UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
Amendment No. 2
to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
DAC Technologies Group International, Inc.
(Name of Small Business Issuer in its charter)
Florida
(State or other jurisdiction of incorporation or organization)
65-0847852
(I.R.S. Employer Identification No.)
3200 N. Ocean Blvd., Suite 1006
Ft. Lauderdale, FL 33308
(Address of principal executive offices)
(954) 375-0119
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001
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TABLE OF CONTENTS
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PART I..........................................................................................................-1-
ITEM 1. DESCRIPTION OF BUSINESS................................................................................-1-
History and Business Development.......................................................................-1-
Business Plan..........................................................................................-2-
Products...............................................................................................-2-
Security Products...........................................................................-2-
Non Security Products.......................................................................-4-
Manufacturing and Distribution.........................................................................-5-
Competition............................................................................................-5-
Principal Suppliers and Manufacturers..................................................................-6-
Customers..............................................................................................-8-
Intellectual Property..................................................................................-8-
Governmental Regulations...............................................................................-9-
Research and Development..............................................................................-10-
Environmental Laws....................................................................................-10-
Employees.............................................................................................-10-
Reports to Security Holders...........................................................................-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION...............................................................................................-11-
Background............................................................................................-11-
Financial Condition and Results of Operations.........................................................-12-
Liquidity and Capital Resources.......................................................................-15-
ITEM 3. DESCRIPTION OF PROPERTY...............................................................................-16-
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...................................................................................-16-
Security Ownership of Certain Beneficial Owners.......................................................-16-
Security Ownership of Management......................................................................-17-
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS......................................................................-18-
ITEM 6. EXECUTIVE COMPENSATION................................................................................-18-
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................................-19-
ITEM 8. DESCRIPTION OF SECURITIES.............................................................................-22-
PART II........................................................................................................-23-
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ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS....................................................................-23-
ITEM 2. LEGAL PROCEEDINGS.....................................................................................-23-
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.........................................................-23-
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES...............................................................-24-
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS..............................................................24
PART F/S........................................................................................................26
PART III. Index and Description of Exhibits....................................................................27
SIGNATURES......................................................................................................28
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PART I
This discussion in this Registration Statement regarding our company
and its business and operations contain "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.
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 5,024,500
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, consolidation, or purchase or sale of a
significant amount of assets not in the ordinary course of business.
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(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 and K-Mart. The majority of our products are
manufactured and imported from mainland China and shipped to a central location
for distribution in Little Rock, Arkansas.
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 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
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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 will be available at the
retail level in a three-piece value pack and as a single
unit. It will also be 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 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 thefollowing 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
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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 120(degree) radius, emits a
120decibel 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
(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
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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 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 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
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 will be operating 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
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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 are 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
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
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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 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:
o the parties will equally share ownership rights and related project
costs
o Uni Skit shall have the exclusive right of manufacture, subject to
competitive pricing C DAC has exclusive rights to market and sell in
North and South America
o 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
o 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
o Neither party may solicit the other's customers as they may exist at
the time of the agreement
o all intellectual property right 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
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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.
(g) Customers.
Although we have numerous customers, we sell on the basis of purchaser
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 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.
We believes 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:
Model Patent No. Expiration
----- ---------- ----------
TVP 095 Trigger Lock Value Pack Des. 375,342 2009
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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
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.
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.
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(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
This registration statement will be automatically effective 60 days
after the initial filing date of January 28, 2000, and we will be subject to
reporting requirements at that time. Copies of the registration statement,
including the exhibits to the Registration Statement 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. MANAGEMENTS 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 10SB for
any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, expectations, future events or performances and underlying
assumptions and other statements which are other than statements of historical
facts. Certain statements contained herein are forward-looking statements and,
accordingly, involve risks and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. The Company's expectations, beliefs and projections are expressed in
good faith and are believed by the Company to have a reasonable basis, including
without limitations, management's examination of historical operating trends,
data contained in the Company's records and other data available from third
parties, but there can be no assurance that management's expectations, beliefs
or projections will result or be achieved or accomplished.
(a) Background
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 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.
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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 not yet ventured into what we see as the ever-expanding
opportunities available through the Internet. There are some distributors and
retail chains that offer our products through their own Web sites. In
anticipation of making use of the Internet to market our products, we have
acquired the rights to several Internet domain names such as "trigger-lock.com"
and "gun-lock.net". We intend to pursue the Internet potential early in 2000.
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 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, 1998 compared to the year ended December 31,
1997.
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. The decrease of
$456,734 can be attributed to a variety of factors. The most significant factor
was management's decision to concentrate the Company's efforts to developing,
designing and marketing the company's line of gun safety products. These
efforts, significantly affectd sales efforts of the Company's other products.
The benefits to be realized in future sales will not be realized until the year
2000.
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 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, was due
mainly to the decrease in sales revenues as discussed above.
A discussion of results of operations by operating segments follows:
-12-
<PAGE>
Security Products
Sales revenues for security products were $1,479,808 in 1998, as
compared to $2,265,384 in 1997. This decrease of $785,576 is due mainly to the
Company's increased efforts to develop and market its gun lock products, to the
detriment of sales of its security products.
The Company realized a net loss on its security products in 1998 of
$125,671, as compared to net income of $146,831 in 1997. This decrease in net
income of $272,502 is due to the decrease in sales discussed above.
Gun Locks
Sales revenues for gun locks were $276,448 in 1998 as compared to
$214,547 in 1997. This increase of $61,901 was a result of the Company's sales
and marketing emphasis in this area.
Net income from gun locks was $34,612 in 1998, as compared to $43,242
in 1997, a decrease of $8,630. Because the sales of security products decreased
significantly from 1997 to 1998, the percentage of the Company's sales
attributed to gun locks increased from 8.6% in 1997 to 13.5% in 1998. The
Company allocates selling, general and administrative expenses to the operating
segments based on sales revenues, so the amount of these expenses allocated to
gun locks increased more than the increase in sales, resulting in the $8,630
decrease in net income.
Non-security Products
Sales revenues of non-security products were $288,378 in 1998 as
compared to $21,437 in 1997. The only products in this segment are the Clampit
Cupholder and Plateholder. Sales of these products did not begin until late in
1997. 1998 was the first full year of production and sales, which accounts for
the significant increase in sales.
Net income from non-security products was $33,400 in 1998 and $172 in
1997. The increase of $33,228 was due to the increase in sales of these
products.
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.
-13-
<PAGE>
o Nine months ended September 30, 1999 compared to nine months
ended September 30, 1998.
Sales revenues for the nine months ended September 30, 1999 were
$1,683,948 compared to $1,655,455 for the nine months ended September 31, 1997.
Income from operations for the nine months ended September 30, 1999 was
$176,163, an increase of $75,271 from the nine months ended September 30, 1998.
This increase is due to management's efforts to control and reduce selling,
general and administrative expenses, which decreased $74,011.
Net income for the nine months ended September 30, 1999 was $114,620 as
compared to a net loss of $14,170 for the nine months ended September 30, 1998.
This $128,790 increase is due to the decrease in selling, general and
administrative expenses noted above, and a decrease in interest expense by
$53,519. The decrease in interest expense is due to the contribution to capital
of certain notes payable by minority shareholders on September 30, 1998.
A discussion of results of operations by operating segments follows:
Security Products
Sales revenues for security products were $812,345 for the nine months
ended September 30, 1999, as compared to $1,187,150 for the nine months ended
September 30, 1998. This decrease of $374,805 was due mainly to the Company's
increased efforts to develop and market its gun lock products, to the detriment
of sales of its security products.
The Company realized net income for its security products for the nine
months ended September 30, 1999 of $4,422, as compared to a net loss of $88,542
for the nine months ended December 31, 1998, an increase in net income of
$92,964. The Company allocates general selling and administrative expenses to
its business segments based on sales revenues. Since the Company sales revenues
from security products decreased significantly, and the sales of its gun locks
increased significantly the percentage of general, selling and administrative
expenses allocated to security products decreased proportionately.
Gun Locks
Sales revenues for gun locks were $656,685 for the nine months ended
September 30, 1999, as compared to $210,100 for the nine months ended September
30, 1998. This increase of $446,585 was a result of the Company's sales and
marketing emphasis in this area, the benefits of which the Company began to
realize during 1999.
Net income from gun locks was $82,958 for the nine months ended
September 30, 1999 as compared to $34,372 for the nine months ended September
30, 1998, an increase of $48,586. This increase is due to the increase in sales
as noted above.
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<PAGE>
Non-security Products
Sales revenues of non-security products was $186,415 for the nine
months ended September 30, 1999 as compared to $286,698 for the nine months
ended September 30, 1998, a decrease of $100,283. The only products in this
segment are the Clampit Cupholder and Plateholder. These products did not
perform as well at the retail level as the Company had hoped and this is
reflected in the sales revenue for 1999.
Net income from non-security products was $27,240 for the nine months
ended September 30, 1999 as compared to $40,000 for the nine months ended
September 30, 1998. This decrease of $12,760 was due to the decrease in sales as
noted above.
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
September 30, 1999, we owed our factor approximately $294,000. 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.
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 nine
months ending September 30, 1999, totaled $656,685 as compared to $210,100 for
the nine months ending September 30,1998. Sales for the fourth quarter of 1999
were $265,362.
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<PAGE>
ITEM 3. 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 4. 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 5,054,500 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>
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%
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<PAGE>
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.
(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 1,498,250(1) 26.2%
1425 NE 57th Place
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.
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<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
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.
ITEM 6. 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, 1998. 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.
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
-----------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted Securities All Other
and Compen- Stock Underlying LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
- -------- ---- --------- --------- ---------- -------------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David A.
Collins, CEO 1998 52,000 5,000
61,500[1]
1999 52,000 3,827
52,000[1]
Robert C.
Goodwin, CFO 1998 54,000 4,000
1999 53,000 5,089
John C.
Collins,
VP Sales 1998 36,000 18,000 4,000
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.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) ACQUISITION OF OUR PREDECESSORS 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.
-19-
<PAGE>
o 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.
o 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
o Related parties to the transaction included David
Collins, our president; Gerald Hannahs and Dan Lasater,
principal shareholders; and Larry Legal, our
secretary/director.
o 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 $10,500, $51,000
and $120,000 for the three months ended December 31, 1998, for the nine months
ended the September 30, 1998 and for the year ended December 31, 1997,
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 Network, 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.
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<PAGE>
(c) Contractual Relationships
We 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 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.
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<PAGE>
(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 period ending September 30, 1999, we owed our
factor approximately $294,000. This was an arms-length transaction.
(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 8. DESCRIPTION OF SECURITIES
(A) COMMON STOCK.
We are authorized to issue 10,000,000 shares of common stock, par value
$0.001 per share, of which 5,054,500 shares were issued and outstanding as of
January, 2000. All of the issued and outstanding common stock is fully paid and
non-assessable.
Each share of common stock entitles the holder thereof to one vote in
the election of directors and all other matters upon which stockholders are
entitled to vote. There are no cumulative voting rights, which means that the
holders of more than 50% of the outstanding shares voting for the election of
directors can elect all of the directors to be elected, if they so choose. In
such event, the holders of the remaining shares will not be able to elect any of
our directors.
Each share of common stock entitles the holder thereof to receive cash
dividends as the Board of Directors may declare from funds legally available
therefore. However, we do not intend to declare any dividend on our common stock
in the foreseeable future.
There are no preemptive rights with respect to our common stock. Upon
liquidation, dissolution or winding up of the affairs of the Company, and after
payment of creditors, the assets
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<PAGE>
legally available for distribution will be divided ratably on a share-for-share
basis among the holders of the outstanding shares of common stock.
The transfer agent and registrar for our common stock will be Florida
Atlantic Stock Transfer, Tamarac, FL.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS 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 January 26, 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.
ITEM 2. 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 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
As of the date of this Registration Statement, Sweeney, Gates & Co.,
located at 2691 East Oakland Park Boulevard, Suite 302, Fort Lauderdale, Florida
33306, served as our independent accountants and have prepared the audited
statements included as Exhibits hereto. Sweeney, Gates & Co. have 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.
-23-
<PAGE>
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
& Foster, LLP to serve as our independent accountants and prepare our audited
statements for the upcoming fiscal year.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
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
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 its 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 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our bylaws and articles of incorporation provide that no officer or
director of the Company shall be personally liable to the Company or its
shareholders for damages for breach of duty owned to the Company or its
shareholders to the fullest extent permitted by law. In addition, the Company
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<PAGE>
shall have the power to undertake to indemnify the officers and directors of the
company against any contingency or peril as may be determined to be in the best
interest of the Company.
Florida Business Corporation Act. Section 607.0850(1) of the Florida
Business Corporation Act (the "FBCA") provides that a Florida corporation, such
as the Company, shall have the power to indemnify any person who was or is a
party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 607.0850(2) of the FBCA provides that a Florida corporation
shall have the power to indemnify any person, who was or is a party to any
proceeding by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Section 607.850 of the FBCA further provides that: (I) to the extent
that a director, officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any proceeding referred to in
subsection (1) or subsection (2), or in defense of any proceeding referred to in
subsection (1) or subsection (2), or in defense of any claim, issue, or matter
therein, he shall be indemnified against expense actually and reasonably
incurred by him in connection therewith; (ii) indemnification provided pursuant
to Section 607.0850 is not exclusive; and (iii) the corporation may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section 607.0850.
-25-
<PAGE>
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides
that indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (I) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (I) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (A) a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful; (B) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (C) a circumstance under which the liability provisions
regarding unlawful distributions are applicable; (D) in a proceeding by or in
the right of the corporation to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interest of the
corporation, or willful misconduct; or (E) in a proceeding by or in the right of
someone other than the corporation or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property.
PART F/S
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
COMBINED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-1
Balance Sheet F-2
Combined Statements of Operations F-3
Combined Statement of Stockholders' Equity F-4
Combined Statements of Cash Flows F-5
Notes to Combined Financial Statements F-7
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
Balance Sheet F-14
Combined Statements of Income F-15
Combined Statements of Changes in Stockholders' Equity F-16
Combined Statements of Cash Flows F-17
Selected Notes to Combined Financial Statements F-19
-26-
<PAGE>
PART III. INDEX AND DESCRIPTION OF EXHIBITS
Exhibit Description Page
2 Asset Purchase Agreement (1)
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
10.1 Consulting Agreement (1)
10.2 Lease (1)
10.3 Factoring Agreement (1)
10.4 Uni-Skit Agreement (1)
16 Declination Letter of Sweeney, Gates & Co (1)
23 Consent of Sweeney, Gates & Co. (2)
27 Financial Data Schedule (2)
27.1 Financial Data Schedule (2)
- ----------
(1) Previously filed.
(2) Filed herewith.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Dated: April 10, 2000
By:/s/ David A. Collins
- -----------------------
David A. Collins, President and CEO
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
----
Report of Independent Certified Public Accountants F-1
Balance Sheet F-2
Combined Statements of Operations F-3
Combined Statement of Stockholders' Equity F-4
Combined Statements of Cash Flows F-5
Notes to Combined Financial Statements F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Director and Stockholders of
DAC Technologies Group International, Inc.
And DAC Technologies of Arkansas, Inc.
We have audited the accompanying balance sheet of DAC Technologies Group
International, Inc., as of December 31, 1998 and the related combined statements
of operations, stockholders' equity and cash flows of DAC Technologies Group
International, Inc. and DAC Technologies of Arkansas, Inc. for the years ended
December 31, 1998 and 1997. These financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements of, referred to above present fairly,
in all material respects, the financial position DAC Technologies Group
International, Inc. as of December 31, 1998 and the results of operations and
cash flows of DAC Technologies Group International, Inc., and DAC Technologies
of Arkansas, Inc. for the years ended December 31, 1998 and 1997, in conformity
with generally accepted accounting principles.
SWEENEY, GATES & CO.
Fort Lauderdale, Florida
September 30, 1999
F-1
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash $ 68,042
Accounts receivable, net of allowance of
doubtful accounts of $23,682 204,805
Inventories 305,924
Other current assets 6,360
---------
Total current assets 585,131
Property and equipment, net 324,695
Patents, net of amortization of $589 27,469
---------
$ 937,295
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Due to factor $ 152,147
Current portion of long term-debt 88,191
Accounts payable and accrued expenses 285,862
---------
Total current liabilities 526,200
---------
Long-term debt, less current portion 173,781
---------
Stockholders' equity :
Common stock, $.001 par value; 10,000,000 shares authorized,
4,825,000 issued and outstanding 4,825
Additional paid-in capital 594,120
Stock subscriptions receivable (3,630)
Accumulated deficit (358,001)
---------
Total stockholders' equity 237,314
---------
$ 937,295
=========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
AND DAC TECHNOLOGIES OF ARKANSAS, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales, net of returns and allowances $ 2,044,634 $ 2,501,368
Cost of sales 1,186,775 1,445,395
----------- -----------
Gross profit 857,859 1,055,973
----------- -----------
Selling, general and administrative expenses 777,914 730,376
----------- -----------
Income from operations 79,945 325,597
----------- -----------
Other income (expense):
Interest (137,604) (135,352)
----------- -----------
Other income (expense) (137,604) (135,352)
----------- -----------
Net income ( loss) ($ 57,659) $ 190,245
=========== ===========
Pro forma information (unaudited):
Net income (historical)
before income taxes ($ 57,659) $ 190,245
Income taxes -- (73,000)
----------- -----------
Net income (loss) ($ 57,659) $ 117,245
=========== ===========
Net loss per share - basic and diluted ($ 0.02) $ 0.03
=========== ===========
Weighted average shares outstanding 3,644,348 3,630,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
AND DAC TECHNOLOGIES OF ARKANSAS, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Additional Stock
Common Stock paid-in subscriptions Accumulated
Shares Amount capital receivable deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 3,630,000 $ 3,630 $ 300 (3,630) $(490,587)
Net income - 190,245
--------- --------- --------- --------- ---------
Balance, December 31, 1997 3,630,000 3,630 300 (3,630) (490,587)
Contribution of related party debt
to capital - - 349,067 - -
Assets not acquired - - (200,488) - -
Conversion of debt to equity 165,000 165 251,771 - -
Issuance of stock for cash 1,000,000 1,000 187,500 - -
Issuance of stock for services 30,000 30 5,970 - -
Net loss - - - - (57,659)
--------- --------- --------- --------- ---------
Balance, December 31, 1998 4,825,000 $ 4,825 $ 594,120 $ (3,630) $(548,246)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
AND DAC TECHNOLOGIES OF ARKANSAS, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net income (loss) $(57,659) $ 190,245
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 47,231 41,763
Allowance for doubtful accounts and returned
merchandise 32,304 97,879
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (22,113) 85,698
Inventories 465 283,948
Other current assets 30,654 48,013
Employee advances (32,529) (17,164)
--------- ---------
Increase (decrease) in:
Accounts payable and accrued expenses (217,660) (377,724)
--------- ---------
Net cash provided (used) by operating activities (219,307) 352,658
--------- ---------
Cash flows used for investing activities:
Purchase of property and equipment (92,783) (32,087)
Patents -- (10,000)
Increase in notes receivable-related parties (17,400) (86,650)
--------- ---------
Net cash used by investing activities (110,183) (128,737)
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
AND DAC TECHNOLOGIES OF ARKANSAS, INC.
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from financing activities:
Increases (decreases) due to factor ($ 69,002) ($ 59,978)
Proceeds (payments) on notes payable, related parties 121,073 (82,179)
Proceeds (payments) on notes payable, bank 44,687 (84,256)
Proceeds from bridge loans 100,000 -
Proceeds from sale of common stock 194,500 -
--------- ---------
Net cash provided (used) by financing activities 391,258 (226,413)
--------- ---------
Net increase (decrease) in cash 61,768 (2,492)
Cash at the beginning of the period 6,274 8,766
--------- ---------
Cash at the end of the period $ 68,042 $ 6,274
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest during the period $ 51,395 $ 161,602
========= =========
Cash paid for income taxes during the period $ - $ -
========= =========
Supplemental disclosure of non-cash
investing and financing activities:
Contribution of notes to capital by related parties $ 348,867
=========
Purchase of majority stockholder notes receivable
by minority stockholders $ 174,603
=========
Contribution of capital by supplier $ 251,936
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and basis of presentation - DAC Technologies of America Inc. (the
"Company"), a Florida corporation, was incorporated on July 2, 1998. The Company
changed its name in July 1999 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 prior to and
after the transaction changed by 1% and was considered not substantial. Since
these 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.
Inventories - Inventories are stated at the lower of average cost or market.
Costs include freight and applicable custom fees.
Property and equipment - Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets.
Patents - Costs incurred in connection with the acquisition of patents are
capitalized and amortized over their remaining lives. Patents have been issued
to the Company for its SWAT Steering Wheel Alarm, Gun Trigger Lock, Key Alert
and Glass/Window Alert products.
Impairment of long-lived assets - The Company evaluates the recoverability of
its long-lived assets in accordance with Statement of Financial Accounting
Standards No.121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires recognition
of impairment of long-lived assets in the event the net book value of such
assets exceeds the estimated future undiscounted cash flows attributable to such
assets or the business to which such intangible assets relate. The Company
recorded an expense, of $30,403, for the cost of molds utilized to manufacture
pepper spray, since it is no longer sold. This expense was included in selling,
general and administrative expenses.
Revenue recognition - The Company records sales when shipped to the customer. An
allowance is provided for merchandise returned.
Income taxes - Prior to September 30, 1998, the Company, with the consent of its
stockholders, had elected to be an "S" Corporation under the Internal Revenue
Code. All taxable income or loss flowed through to the stockholders.
Accordingly, no income tax expense or liability was recorded in the accompanying
financial statements prior to September 30, 1998.
Subsequent to September 30, 1998, income tax assets and liabilities are computed
for temporary differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future, based upon enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established when, based on the weight of available evidence, it is more likely
than not that some portion or all of the deferred tax asset will not be
realized. Income tax expense is the tax payable or refundable for the period,
plus or minus the change during the period in deferred tax assets and
liabilities.
F-7
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income (loss) per share - The Company accounts for earnings per share according
to Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 requires presentation of basic and diluted earnings or loss per share.
The Company has no dilutive shares or options outstanding. Earnings or loss per
share are computed by dividing net income or loss by the weighted average number
of shares outstanding during the period.
Fair value of financial instruments - The fair value of the Company's financial
instruments, consisting of accounts receivable, accounts payable, and notes
payable, approximate their carrying value.
Advertising costs - Advertising costs are charged to operations as incurred and
were $12,725 and $24,712 for the years ended December 31, 1998 and 1997,
respectively.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenue and expenses during the reporting
period. Actual results could differ from those estimated.
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 organizational costs, be expensed as incurred.
The effect of adoption of this pronouncement was immaterial.
2. NATURE OF BUSINESS AND RISKS
The Company sells imported security products such as alarms, gun locks and
similar merchandise from mainland China, and sells non-security products that
are manufactured in the United States. All products are sold to major retail
chains in the United States and Germany.
The Company provides credit in the normal course of business to its customers
and performs ongoing credit evaluations of its customers. It maintains an
allowance for doubtful accounts and provisions for returns and credits, based on
factors surrounding the specific customers and circumstances. Credit losses,
when realized, have been within the range of the Company's expectations and
historically, have not been significant. The majority of the allowance is for
returned merchandise.
The Company has one major supplier (the "Supplier"), a related party (see Note
3), from whom it purchased 79% and 100% of its products in the years ended
December 31, 1998 and 1997, respectively. The Company is dependent upon the
Supplier continuing in business and its ability to ship to the United States,
but believes that it could replace the Supplier, if it were required to, at
similar quality and terms. At December 31, 1998, the Company owed this supplier
$98,186.
F-8
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. EQUITY AND RELATED PARTY TRANSACTIONS (continued)
Contingency
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 this for contingency.
4. INVENTORIES
Inventories as of December 31, 1998, consisted of the following:
Finished goods $ 222,277
Inventory in transit 59,348
Parts 24,299
----------
Total $ 305,924
==========
5. PROPERTY AND EQUIPMENT
As of December 31, 1998, property and equipment consisted of the following:
<TABLE>
<CAPTION>
Lives
-----
<S> <C> <C>
Molds, dies and artwork $ 319,906 10 years
Furniture and fixtures 96,643 11 years
Vehicles 32,209 5 years
---------
448,758
Less: accumulated depreciation (124,063)
---------
$ 324,695
=========
</TABLE>
Depreciation expense was $44,935 and $40,122, for the years ended December 31,
1998 and 1997, respectively.
F-9
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. FACTORING AGREEMENT
On April 10, 1995, the Company entered into a factoring agreement that is
renewable annually. Factoring fees range from .65% to 1.8% monthly depending on
the creditworthiness and location of an account (domestic or foreign). An
additional fee of 1/4 of 1.0% is charged for each 30-day period, or part
thereof, when the terms of sale exceed 90 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 (7.75% at December 31, 1998). The amounts borrowed are
collateralized by the accounts receivable.
7. LONG TERM DEBT
On April 15, 1994, the Company's stockholders entered into note agreements with
a bank for a line of credit totaling $500,000. On February 12, 1999, the notes
were consolidated into one note. The terms are 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 fixed at 9.5%. The loans
are collateralized by the inventories and by personal guarantees of the
Company's stockholders.
On October 22, 1996, the Company entered into a loan agreement with a bank for
$48,952 to finance a vehicle. Monthly payments were $1,241, inclusive of
interest at ten percent, and expired on October 21, 2000. As of September 30,
1998, the loan was assumed by DAC Arkansas.
On October 23, 1998, the Company purchased a vehicle, for $32,209, which it
fully financed. The terms of the loan are 35 payments of $524 and a balloon
payment, of $21,804, with an interest rate of 9.755 %.
The following is a summary of remaining principal maturities of long-term debt:
1999 $ 88,191
2000 149,140
2001 24,641
--------
$261,972
========
8. INCOME TAXES
Pro forma income tax - The objective of the unaudited pro forma income statement
information is to show what the significant effects on the historical financial
information might have been had the Predecessor not been taxed as an S
corporation for income tax purposes through September 30, 1998. The pro forma
adjustments reflect provisions for income taxes computed based upon statutory
tax rates as if the Predecessor had been subject to federal and state taxation
during 1998 and 1997.
F-10
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (continued)
Income taxes - At December 31, 1998, the Company had available a net operating
loss carry-forward for federal and state tax purposes of approximately $48,000,
which could be applied against taxable income in subsequent years through 2018.
The Company also had a deferred tax asset, of approximately $163,000, for the
difference between the tax and financial basis of intangible assets. The tax
effect of these deferrals is approximately $81,000 and a full valuation
allowance has been recorded since the deferred tax asset realization is
uncertain.
9. COMMITMENTS
The Company leased office and warehouse space under a lease that expired on
November 30, 1997, and which continued on a month-to-month basis through
December 31, 1998. Rental expense per month was $2,340. Rental expense for the
facilities was $28,080 for the year ended December 31, 1998, and this entire
amount was recorded as a liability of DAC Arkansas. DAC Arkansas did not pay,
and the liability was not sold to the Company. Rental expense for the year ended
December 31, 1997 was $33,815.
The Company currently leases office and warehouse space under a lease that
expires on February 1, 2001, at $2,325 per month. Minimum future rental payments
under the non-cancelable lease as of December 31, 1998 are as follows:
1999 $ 25,600
2000 27,900
2001 2,300
10. 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 1. 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.
F-11
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. FINANCIAL INFORMATION BY BUSINESS SEGMENT (continued)
Information concerning operations in these segments of business is as follows:
1998 1997
---- ----
Revenues:
Security products:
United States $ 1,201,957 $ 2,265,384
Germany 277,851 --
Gun-locks 276,448 214,547
Non-security products 288,378 21,437
----------- -----------
Total $ 2,044,634 $ 2,501,368
=========== ===========
Net income:
Security products:
United States $ (102,070) $ 146,831
Germany (23,601) --
Gun-locks 34,612 43,242
Non-security products 33,400 172
----------- -----------
Total $ (57,659) $ 190,245
=========== ===========
Identifiable assets:
Security products:
United States $ 485,232 $ 603,677
China 198,666 182,398
Gun-locks 112,094 46,071
Non-security products 66,901 13,087
Corporate 74,402 505,424
----------- -----------
Total $ 937,295 $ 1,350,657
=========== ===========
Molds used to manufacture the Company's security products are located in China
(see Note 2).
One U. S. customer accounted for 15% of the Company's sales for the year ended
December 31, 1997. Sales to this customer were insignificant in 1998. A German
customer accounted for 14% of sales for the year ended December 31, 1998. The
German customer's sales were insignificant in 1997.
F-12
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
TABLE OF CONTENTS
Page
----
Balance Sheet F-14
Combined Statements of Income F-15
Combined Statements of Changes in Stockholders' Equity F-16
Combined Statements of Cash Flows F-17
Selected Notes to Combined Financial Statements F-19
F-13
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net income $ (14,170) $ 114,620
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization 35,501 32,000
Allowance for doubtful accounts and returned merchandise 29,940 10,884
Changes in assets and liabilities
Decrease (increase) in:
Accounts receivable (123,427) (233,554)
Inventories 13,113 26,084
Other current assets 29,813 (27,831)
Employee advances (32,529) (9,280)
Other assets - (5,154)
(Decrease) in accounts payable and accrued expenses (172,876) (112,209)
--------- ---------
Net cash (used) by operating activities (234,635) (204,440)
--------- ---------
Cash flows used by investing activities:
Purchase of property and equipment (46,302) (4,458)
Increase in notes receivable-related parties (17,400) (1,050)
Net cash used by investing activities (63,702) (5,508)
--------- ---------
Cash flows from financing activities:
Increase due to factor 71,509 142,146
Proceeds from notes payable, related parties 121,073 3,000
Proceeds (payments) from notes payable, banks 21,403 (51,343)
Proceeds from bridge loans 100,000 16,333
Payment of stock subscriptions receivable - 999
Proceeds from sale of common stock - 39,900
Deferred offering costs (5,500) -
--------- ---------
Net cash provided by financing activities 308,485 151,035
--------- ---------
Net increase (decrease) in cash 10,148 (58,913)
</TABLE>
F-14
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Predecessor Company
----------- -------
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Cash at the beginning of the period $ 6,274 $ 68,042
-------- --------
Cash at the end of the period $ 16,422 $ 9,129
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest during the period $ 43,067 $ 77,739
======== ========
Cash paid for income taxes during the period $ -
========
Supplemental disclosurer of non-cash
investing and financing activities:
Contribution of notes to capital by related parties $348,867
========
Purchase of majority stockholder notes receivable
by minority stockholders $174,603
========
</TABLE>
F-15
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 9,129
Accounts receivable 427,475
Inventories 279,840
Other current assets 44,521
-----------
Total current assets 760,965
-----------
Property and equipment 299,153
-----------
Other assets:
Patents 27,618
Deferred income taxes 12,507
Deposits 3,005
-----------
Total other assets 43,130
-----------
$ 1,103,248
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Due to factor $ 294,293
Current portion of long term-debt 203,762
Accounts payable and accrued expenses 173,653
Income taxes payable 12,507
-----------
Total current liabilities 684,215
-----------
Long-term debt, less current portion 26,200
-----------
Stockholders' equity:
Common stock, $.001 par value; 10,000,000 shares authorized
5,024,500 issued and outstanding 5,024
Additional paid-in capital 633,821
Stock subscriptions receivable (2,631)
Accumulated deficit (243,381)
-----------
Total stockholders' equity 392,833
-----------
$ 1,103,248
===========
</TABLE>
F-16
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1998 1999
----- ----
<S> <C> <C>
Sales, net of returns and allowances $ 1,683,948 $ 1,655,445
Cost of sales 974,632 944,869
----------- -----------
Gross profit 709,316 710,576
----------- -----------
Selling, general and administrative expenses 608,424 534,413
----------- -----------
Income from operations 100,892 176,163
----------- -----------
Other income (expense):
Interest (115,062) (61,543)
----------- -----------
Other income (expense) (115,062) (61,543)
----------- -----------
Net income(loss) before income taxes (14,170) 114,620
Income taxes-current (12,507)
Income taxes-deferred - 12,507
----------- -----------
Net income (loss) $ (14,170) $ 114,620
=========== ===========
Net loss per share - basic and diluted $ (0.00) $ 0.02
=========== ===========
Weighted average shares outstanding 3,630,000 4,954,346
=========== ===========
</TABLE>
F-17
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit Total
------ ------ ------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, 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
Cash received for stock subscriptions - - - 999 - 999
Net income - - - - 114,620 114,620
--------- --------- --------- --------- --------- ---------
Balance, September 30, 1999 5,024,500 $ 5,024 $ 633,821 $ (2,631) $(243,381) $ 392,833
========= ========= ========= ========= ========= =========
</TABLE>
F-18
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - DAC Technologies of America, Inc. ("the
Company"), a Florida corporation, was incorporated on July 2, 1998. The Company
changed its name in July 1999 to DAC Technologies Group International, Inc.
Effective September 30, 1998, the Company purchased certain assets and
liabilities from a related company, DAC Technologies of Arkansas, Inc., ("DAC
Arkansas"), formerly known as DAC Technologies of America, Inc., an Arkansas
corporation, incorporated on July 13, 1993. On September 17, 1999, the DAC
Arkansas changed its name to Dac Technologies of Arkansas, Inc. The ownership of
both companies prior to and after the transaction changed by 1% and was
considered not substantial. Since these 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.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The accompanying financial statements
of the Company for the nine months ended September 30, 1999 and 1998 are
unaudited, but, in the opinion of management, reflect the adjustments, all of
which are of a normal recurring nature, necessary for a fair presentation of
such financial statements in accordance with generally accepted accounting
principles. The results of operations for an interim period are not necessarily
indicative of the results for a full year.
2. EQUITY TRANSACTIONS
On July 31, 1998, the Company issued 3,630,000 founders' shares of common stock
to principally the same stockholders as the stockholders of DAC Arkansas. The
shares were issued in the same ratio as the ownership ratio in DAC Arkansas. The
shares were not paid for as of December 31, 1998 and $3,630 has been recorded as
a stock subscription receivable. In August of 1999, $999 of the stock
subscriptions was paid, leaving a balance at September 30, 1999 of $2,631.
On December 23, 1998, a supplier agreed to convert $251,936 of its debt to
equity in the Company in exchange for 165,000 shares of common stock.
On December 31, 1998, pursuant to a private placement offering, the Company
raised $200,000 and issued 1,000,000 shares of common stock of which 500,000
shares were sold to companies affiliated with existing stockholders. At the same
time, the Company issued 30,000 shares of common stock for legal services.
On April 6, 1999, pursuant to the above private placement, the Company raised an
additional $39,900 and issued 199,500 shares of common stock. These shares were
sold to existing stockholders.
F-19
<PAGE>
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
3. PRO FORMA INFORMATION
PRO FORMA INCOME TAX - The objective of the unaudited pro forma income statement
information is to show what the significant effects on the historical financial
information might have been had DAC Arkansas not been taxed as an S corporation
for income tax purposes through September 30, 1998. The pro forma adjustments
reflect provisions for income taxes computed based upon statutory tax rates as
if DAC Arkansas had been subject to federal taxation during 1998.
4. INCOME TAXES
During the period, The Company utilized its net operating loss carry-forwards
for federal and state tax purposes. The Company has a deferred tax asset of
approximately $155,000 for the difference between the tax basis and financial
lives of intangible assets. The tax effect of this deferral is approximately
$58,000 of which $12,507 has been recorded since the Company owes that amount
for the period ended September 30, 1999, and a valuation allowance for the
balance of approximately $45,000 has been recorded since the remaining deferred
tax asset realization is uncertain.
F-20
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
DAC Technologies Group International, Inc.
We hereby consent to the use in the Form 10-SB dated March 17, 2000 of our
report dated September 30, 1999 related to the combined financial statements of
DAC Technologies Group International, Inc. and DAC Technologies of Arkansas,
Inc. for the years ended December 31, 1998 and 1997.
/S/ Sweeney, Gates & Co.
------------------------
Sweeney, Gates & Co.
Fort Lauderdale, Florida
April 11, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 9,129 0
<SECURITIES> 0 0
<RECEIVABLES> 427,475 0
<ALLOWANCES> 0 0
<INVENTORY> 279,850 0
<CURRENT-ASSETS> 44,521 0
<PP&E> 299,153 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,103,248 0
<CURRENT-LIABILITIES> 684,215 0
<BONDS> 0 0
0 0
0 0
<COMMON> 5,024 0
<OTHER-SE> 387,809 0
<TOTAL-LIABILITY-AND-EQUITY> 1,103,248 0
<SALES> 1,655,445 1,683,948
<TOTAL-REVENUES> 1,655,445 1,683,948
<CGS> 944,869 974,632
<TOTAL-COSTS> 944,869 974,632
<OTHER-EXPENSES> 534,413 608,424
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (61,543) (115,062)
<INCOME-PRETAX> 114,620 (14,170)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 114,620 (14,170)
<EPS-BASIC> 0.02 0.00
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 68,042 0
<SECURITIES> 0 0
<RECEIVABLES> 228,487 0
<ALLOWANCES> (23,682) 0
<INVENTORY> 305,924 0
<CURRENT-ASSETS> 585,131 0
<PP&E> 324,695 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 937,295 0
<CURRENT-LIABILITIES> 526,200 0
<BONDS> 0 0
0 0
0 0
<COMMON> 4,825 0
<OTHER-SE> 232,489 0
<TOTAL-LIABILITY-AND-EQUITY> 937,295 0
<SALES> 2,044,634 2,501,368
<TOTAL-REVENUES> 2,044,634 2,501,368
<CGS> 1,186,775 1,445,395
<TOTAL-COSTS> 1,186,775 1,445,395
<OTHER-EXPENSES> 777,914 730,376
<LOSS-PROVISION> 79,945 325,597
<INTEREST-EXPENSE> (137,604) (135,352)
<INCOME-PRETAX> (57,659) 190,245
<INCOME-TAX> 0 (73,000)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (57,659) 117,245
<EPS-BASIC> (0.02) 0.03
<EPS-DILUTED> 0 0
</TABLE>
