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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
  o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
   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
 PART I
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3PART F/S
    
    
    10ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    11Background
    
    
    12Financial Condition and Results of Operations
    
    
    14Liquidity and Capital Resources
    
    
    16Trends
    
    
    16Critical Accounting Estimates
    
    
    18Off-Balance Sheet Arrangements
    
    
    18ITEM 3. CONTROLS AND PROCEDURES
    
    
    19Evaluation of Disclosure Controls and Procedures
    
    
    19Definition of Disclosure Controls
    
    
    19Limitations on the Effectiveness of Controls
    
    
    19Conclusions
    
    
    20Changes in Internal Controls
    
    
    20Sarbanes-Oxley Section 404 Compliance
    
    
    20PART II
    
    
    21ITEM 1. LEGAL PROCEEDINGS
    
    
    21ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    21ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    21ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    21ITEM 5. OTHER INFORMATION
    
    
    21ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
    
    21SIGNATURES
    
    
    22Section 302 CEO CertificationSection 302 CFO CertificationSection 906 CEO CertificationSection 906 CFO Certification




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PART I
 
 ITEM 1. FINANCIAL STATEMENTS
 .
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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Balance Sheet (Consolidated)
September 30, 2005
 AssetsCurrent assetsCash
    
    $
    87,882Accounts receivable, less allowance for doubtful
accounts of $7,500
    
    
    708,770Due from factor
    
    
    613,864Inventories
    
    
    3,640,874Prepaid expenses and deferred charges
    
    
    163,234Current deferred income tax benefit
    
    
    9,600Total current assets
    
    
    5,224,224Property and equipmentLeasehold improvements
    
    
    29,049Furniture and fixtures
    
    
    154,611Molds, dies, and artwork
    
    
    497,284680,944Accumulated depreciation
    
    
    (481,653
    )Net property and equipment
    
    
    199,291Other assetsPatents and trademarks, net of
accumulated amortization of $68,440
    
    
    152,668Deposits
    
    
    1,435Advances to employees
    
    
    18,966Note receivable  related party
    
    
    72,518Note receivable  stockholder
    
    
    129,276Total other assets
    
    
    374,863Total assets
    
    $
    5,798,378
  4




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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Balance Sheet (Consolidated)
September 30, 2005
 Liabilities and Stockholders EquityCurrent liabilitiesNotes payable
    
    $
    253,121Accounts payable
    
    
    2,106,439Accrued payroll tax withholdings
    
    
    27,138Accrued expenses-other
    
    
    19,218Income taxes payable
    
    
    97,784Total current liabilities
    
    
    2,503,700Deferred income tax liability
    
    
    15,500Stockholders 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
6,193,364 shares outstanding
    
    
    6,323Additional paid-in capital
    
    
    1,963,102Treasury stock, at cost
    
    
    (101,400
    )Retained earnings
    
    
    1,411,153Total stockholders equity
    
    
    3,279,178Total liabilities and stockholders equity
    
    $
    5,798,378
  5




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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Operations (Consolidated)
For The Nine Months Ended September 30, 2005 and 2004
 2005
    
    
    2004Net sales
    
    $
    7,720,369
    
    
    $
    5,053,397Cost of sales
    
    
    4,944,682
    
    
    
    3,079,983Gross profit
    
    
    2,775,687
    
    
    
    1,973,414Operating expensesSelling
    
    
    891,318
    
    
    
    622,272General and administrative
    
    
    706,488
    
    
    
    618,430Total operating expenses
    
    
    1,597,806
    
    
    
    1,240,702Income from operations
    
    
    1,177,881
    
    
    
    732,712Other income (expense)Interest expense
    
    
    (134,194
    )
    
    
    (95,851
    )Interest expense  stockholder notes
    
    
    
    
    
    
    (6,334
    )Other income
    
    
    
    
    
    
    335Total other income (expense)
    
    
    (134,194
    )
    
    
    (101,850
    )Income before income tax provision
    
    
    1,043,687
    
    
    
    630,862Provision for income taxes
    
    
    409,858
    
    
    
    129,708Net income
    
    $
    633,829
    
    
    $
    501,154Basic and diluted earnings per share
    
    $
    0.10
    
    
    $
    0.09Weighted-average number of common shares:Basic
    
    
    6,188,739
    
    
    
    5,880,374Diluted
    
    
    6,215,244
    
    
    
    5,880,374
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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Operations (Consolidated)
For The Three Months Ended September 30, 2005 and 2004
 2005
    
    
    2004Net sales
    
    $
    3,193,129
    
    
    $
    2,095,876Cost of sales
    
    
    2,033,405
    
    
    
    1,277,655Gross profit
    
    
    1,159,724
    
    
    
    818,221Operating expensesSelling
    
    
    373,428
    
    
    
    255,215General and administrative
    
    
    263,169
    
    
    
    215,659Total operating expenses
    
    
    636,597
    
    
    
    470,874Income from operations
    
    
    523,127
    
    
    
    347,347Other income (expense)Interest expense
    
    
    (57,586
    )
    
    
    (33,161
    )Interest expense  stockholder notes
    
    
    
    
    
    
    (815
    )Total other income (expense)
    
    
    (57,586
    )
    
    
    (33,976
    )Income before income tax provision
    
    
    465,541
    
    
    
    313,371Provision for income taxes
    
    
    184,804
    
    
    
    123,441Net income
    
    $
    280,737
    
    
    $
    189,930Basic and diluted earnings per share
    
    $
    0.05
    
    
    $
    0.03Weighted average number of common shares:Basic
    
    
    6,193,364
    
    
    
    6,180,864Diluted
    
    
    6,193,364
    
    
    
    6,180,864
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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Cash Flows (Consolidated)
For the Nine Months Ended September 30, 2005 and 2004
 2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    633,829
    
    
    $
    501,154Adjustments to reconcile net income to
net cash provided by (used in) operating activities:Issuance of common stock for services
    
    
    32,625
    
    
    
    Depreciation
    
    
    40,476
    
    
    
    44,494Amortization
    
    
    11,994
    
    
    
    10,868Imputed interest on note receivable
    
    
    
    
    
    
    (335
    )Deferred income tax provision
    
    
    
    
    
    
    71,467Changes in operating assets and liabilitiesAccounts receivable
    
    
    (231,620
    )
    
    
    (238,228
    )Due from factor
    
    
    647,616
    
    
    
    (290,529
    )Inventories
    
    
    (1,707,762
    )
    
    
    (1,043,366
    )Deposits
    
    
    
    
    
    
    (1,435
    )Advances to employees
    
    
    (14,141
    )
    
    
    Prepaid expenses and deferred charges
    
    
    (103,064
    )
    
    
    (76,413
    )Accounts payable
    
    
    947,877
    
    
    
    544,367Accrued payroll tax withholdings
    
    
    5,011
    
    
    
    7,382Accrued expenses other
    
    
    (4,324
    )
    
    
    1,646Income taxes payable
    
    
    (243,917
    )
    
    
    58,241Net cash provided by (used in) operating activities
    
    
    14,600
    
    
    
    (410,687
    )Cash flows from investing activitiesPurchases of property and equipment
    
    
    (23,403
    )
    
    
    (41,793
    )Payments on notes receivable  stockholder
    
    
    
    
    
    
    32,467Advances on note receivable  stockholder
    
    
    (30,876
    )
    
    
    Advances on note receivable  related party
    
    
    
    
    
    
    (34,409
    )Payments on note receivable
    
    
    
    
    
    
    45,000Net cash provided by (used in) investing activities
    
    
    (54,279
    )
    
    
    1,265Cash flows from financing activitiesIssuance of common stock
    
    
    
    
    
    
    714,156Repayments on notes payable
    
    
    (40,285
    )
    
    
    (36,191
    )Repayments on notes payable  stockholders
    
    
    
    
    
    
    (142,719
    )Net cash provided by (used in) financing activities
    
    
    (40,285
    )
    
    
    535,246Increase (decrease) in cash
    
    
    (79,964
    )
    
    
    125,824Cash  beginning of period
    
    
    167,846
    
    
    
    104,376Cash  end of period
    
    $
    87,882
    
    
    $
    230,200
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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
Statements of Cash Flows (Consolidated)
For the Three Months Ended September 30, 2005 and 2004
 2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    280,737
    
    
    $
    189,930Adjustments to reconcile net income to
net cash used in operating activities:Depreciation
    
    
    13,668
    
    
    
    16,023Amortization
    
    
    3,996
    
    
    
    3,623Deferred income tax provision
    
    
    
    
    
    
    65,200Changes in operating assets and liabilitiesAccounts receivable
    
    
    471,483
    
    
    
    (13,109
    )Due from factor
    
    
    (459,201
    )
    
    
    (344,459
    )Inventories
    
    
    (1,511,109
    )
    
    
    (293,278
    )Advances to employees
    
    
    3,530
    
    
    
    Prepaid expenses and deferred charges
    
    
    920
    
    
    
    (25,483
    )Accounts payable
    
    
    1,099,065
    
    
    
    (124,225
    )Accrued payroll tax withholdings
    
    
    3,407
    
    
    
    (5,831
    )Accrued expenses other
    
    
    8,888
    
    
    
    (6,983
    )Income taxes payable
    
    
    (25,971
    )
    
    
    58,241Net cash used in operating activities
    
    
    (110,587
    )
    
    
    (480,351
    )Cash flows from investing activitiesPurchases of property and equipment
    
    
    (6,930
    )
    
    
    (12,589
    )Payments on notes receivable  stockholder
    
    
    6,485
    
    
    
    31,694Net cash provided by (used in) investing activities
    
    
    (445
    )
    
    
    19,105Cash flows from financing activitiesRepayments on notes payable
    
    
    (13,628
    )
    
    
    (12,705
    )Repayments on notes payable  stockholders
    
    
    
    
    
    
    (108,776
    )Net cash used in financing activities
    
    
    (13,628
    )
    
    
    (121,481
    )Decrease in cash
    
    
    (124,660
    )
    
    
    (582,727
    )Cash  beginning of period
    
    
    212,542
    
    
    
    812,927Cash  end of period
    
    $
    87,882
    
    
    $
    230,200
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PART F/S
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Nature of Business
   Organization and Summary of Significant Accounting Policies
 Organization and basis of presentation
  Unaudited interim consolidated financial statements
 .
 Earnings per Share
  10




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Three Months Ended
    
    
    Nine Months Ended2005
    
    
    2004
    
    
    2005
    
    
    2004Numerator:Net income
    
    $
    280,737
    
    
    $
    189,930
    
    
    $
    633,829
    
    
    $
    501,154Denominator:Weighted average
common shares for
basic calculation
    
    
    6,193,364
    
    
    
    6,180,864
    
    
    
    6,188,739
    
    
    
    5,880,374Weighted average
effect of dilutive
securities:Warrants
    
    
    
    
    
    
    
    
    
    
    26,505
    
    
    
    Denominator for
diluted calculation
    
    
    6,193,364
    
    
    
    6,180,864
    
    
    
    6,215,244
    
    
    
    5,880,374Earnings per share-
basic
    
    $
    0.05
    
    
    $
    0.03
    
    
    $
    0.10
    
    
    $
    0.09Earnings per share-
diluted
    
    $
    0.05
    
    
    $
    0.03
    
    
    $
    0.10
    
    
    $
    0.09
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
    
    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
    
    continued availability of financing, and financial resources on the terms required to
support the Companys future business strategies.
  
  Summary
  12




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Details
   :
 
    
    increased penetration of our existing markets, particularly in the gun cleaning
and accessories market;
    
    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;
    
    adoption of new technologies for safety and security products and
adoption of new product lines;
    
    identification and recruitment of effective manufacturers
representatives to actively market these products on a national and
international basis; and
    
    aggressive cost containment.
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Gun Maintenance.
 Gun Safety.
 Personal Security.
 Non-Security Products.
 www.dactec.com)
 
  Results of Operations
   14




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Financial Condition
  Sept. 30, 2005
    
    
    Dec. 31, 2004Accounts receivable
    
    $
    708,770
    
    
    $
    477,150Due from factor
    
    
    613,864
    
    
    
    1,261,480Inventories
    
    
    3,640,874
    
    
    
    1,933,112Total current assets
    
    
    5,224,224
    
    
    
    3,909,358Accounts payable
    
    
    2,106,439
    
    
    
    1,158,562Total current liabilities
    
    
    2,503,700
    
    
    
    1,839,338Working capital
    
    
    2,720,524
    
    
    
    2,070,020
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Sept. 30, 2005
    
    
    Dec. 31, 2004Total accounts receivable
    
    $
    3,127,363
    
    
    $
    3,669,863Less: assigned receivables
    
    
    (2,418,593
    )
    
    
    (3,195,713
    )Net accounts receivables
    
    $
    708,770
    
    
    $
    477,150Assigned receivables
    
    $
    2,418,593
    
    
    $
    3,192,713Less: Funds advanced
    
    
    (1,804,729
    )
    
    
    (1,931,233
    )Due from factor
    
    $
    613,864
    
    
    $
    1,261,480
   
    
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renminbi
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Long-lived Assets
  Patents and Trademarks.
 
   18




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ITEM 3. CONTROLS AND PROCEDURES
 
   
   
    19




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PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 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
  
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8 K
  Exhibits2
    
    
    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  22