 1999, pursuant to a private placement offering, the Company
issued 199,500 shares of common stock for $39,900 to certain existing
shareholders.
F-10
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1999 and 1998
7. Income Taxes
------------
Reconciliations of the differences between income taxes computed at the
Federal statutory tax rates and the provision for income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Income taxes computed at Federal statutory tax rate $ 41,277 $ (71,101)
State tax provision, net of Federal benefits 5,208 (8,971)
Change in valuation allowance (50,950) 79,627
Other 4,465 445
-------- ---------
Provision for income taxes $ -- $ --
======== =========
Temporary differences that give rise to significant deferred tax assets
(liabilities) are as follows:
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Tax basis in excess of financial basis in intangible
assets $ -- $ 62,367
Net operating loss carryforward 29,122 17,260
-------- ---------
Total deferred tax assets 29,122 79,627
Valuation allowance (29,122) (79,627)
-------- ---------
Net deferred tax asset $ -- $ --
======== =========
</TABLE>
At December 31, 1999, the Company had net operating loss carry forwards
available for Federal and state income tax purposes of approximately $76,000
which will begin expiring unless utilized in 2018. Based upon the uncertainty
of the realization of this deferred tax asset, a valuation allowance of
$29,122 is reflected in the accompanying financial statements for the year
ended December 31, 1999.
8. Related Party Transactions
--------------------------
During its history, the Company had significant related party
transactions, including loans to and from its president and stockholders.
Prior to September 23, 1998, the Company had loaned the majority stockholder,
(The Collins Family Trust, "CFT") and Telephone Connections Network, Inc.
("TCN"), wholly owned by CFT, approximately $340,000. The Company had also
loaned its president approximately $143,000. During the same period, the
minority stockholders loaned the Company approximately $464,000.
F-11
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1999 and 1998
8. Related Party Transactions (cont.)
--------------------------
On September 23, 1998, the minority stockholders purchased from the
Company, $174,603 of notes and accrued interest receivable owed by the
president and CFT to the Company. Consideration was an equal amount of notes
payable to these stockholders.
On September 30, 1998, and as amended on September 27, 1999, the
Company entered into an asset purchase agreement, wherein it acquired the
assets and liabilities of DAC Arkansas (see Note 2). The transaction did not
include a receivable from a major stockholder and President, certain bridge
loans, stockholder advances, an automobile, certain accounts payable, accrued
commissions and accrued payroll totaling $200,488. This amount was eliminated
from additional paid-in capital when the companies were combined.
Consulting fees of $52,000 and $61,500 were paid to TCN during the
years ended December 31, 1999 and 1998, respectively, under the terms of a
consulting agreement which expired March 1, 2000 and has not been renewed.
9 Commitments and Contingencies
-----------------------------
The Company currently leases office and warehouse space under a lease
that expires on February 1, 2001. Minimum future rental payments under this
non-cancellable lease as of December 31, 1999 are as follows:
2000 $ 27,900
2001 2,325
--------
$ 30,225
========
Rent expense for the years ended December 31, 1999 and 1998 was
approximately $40,980 and $28,080, respectively.
In connection with the purchase transaction, if DAC Arkansas' creditors
were to institute litigation, the Company could be liable to certain of DAC
Arkansas' unsecured creditors for up to approximately $119,000, representing
the remaining outstanding liabilities of DAC Arkansas as of September 30,
1998. No accrual has been made for this contingency.
F-12
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1999 and 1998
10. Major Customers and Suppliers
-----------------------------
During the year ended December 31, 1999, the Company had aggregate
sales to four customers that exceeded ten percent of total net sales. Sales
to these individual customers were 26.4%, 20.9%, 11.2% and 11.1% of net
sales. One customer accounted for 14.0% of the Company's sales during the
year ended December 31, 1998.
During the year ended December 31, 1999, the Company purchased 46% and
42%, respectively, of its products from two major suppliers. During the year
ended December 31, 1998, the Company purchased 79% of its products from one
major supplier. The Company is dependent upon these suppliers continuing in
business and their ability to ship to the United States, but believes that
they could replace these suppliers, if required to, at similar quality and
terms.
11. Concentration of Credit Risk
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable
with a variety of customers. The Company provides credit in the normal course
of business to its customers and performs ongoing credit evaluations of its
customers. It maintains allowances for doubtful accounts and provisions for
returns and credits based on factors surrounding the specific customers and
circumstances. The Company generally does not require collateral from its
customers. Credit risk is considered by management to be limited due to the
Company's customer base and its customer's financial resources.
12. Financial Information by Business Segment
-----------------------------------------
The Company operates in three primary business segments delineated by
products. The three segments are security products, gun locks and
non-security products (cup holders and plate holders). The accounting
policies of the Company's segments are the same as those described in Note 2.
Organization and Summary of Significant Accounting Policies. The Company's
revenues are derived from sales in the United States and Germany. The
Company's long-lived assets are located in the United States and China.
Information concerning operations in these segments of business is as
follows:
1999 1998
----------- -----------
Revenues:
Security products
United States $ 786,596 $ 1,201,957
Germany 240,025 277,851
Gun-locks 922,047 276,448
Non-security products 188,219 288,378
-------- -----------
Total $ 2,136,887 $ 2,044,634
=========== ===========
F-13
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1999 and 1998
12. Financial Information by Business Segment (cont.)
-----------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Net income:
Security products
United States $ 589 $ (102,070)
Germany 240 (23,601)
Gun-locks 92,360 34,612
Non-security products 28,216 33,400
----------- ----------
Total $ 121,405 $ (57,659)
=========== ==========
Identifiable assets:
Security products
United States 586,298 542,308
China 120,718 141,590
Gun-locks
United States 340,682 78,864
China 45,897 33,230
Non-security products 72,806 66,901
Corporate 44,659 74,402
----------- ----------
Total $ 1,211,060 $ 937,295
=========== ==========
</TABLE>
Molds used to manufacture the Company's security products and gun locks
are located in China (See Note 1).
F-14
Exhibit 10.5
DAC
TECHNOLOGIES
AGREEMENT
---------
This Agreement is entered into this date by and between DAC Technologies Group
International, Inc.(DAC) and Nimax Los Angeles Corporation (Nimax).
It is understood and agreed that DAC wishes Nimax to manufacture gun locks for
DAC, and that Nimax wishes to manufacture said gun locks for DAC.
DAC shall pay for all tooling and molds, and such molds shall be the property of
DAC. Said molds shall be used only to manufacture products for DAC and not for
any other third party. It is also understood that Nimax will not manufacture
locks for any third party that violate any of DAC's patents or patents pending.
Nimax also agrees not to manufacture locks for any third party that are
identical, derived from, or copies of DAC's gun locks. Nimax shall have the
right to continue to manufacture the plastic trigger lock for Shot Lock, and DAC
agrees not to pursue its patent rights on this product against Shot Lock.
Agreed to this 17th day of March 2000
Nimax Los Angeles Corporation DAC Technologies Group International, Inc.
By: /s/ By: /s/
------------------------- ------------------------
Larry Ni David A. Collins
*Signature only valid with the following additional conditions:
- - Review of above agreement every two years.
- - If after six months of business inactivity between DAC and Nimax, the
above agreement will be terminated. Nimax will continue to uphold DAC's
rights to its patents and patents pending.
- - All toolings an molds paid for by DAC will be returned to DAC if
business between DAC and Nimax becomes terminated.
Please initial and return a copy.
D.C.
<PAGE>
5818 Kaufman Avenue NIMAX
Temple City, California 91780 LOS ANGELES
TEL: (626) 286-2180, 286-2182 CORPORATION
FAX: (626) 286-2192 SINCE 1982
http://www.nimaxcorp.com
<TABLE>
<CAPTION>
Dac quote revision April 11, 2000
- ------------------------------------------------------------------------------------------
Model Description Quotation
(U.S.$)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
MTL-099 o Steel trigger lock 0.436
o One key Same
o Poly-bag and instructions Same
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MTL-099 Tooling 2,980.00
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MTL-099 Blister packaging with card 0.550
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MTL-100 Three MTL-099's in blister pack with card 1.42 each
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PTL-101 o Plastic version of MTL-099 0.250
o One key same
o Poly-bag and instructions same
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PTL Tooling 1,000.00
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PTL-099 Blister packaging with card 0.330
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PTL-100 Three PTL-101's in blaster packaging with card 0.900
3-pack
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PLT-101C TVP-101 chrome-plated 0.295
PLT-101C Blister packaging with card 0.393
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GL-100 Keyed gun look 0.880
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GL-100 Blister packaging with card 0.960
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GL-100 Tooling 8,800.00
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GL-100 o Cable look with new curved latch 0.580
o Regular plastic bag
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CL-003 Tooling 1,950.00
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LHL-096 o Level Hammer Look 0.320
o Poly-bag with instructions
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LHL-096 Blister packaging with card 0.470
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LHL-096 Tooling 1,250.00
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LHL-096 o Old plastic trigger lock 0.180
o One key
o Poly-bag with instructions
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TVP-095 o Three TVP-096's in blister packaging with card (0.720)
o One key per lock (67)
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TVP-096 Tooling 1,000.00
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TVP-096E TVP-096 with the new English threaded bolt 0.25
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TVP-096E Three TVP-096's in blister pack with card 0.90
(3-pack)
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</TABLE>
