##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-QSB
 x
  o
   DAC Technologies Group International, Inc.
  Florida
    
    65-0847852(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1601 Westpark Drive #2 Little Rock, AR
    
    72204(Address of principal executive offices)
    
    (Zip Code)
 
  x o x o
  o x
 
 o x




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##### Table of Contents



TABLE OF CONTENTS
 PART I
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3PART F/SITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    12Background
    
    
    13Financial Condition and Results of Operations
    
    
    15Liquidity and Capital Resources
    
    
    17Trends
    
    
    17Gun Legislation
    
    
    18Critical Accounting Estimates
    
    
    19Off-Balance Sheet Arrangements
    
    
    20ITEM 3. CONTROLS AND PROCEDURES
    
    
    20Evaluation of Disclosure Controls and Procedures
    
    
    20Definition of Disclosure Controls
    
    
    20Limitations on the Effectiveness of Controls
    
    
    20Conclusions
    
    
    21Changes in Internal Controls
    
    
    21Sarbanes-Oxley Section 404 Compliance
    
    
    21PART II
    
    
    22ITEM 1. LEGAL PROCEEDINGS
    
    
    22ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    23ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    23ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    23ITEM 5. OTHER INFORMATION
    
    
    23ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
    
    24SIGNATURES
    
    
    25EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
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PART I
 
 ITEM 1. FINANCIAL STATEMENTS
 .
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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Condensed Balance Sheet (Consolidated)
 September 30, 2006
 AssetsCurrent assetsCash
    
    $
    39,151Accounts receivable, less allowance for doubtful
accounts of $5,000
    
    
    1,372,737Due from factor
    
    
    614,666Inventories
    
    
    4,686,757Prepaid expenses and deferred charges
    
    
    132,360Current deferred income tax benefit
    
    
    35,815Total current assets
    
    
    6,881,486Property and equipmentLeasehold improvements
    
    
    29,049Furniture and fixtures
    
    
    209,557Molds, dies, and artwork
    
    
    504,283742,889Accumulated depreciation
    
    
    (539,040
    )Net property and equipment
    
    
    203,849Other assetsPatents and trademarks, net of
accumulated amortization of $85,537
    
    
    150,679Deposits
    
    
    1,435Advances to employees
    
    
    34,151Note receivable  related party
    
    
    72,945Note receivable  stockholder
    
    
    74,614Total other assets
    
    
    333,824Total assets
    
    $
    7,419,159
  4




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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Condensed Balance Sheet (Consolidated)
 September 30, 2006
 Liabilities and Stockholders EquityCurrent liabilitiesNotes payable
    
    $
    202,838Accounts payable
    
    
    2,607,103Accrued payroll tax withholdings
    
    
    26,974Accrued expenses-other
    
    
    53,888Income taxes payable
    
    
    25,027Total current liabilities
    
    
    2,915,830Deferred income tax liability
    
    
    33,100Stockholders equityPreferred stock, $.001 par value; authorized
10,000,000 shares; none issued and outstanding
    
    
    Common stock, $.001 par value; authorized
50,000,000 shares; 6,323,364 shares issued and
6,135,599 shares outstanding
    
    
    6,323Additional paid-in capital
    
    
    1,963,102Treasury stock, at cost
    
    
    (201,333
    )Retained earnings
    
    
    2,702,137Total stockholders equity
    
    
    4,470,229Total liabilities and stockholders equity
    
    $
    7,419,159
  5




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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Condensed Statements of Operations (Consolidated)
 For The Nine Months Ended September 30, 2006 and 2005
 2006
    
    
    2005Net sales
    
    $
    9,416,561
    
    
    $
    7,720,369Cost of sales
    
    
    6,079,998
    
    
    
    4,944,682Gross profit
    
    
    3,336,563
    
    
    
    2,775,687Operating expensesSelling
    
    
    1,163,956
    
    
    
    891,318General and administrative
    
    
    780,127
    
    
    
    706,488Total operating expenses
    
    
    1,944,083
    
    
    
    1,597,806Income from operations
    
    
    1,392,480
    
    
    
    1,177,881Other expenseInterest expense
    
    
    (190,645
    )
    
    
    (134,194
    )Total other expense
    
    
    (190,645
    )
    
    
    (134,194
    )Income before income tax provision
    
    
    1,201,835
    
    
    
    1,043,687Provision for income taxes
    
    
    457,569
    
    
    
    409,858Net income
    
    $
    744,266
    
    
    $
    633,829Basic and diluted earnings per share
    
    $
    0.12
    
    
    $
    0.10Weighted-average number of common shares:Basic
    
    
    6,166,068
    
    
    
    6,188,739Diluted
    
    
    6,166,068
    
    
    
    6,215,244
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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Condensed Statements of Operations (Consolidated)
 For The Three Months Ended September 30, 2006 and 2005
 2006
    
    
    2005Net sales
    
    $
    3,936,195
    
    
    $
    3,193,129Cost of sales
    
    
    2,539,587
    
    
    
    2,033,405Gross profit
    
    
    1,396,608
    
    
    
    1,159,724Operating expensesSelling
    
    
    504,625
    
    
    
    373,428General and administrative
    
    
    270,015
    
    
    
    263,169Total operating expenses
    
    
    774,640
    
    
    
    636,597Income from operations
    
    
    621,968
    
    
    
    523,127Other expenseInterest expense
    
    
    (79,774
    )
    
    
    (57,586
    )Total other expense
    
    
    (79,774
    )
    
    
    (57,586
    )Income before income tax provision
    
    
    542,194
    
    
    
    465,541Provision for income taxes
    
    
    201,006
    
    
    
    184,804Net income
    
    $
    341,188
    
    
    $
    280,737Basic and diluted earnings per share
    
    $
    0.06
    
    
    $
    0.05Weighted average number of common shares:Basic and diluted
    
    
    6,135,599
    
    
    
    6,193,364
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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Condensed Statements of Cash Flows (Consolidated)
 For the Nine Months Ended September 30, 2006 and 2005
 2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    744,266
    
    
    $
    633,829Adjustments to reconcile net income to
net cash provided by operating activities:Issuance of common stock for services
    
    
    
    
    
    
    32,625Depreciation
    
    
    42,773
    
    
    
    40,476Amortization
    
    
    13,098
    
    
    
    11,994Deferred income taxes
    
    
    (8,615
    )
    
    
    Changes in operating assets and liabilitiesAccounts receivable
    
    
    (680,047
    )
    
    
    (231,620
    )Due from factor
    
    
    698,952
    
    
    
    647,616Inventories
    
    
    (1,982,447
    )
    
    
    (1,707,762
    )Advances to employees
    
    
    (19,368
    )
    
    
    (14,141
    )Prepaid expenses and deferred charges
    
    
    (62,787
    )
    
    
    (103,064
    )Accounts payable
    
    
    1,626,061
    
    
    
    947,877Accrued payroll tax withholdings
    
    
    (2,489
    )
    
    
    5,011Accrued expenses other
    
    
    23,350
    
    
    
    (4,324
    )Income taxes payable
    
    
    (355,816
    )
    
    
    (243,917
    )Net cash provided by operating activities
    
    
    36,931
    
    
    
    14,600Cash flows from investing activitiesPurchases of property and equipment
    
    
    (12,595
    )
    
    
    (23,403
    )Payments for patents and trademarks
    
    
    (7,246
    )
    
    
    Net advances on note receivable  related party
    
    
    (427
    )
    
    
    (30,876
    )Net advances on note receivable  stockholder
    
    
    24,917
    
    
    
    Purchase of treasury stock
    
    
    (99,933
    )
    
    
    Net cash used by investing activities
    
    
    (95,284
    )
    
    
    (54,279
    )Cash flows from financing activitiesPayments on notes payable
    
    
    (33,382
    )
    
    
    (40,285
    )Net cash used by financing activities
    
    
    (33,382
    )
    
    
    (40,285
    )Decrease in cash
    
    
    (91,735
    )
    
    
    (79,964
    )Cash  beginning of period
    
    
    130,886
    
    
    
    167,846Cash  end of period
    
    $
    39,151
    
    
    $
    87,882
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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Condensed Statements of Cash Flows (Consolidated)
 For the Three Months Ended September 30, 2006 and 2005
 2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    341,188
    
    
    $
    280,737Adjustments to reconcile net income to
net cash used in operating activities:Depreciation
    
    
    15,000
    
    
    
    13,668Amortization
    
    
    5,000
    
    
    
    3,996Deferred income tax provision
    
    
    (2,872
    )
    
    
    Changes in operating assets and liabilitiesAccounts receivable
    
    
    48,113
    
    
    
    471,483Due from factor
    
    
    (62,028
    )
    
    
    (459,201
    )Inventories
    
    
    (995,649
    )
    
    
    (1,511,109
    )Advances to employees
    
    
    (6,517
    )
    
    
    3,530Prepaid expenses and deferred charges
    
    
    436
    
    
    
    920Accounts payable
    
    
    228,429
    
    
    
    1,099,065Accrued payroll tax withholdings
    
    
    (3,890
    )
    
    
    3,407Accrued expenses other
    
    
    43,751
    
    
    
    8,888Income taxes payable
    
    
    53,878
    
    
    
    (25,971
    )Net cash used in operating activities
    
    
    (335,161
    )
    
    
    (110,587
    )Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (6,930
    )Payments on notes receivable  stockholder
    
    
    28,155
    
    
    
    6,485Net cash provided (used) by investing activities
    
    
    28,155
    
    
    
    (445
    )Cash flows from financing activitiesPayments on notes payable
    
    
    (9,867
    )
    
    
    (13,628
    )Net cash used in financing activities
    
    
    (9,867
    )
    
    
    (13,628
    )Decrease in cash
    
    
    (316,873
    )
    
    
    (124,660
    )Cash  beginning of period
    
    
    356,024
    
    
    
    212,542Cash  end of period
    
    $
    39,151
    
    
    $
    87,882
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PART F/S
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Nature of Business
   Organization and Summary of Significant Accounting Policies
 rganization and basis of presentation
  Unaudited interim condensed consolidated financial statements
 .
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Inventories
  September 30,2006Inventories consist of:Finished goods
    
    $
    3,531,496Inventory in transit
    
    
    1,132,294Parts
    
    
    22,967$
    4,686,757
 Earnings per Share
  Three Months Ended
    
    
    Nine Months Ended2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator:Net income
    
    $
    341,188
    
    
    $
    280,737
    
    
    $
    744,266
    
    
    $
    633,829Denominator:Weighted
average
common
shares for
basic
calculation
    
    
    6,135,599
    
    
    
    6,193,364
    
    
    
    6,166,068
    
    
    
    6,188,739Weighted average
effect of dilutive
securities:Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,505Denominator for
diluted calculation
    
    
    6,135,599
    
    
    
    6,193,364
    
    
    
    6,166,068
    
    
    
    6,215,244Earnings per share-
basic
    
    $
    0.06
    
    
    $
    0.05
    
    
    $
    0.12
    
    
    $
    0.10Earnings per share-
diluted
    
    $
    0.06
    
    
    $
    0.05
    
    
    $
    0.12
    
    
    $
    0.10
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    Achieving planned revenue and profit growth in each of the Companys business units;
    
    Renewal of purchase orders consistent with past experience;
    
    Increasing price, products and services competition;
    
    Emergence of new competitors or consolidation of existing competitors;
    
    The timing of orders and shipments;
    
    Continuing availability of appropriate raw materials and manufacturing relationships;
    
    Maintaining and improving current product mix;
    
    Changes in customer requirements and in the volume of sales to principal customers;
    
    Changes in governmental regulations in the various geographical regions where the
Company operates;
    
    General economic and political conditions;
    
    Attracting and retaining qualified key employees;
    
    The ability of the Company to control manufacturing and operating costs; and
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
    
    Continued availability of financing, and financial resources on the terms required to
support the Companys future business strategies.
  
  Summary
    Details
   :
 
    
    Increased penetration of our existing markets, particularly in the gun cleaning
and accessories market;
    
    Development of new products in new markets, such as camping and housewares
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
    
    Development of new products for the sporting goods market;
    
    Identification and development of new markets for gun cleaning kits, i.e.
government, law enforcement and military;
    
    Identification and recruitment of effective manufacturers
representatives to actively market these products on a national and
international basis; and
    
    Aggressive cost containment.
    Gun Maintenance.
 Gun Safety.
 Personal Security.
 Non-Security Products.
 www.dactec.com)
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Results of Operations
      15




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Financial Condition
  Sept. 30, 2006
    
    
    Dec. 31, 2005Accounts receivable
    
    $
    1,372,737
    
    
    $
    692,690Due from factor
    
    
    614,666
    
    
    
    1,313,618Inventories
    
    
    4,686,757
    
    
    
    2,704,310Total current assets
    
    
    6,881,486
    
    
    
    4,920,677Accounts payable
    
    
    2,607,103
    
    
    
    981,042Total current liabilities
    
    
    2,915,830
    
    
    
    1,658,106Working capital
    
    
    3,965,656
    
    
    
    3,262,571Stockholders equity
    
    
    4,470,229
    
    
    
    3,825,896
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Sept. 30, 2006
    
    
    Dec. 31, 2005Total accounts receivable
    
    $
    4,282,003
    
    
    $
    5,512,193Less: assigned receivables
    
    
    (2,909,266
    )
    
    
    (4,819,503
    )Net accounts receivables
    
    $
    1,372,737
    
    
    $
    692,690Assigned receivables
    
    $
    2,909,266
    
    
    $
    4,819,503Less: Funds advanced
    
    
    (2,294,600
    )
    
    
    (3,505,885
    )Due from factor
    
    $
    614,666
    
    
    $
    1,313,618
 
   
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Long-lived Assets
  Inventories.
 19




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Patents and Trademarks.
 
    
 ITEM 3. CONTROLS AND PROCEDURES
 
   
   
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PART II
 
 ITEM 1. LEGAL PROCEEDINGS
      22




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Legel v. DAC Technologies Group International, Inc., et al,
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  23




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ITEM
6. EXHIBITS AND REPORTS ON FORM 8 K
  Exhibits
 2
    
    Acquisition Agreement3(i)
    
    Articles of Incorporation3(ii)
    
    By-laws
  Exhibits31.1
    
    Certification of David A. Collins Pursuant to Rule 13a-14(a)/15d-14(a)31.2
    
    Certification of Robert C. Goodwin Pursuant to Rule 13a-14(a)/15d-14(a)32.1
    
    Certification of David A. Collins Pursuant to Rule 13a-14(b) or Rule
15d-14(c) of the Securities Exchange Act of 1934 and 18U.S.C. Section 135032.2
    
    Certification of Robert C. Goodwin Pursuant to Rule 13a-14(b) or Rule
15d-14(c) of the Securities Exchange Act of 1934 and 18U.S.C. Section 1350
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SIGNATURES
  By:
    /s/ David A. CollinsDavid A. Collins, Chairman, CEO and Principal Executive OfficerBy:
    /s/ Robert C. GoodwinRobert C. Goodwin, Principal Accounting Officer and Principal Financial Officer  25