##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM
10-KSB
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR
THE TRANSITION PERIOD FROM  TO
 COMMISSION FILE NUMBER 000-29211
 DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
  Florida
    
    65-0847852(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 12120 Colonel Glenn Road, Suite 6200 Little Rock, AR 72210
 
       o
 þ o
 o
 o þ




---



##### 



FORWARD-LOOKING STATEMENTPART IITEM 1. DESCRIPTION OF BUSINESS
    
    
    2ITEM 2. DESCRIPTION OF PROPERTY
    
    
    13ITEM 3. LEGAL PROCEEDINGS
    
    
    13ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    14PART IIITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    15ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
    
    
    16ITEM 7. FINANCIAL STATEMENTS
    
    
    20ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    21ITEM 8A. CONTROLS AND PROCEDURES
    
    
    21ITEM 8B. OTHER INFORMATION
    
    
    21PART IIIITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
    
    
    22ITEM 10. EXECUTIVE COMPENSATION
    
    
    23ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
    
    
    24ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    25ITEM 13. EXHIBITS
    
    
    26ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    27EX-10.1 Office LeaseEX-10.1.1 Warehouse LeaseEX-14.1 Code of Business Conduct & EthicsEX-31.1 Section 302 Certification of PEOEX-31.2 Section 302 Certification of PFOEX-32.1 Section 906 Certification of PEOEX-32.2 Section 906 Certification of PFO
   
 ii




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
 PART I
 
 ITEM 1. DESCRIPTION OF BUSINESS
    2




---



##### Table of Contents



®
     
    
    Increased penetration of our existing markets, particularly in the gun
cleaning market and accessories
    
    Development of new products for the hunting and camping market
    
    Identification and development of products for new markets in which the
Company can be competitive due to its manufacturing relationships
    
    Identification and recruitment of effective manufacturers
representatives to actively market these products on a national and
international basis
    
    Aggressive cost containment, both in operating expenses and
manufacturing costs
  3




---



##### Table of Contents



A. Introduction.
   (i)
    
    Gun Maintenance. We market over forty (40) different gun cleaning kits and rod
sets used to clean and maintain virtually any firearm on the market. These kits are
solid brass, and consist of universal kits designed to fit a variety of firearms,
and caliber specific kits, as well as replacement brushes, mops, etc. These kits are
available in solid wood or aluminum cases, as well as blister packed. We also carry a
full line of replacement pieces for each kit. We also market several kits that have
been privately labeled for certain customers. This product area accounts for 70% of
our business.(ii)
    
    Hunting and Camping.This category includes three meat processing items,
Sportsmans Lighter, game processing kit, and a portable ATV light. In 2007, the
Company has added an aluminum camping table and turkey hunting seat. This product area
accounts for 17% of our business.(iii)
    
    Gun Safety.We market twelve (12) different gun safety locks and five
security and specialty safes. The locks composition range from plastic to steel and
keyed trigger locks.
 4




---



##### Table of Contents



to cable
locks.
The security safes are of heavy-duty, all steel construction and are
designed for firearms, jewelry and other valuables. Eight of the Companys gun
locks and two of the safes have been certified for sale consistent with the
standards set out by the State of California. These California standards have been
adopted by other states and by a variety of gun manufacturers. This product area
accounts for 12% of our business.(iv)
    
    Other Products.We market four (4) different electronic security devices
designed to protect the person. These include our Body Alarm, Key Alert, Glass Window
Alert and Patient Alarm. We also market two licensed products, the Clampit Cupholder
and Plateholder.
     .
  5




---



##### Table of Contents




    
    Gun Safety Master Lock (which presently controls 60%-70% of the market),
Smith & Wesson, and Shot Lock.
    
    Gun Cleaning Kits Outers and Hoppes
    
    Security Safes Sentry Safes, GunLocker and Gun Vault.
    6




---



##### Table of Contents



Pediatrics
   
    
    National retail chains such as Wal-Mart and Kmart (representing 65% of sales;
Wal-Mart accounted for 62% of our total sales revenues);
    
    Distributors such as Dicks Sporting Goods, RSR Group, Inc., Jerrys Sport
Center, Inc, Acu-Sport Corp., and Cabelas Catalogue Co. (representing 21% of
sales);
    
    Gun manufacturers such as Savage Arms, Browning, Marlin, Glock and SIG-Arms
(representing 6% of sales); and
    
    Regional retail chains and sole proprietors (representing 8% of sales).
     7




---



##### Table of Contents



Model
    
    Patent No.
    
    ExpirationTVP 095 Trigger Lock
    
    Des. 375,342
    
    
    2009SWA 03 SWAT Steering Wheel
Alarm
    
    Des. 365,774
    
    
    2009KAL 201 Personal Safety Alarm
    
    Des. 355,863
    
    
    2008Key Chain Alarm
    
    
    
    5,475,368
    
    
    2008GWA 001 Glass/Window Alarm
    
    Des. 371,086
    
    
    2009Defense Spray and Flashlight
    
    Des. 375,994
    
    
    2009Gun Cleaning Kit
    
    
    
    7,020,994B2
    
    
    2024
      8




---



##### Table of Contents



9




---



##### Table of Contents



http://www.sec.gov
   If we are to expand our operations, we may need additional capital.
 Our growth program and future profitability remains uncertain.
 Our success depends on maintaining relationships with key customers.
 10




---



##### Table of Contents



We depend on purchase orders and have no long-term contractual relationship with our
customers.
 We depend on foreign contract manufacturers for substantially all of our manufacturing
requirements.
  The increased cost of raw materials and manufacturing has adversely affected our profits.
 While we manufacture a variety of products, we rely primarily on the sale of gun cleaning kits
and hunting and camping accessories as our major source of revenue.
 11




---



##### Table of Contents



We may be unable to compete favorably in the highly competitive markets in which we operate.
 We may not be able to attract and retain the qualified personnel we need to succeed in the
future.
 We may be adversely affected by legislation and regulation over firearms.
 We extend credit to our customers and should our customers default on their obligations to
us, we may be subject to credit risk.
 With the exception of Gunmaster we have not to date registered or trademarked any of our
product names.
 12




---



##### Table of Contents



The Company has engaged in several related-party transactions, which were not effected in
arms-length transactions.
 
 ITEM 2. DESCRIPTION OF PROPERTY
    
 ITEM 3. LEGAL PROCEEDINGS
  13




---



##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  14




---



##### Table of Contents



PART II
 
 ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  Quarter Ended
    
    High
    
    LowMarch 31, 2005
    
    $
    3.65
    
    
    $
    2.30June 30, 2005
    
    $
    2.84
    
    
    $
    2.24September 30, 2005
    
    $
    2.85
    
    
    $
    2.14December 31, 2005
    
    $
    2.60
    
    
    $
    2.14March 31, 2006
    
    $
    2.42
    
    
    $
    2.10June 30, 2006
    
    $
    2.30
    
    
    $
    2.00September 30, 2006
    
    $
    2.05
    
    
    $
    1.73December 31, 2006
    
    $
    2.54
    
    
    $
    2.00
    15




---



##### Table of Contents



Equity Compensation Plan Information
 Number ofsecuritiesremainingNumber of
    
    
    
    
    
    
    available forsecurities to be
    
    
    Weighted-
    
    
    future issuanceissued upon
    
    
    average exercise
    
    
    under equityexercise of
    
    
    price of
    
    
    compensationoutstanding
    
    
    outstanding
    
    
    plans (excludingoptions,
    
    
    options,
    
    
    securitieswarrants and
    
    
    warrants and
    
    
    reflected inrights
    
    
    rights
    
    
    column (a))Plan category
    
    (a)
    
    
    (b)
    
    
    (c)Equity
compensation
plans approved
by security
holders
    
    None noneoutstanding
    
    zero noneoutstanding
    
    
    1,000,000Equity
compensation
plans not
approved by
security holders
    
    Nonenone outstanding
    
    zeronone outstanding
    
    NoneTotal
    
    None
    
    None
    
    
    1,000,000
 
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
  16




---



##### Table of Contents



(1)
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Results of Operations
    2006
    
    2005Net sales
    
    $
    15,475,880
    
    
    $
    13,351,115Gross profit
    
    $
    4,490,316
    
    
    $
    4,725,353Operating expenses
    
    $
    2,959,983
    
    
    $
    2,530,270Income from operations
    
    $
    1,530,333
    
    
    $
    2,195,083Income before income taxes
    
    $
    1,224,968
    
    
    $
    1,963,464Net income
    
    $
    752,838
    
    
    $
    1,180,547Earnings per share
    
    $
    0.12
    
    
    $
    0.19
   Financial Condition
  17




---



##### Table of Contents



2006
    
    2005Accounts receivable
    
    $
    532,028
    
    
    $
    692,690Due from factor
    
    $
    1,282,208
    
    
    $
    1,313,618Inventories
    
    $
    3,130,825
    
    
    $
    2,704,310Accounts payable-trade
    
    $
    1,640,445
    
    
    $
    981,042Income taxes (receivable) payable
    
    $
    (370,817
    )
    
    $
    380,843Total current assets
    
    $
    5,799,626
    
    
    $
    4,920,677Total current liabilities
    
    $
    1,905,674
    
    
    $
    1,658,106Net working capital
    
    $
    3,893,952
    
    
    $
    3,262,571Total assets
    
    $
    6,417,575
    
    
    $
    5,499,502Stockholders equity
    
    $
    4,478,801
    
    
    $
    3,825,896
 Accounts receivable and due from factor
   2006
    
    
    2005Total accounts receivable
    
    $
    5,633,811
    
    
    $
    5,512,193Less: assigned receivables
    
    
    (5,101,783
    )
    
    
    (4,819,503
    )Net accounts receivables
    
    $
    532,028
    
    
    $
    692,690Assigned receivables
    
    $
    5,101,783
    
    
    $
    4,819,503Less: Funds advanced
    
    
    (3,819,575
    )
    
    
    (3,505,885
    )Due from factor
    
    $
    1,282,208
    
    
    $
    1,313,618
 Inventories
  18




---



##### Table of Contents



Liabilities
   Liquidity and Capital Resources
   Off-Balance Sheet Arrangements
   Trends
  19




---



##### Table of Contents



Critical Accounting Estimates
  Long-lived Assets
   Patents and Trademarks
  
 ITEM 7. FINANCIAL STATEMENTS
  20




---



##### Table of Contents



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 8A. CONTROLS AND PROCEDURES
   
 ITEM 8B. OTHER INFORMATION
  21




---



##### Table of Contents



PART III
 
 ITEM 9.
    
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT
 (1)
    
    Officers & Directors
  Name
    
    Age
    
    Position
    
    TermDavid A. Collins
    
    61
    
    President, CEO, Director
    
    2006-2007Robert C. Goodwin
    
    50
    
    CFO/Director
    
    2006-2007
   (2)
    
    Compliance with Section 16(a) of the Securities Act of 1934.
  Name of Filer
    
    Form Type
    
    # Late Repts
    
    # Late TransactionsDavid Collins
    
    Form 4
    
    one
    
    onePraetorian Cap. Mgt., LLC
    
    Form 4
    
    one
    
    one
 22




---



##### Table of Contents



(3)
    
    Code of Ethics.
  (4)
    
    Committees of the Board.
   
 ITEM 10. EXECUTIVE COMPENSATION
   All OtherName and
    
    Year
    
    Salary
    
    Commission
    
    Compensation
    
    TotalPrincipal Position
    
    
    
    
    
    ($)
    
    ($)
    
    $
    
    ($)David A. Collins, PEO
    
    
    2006
    
    
    
    120,000
    
    
    
    421,179
    
    
    
    66,000
    
    
    
    607,1792005
    
    
    
    120,000
    
    
    
    391,047
    
    
    
    66,000
    
    
    
    577,047Robert C. Goodwin,
PFO
    
    
    2006
    
    
    
    77,400
    
    
    
    
    
    
    
    
    
    
    
    77,4002005
    
    
    
    77,400
    
    
    
    
    
    
    
    
    
    
    
    77,400
 23




---



##### Table of Contents



(1)
    
    Board of Directors
  (2)
    
    Employment Contracts and Other Compensation
   
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  24




---



##### Table of Contents



Name and Address of
    
    Number of Shares
    
    PercentTitle of Class
    
    Beneficial Owner
    
    Beneficially Owned
    
    of ClassCommon Stock
    
    Praetorian Capital
Management LLCMiami Beach, FL
    
    
    1,100,000
    
    
    
    17.9
    %Common Stock
    
    David A. Collins
    
    
    500,500
    [1]
    
    
    8.2
    %Miami Beach, FLCommon Stock
    
    Bruce M. Stachenfeld
    
    
    326,726
    
    
    
    5.3
    %New York, NY
 
 [1]
    
    Includes 32,000 shares owned by the Collins Family Trust. David Collins
acknowledges beneficial ownership and control of the shares held in this Trust. The
beneficiaries of the Collins Family Trust are Payton P. Collins and David A. Collins, Jr. (2)
    
    Security Ownership of Management
 Name and Address of
    
    Number of Shares
    
    PercentTitle of Class
    
    Beneficial Owner
    
    Beneficially Owned
    
    of ClassCommon Stock
    
    Robert C. GoodwinN. Little Rock, AR
    
    
    19,073
    
    
    
    0.31
    %Common Stock
    
    David A. CollinsMiami Beach, FL
    
    
    500,500
    
    
    
    8.2
    %
  
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   25




---



##### Table of Contents



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
  Exhibit
    
    Description2
    
    Asset Purchase Agreement3.1
    
    Articles of Incorporation3.2
    
    Bylaws10.1
    
    Office Lease*10.1.1
    
    Warehouse Lease*10.2
    
    Factoring Agreement10.3.1
    
    Employment contract of David A. Collins14.1
    
    Code of Business Conduct & Ethics *31.1
    
    Certification of Principal Executive Officer pursuant to Rule
13a-14(a)/15d-14(a)*31.2
    
    Certification of Principal Financial Officer pursuant to Rule
13a-14(a)/15d-14(a)*32.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350*32.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350*
 
 *
    
    These exhibits are enclosed within this filing. 26




---



##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 (1)
    
    Audit Fees
  (2)
    
    Tax Fees
  (3)
    
    Audit committee
  27




---



##### Table of Contents



By:
    
    /s/ David A. CollinsDavid A. Collins, Chairman, CEO and Principal Executive Officer April 2, 2007By:
    
    /s/ Robert C. GoodwinRobert C. Goodwin, Principal Accounting Officer and Principal Financial Officer April 2,
2007
 28




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 December 31, 2006 and 2005
 Consolidated Financial Statements
 With
 Report of Independent Registered Public Accounting Firm
      F-1




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    
  
 F-2




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Consolidated Balance Sheets
December 31, 2006 and 2005
 2006
    
    
    2005AssetsCurrent assetsCash
    
    $
    338,968
    
    
    $
    130,886Accounts receivable, less allowance for doubtful accounts
of $5,000 in 2006 and 2005
    
    
    532,028
    
    
    
    692,690Due from factor
    
    
    1,282,208
    
    
    
    1,313,618Inventories
    
    
    3,130,825
    
    
    
    2,704,310Prepaid expenses and deferred charges
    
    
    108,965
    
    
    
    69,573Income taxes receivable
    
    
    370,817
    
    
    
    Deferred income tax asset
    
    
    35,815
    
    
    
    9,600Total current assets
    
    
    5,799,626
    
    
    
    4,920,677Property and equipmentLeasehold improvements
    
    
    1,121
    
    
    
    29,049Furniture and fixtures
    
    
    228,670
    
    
    
    201,108Molds, dies and artwork
    
    
    504,283
    
    
    
    500,137734,074
    
    
    
    730,294Accumulated depreciation
    
    
    (522,466
    )
    
    
    (496,267
    )Net property and equipment
    
    
    211,608
    
    
    
    234,027Other assetsPatents and trademarks, net of accumulated amortization of
$88,465 and $72,439 in 2006 and 2005, respectively
    
    
    147,750
    
    
    
    156,531Deposit
    
    
    11,435
    
    
    
    1,435Advances to employees
    
    
    24,107
    
    
    
    14,783Note receivable  long-term
    
    
    20,000
    
    
    
    Note receivable  related party
    
    
    72,518
    
    
    
    72,518Note receivable  stockholder
    
    
    130,531
    
    
    
    99,531Total other assets
    
    
    406,341
    
    
    
    344,798Total assets
    
    $
    6,417,575
    
    
    $
    5,499,502Liabilities and Stockholders EquityCurrent liabilitiesNotes payable
    
    $
    192,733
    
    
    $
    236,220Accounts payable
    
    
    1,640,445
    
    
    
    981,042Accrued payroll tax withholdings
    
    
    24,944
    
    
    
    29,463Accrued expenses  other
    
    
    47,552
    
    
    
    30,538Income taxes payable
    
    
    
    
    
    
    380,843Total current liabilities
    
    
    1,905,674
    
    
    
    1,658,106Deferred income tax liability
    
    
    33,100
    
    
    
    15,500Commitments and contingencies (Note 14)Stockholders equityPreferred stock, $.001 par value; authorized 10,000,000
shares;
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.001 par value; authorized 50,000,000
shares;
6,323,364 shares issued at December 31, 2006 and 2005;
6,135,599 and 6,193,364 shares outstanding at
December 31,
2006 and 2005, respectively
    
    
    6,323
    
    
    
    6,323Additional paid-in capital
    
    
    1,963,102
    
    
    
    1,963,102Treasury stock, at cost
    
    
    (201,333
    )
    
    
    (101,400
    )Retained earnings
    
    
    2,710,709
    
    
    
    1,957,871Total stockholders equity
    
    
    4,478,801
    
    
    
    3,825,896Total liabilities and stockholders equity
    
    $
    6,417,575
    
    
    $
    5,499,502
  F-3




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Consolidated Statements of Income
For the Years Ended December 31, 2006 and 2005
 2006
    
    
    2005Sales, net of returns and allowances
    
    $
    15,475,880
    
    
    $
    13,351,115Cost of sales
    
    
    10,985,564
    
    
    
    8,625,762Gross profit
    
    
    4,490,316
    
    
    
    4,725,353Operating expensesSelling
    
    
    1,866,453
    
    
    
    1,538,715General and administrative
    
    
    1,093,530
    
    
    
    991,555Total operating expenses
    
    
    2,959,983
    
    
    
    2,530,270Income from operations
    
    
    1,530,333
    
    
    
    2,195,083Other income (expense)Interest expense
    
    
    (318,116
    )
    
    
    (231,619
    )Other income
    
    
    12,751
    
    
    
    Total other income (expense), net
    
    
    (305,365
    )
    
    
    (231,619
    )Income before income tax provision
    
    
    1,224,968
    
    
    
    1,963,464Provision for income taxes
    
    
    472,130
    
    
    
    782,917Net income
    
    $
    752,838
    
    
    $
    1,180,547Basic and diluted earnings per share
    
    $
    0.12
    
    
    $
    0.19Weighted-average number of common sharesBasic
    
    
    6,158,388
    
    
    
    6,189,905Diluted
    
    
    6,158,388
    
    
    
    6,209,784
  F-4




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Consolidated Statements of Stockholders Equity
For the Years Ended December 31, 2006 and 2005
 Common Stock
    
    
    Additional
    
    
    Treasury StockPaid-in
    
    
    
    
    
    
    
    
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Shares
    
    
    Cost
    
    
    Earnings
    
    
    TotalBalance  January 1, 2005
    
    
    6,310,864
    
    
    $
    6,311
    
    
    $
    1,930,489
    
    
    
    130,000
    
    
    $
    (101,400
    )
    
    $
    777,324
    
    
    $
    2,612,724Issuance of stock for services
    
    
    12,500
    
    
    
    12
    
    
    
    32,613
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,625Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,180,547
    
    
    
    1,180,547Balance  December 31, 2005
    
    
    6,323,364
    
    
    
    6,323
    
    
    
    1,963,102
    
    
    
    130,000
    
    
    
    (101,400
    )
    
    
    1,957,871
    
    
    
    3,825,896Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,765
    
    
    
    (99,933
    )
    
    
    
    
    
    
    (99,933
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    752,838
    
    
    
    752,838Balance  December 31, 2006
    
    
    6,323,364
    
    
    $
    6,323
    
    
    $
    1,963,102
    
    
    
    187,765
    
    
    $
    (201,333
    )
    
    $
    2,710,709
    
    
    $
    4,478,801
  F-5




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Consolidated Statements of Cash Flows
For the Years Ended December 31, 2006 and 2005
 2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    752,838
    
    
    $
    1,180,547Adjustments to reconcile net income to net cash
provided by operating activitiesIssuance of common stock for services
    
    
    
    
    
    
    32,625Depreciation
    
    
    55,247
    
    
    
    55,091Amortization
    
    
    16,026
    
    
    
    15,993Deferred income tax benefit
    
    
    (8,615
    )
    
    
    Changes in operating assets and liabilitiesAccounts receivable
    
    
    160,662
    
    
    
    (215,540
    )Due from factor
    
    
    31,410
    
    
    
    (52,138
    )Inventories
    
    
    (426,515
    )
    
    
    (771,198
    )Prepaid expenses and deferred charges
    
    
    (39,392
    )
    
    
    (9,403
    )Income taxes receivable
    
    
    (370,817
    )
    
    
    Deposits
    
    
    (10,000
    )
    
    
    Advances to employees
    
    
    (9,324
    )
    
    
    (9,958
    )Accounts payable
    
    
    659,403
    
    
    
    (177,520
    )Accrued payroll tax withholdings
    
    
    (4,519
    )
    
    
    7,336Accrued expenses other
    
    
    17,014
    
    
    
    6,996Income taxes payable
    
    
    (380,843
    )
    
    
    39,142Net cash provided by operating activities
    
    
    442,575
    
    
    
    101,973Cash flows from investing activitiesPurchases of property and equipment
    
    
    (32,828
    )
    
    
    (72,754
    )Payments for patents and trademarks
    
    
    (7,245
    )
    
    
    (7,862
    )Net advances on note receivable
    
    
    (20,000
    )
    
    
    Net advances on note receivable  stockholder
    
    
    (31,000
    )
    
    
    (1,131
    )Purchase of treasury stock
    
    
    (99,933
    )
    
    
    Net cash used by investing activities
    
    
    (191,006
    )
    
    
    (81,747
    )Cash flows from financing activitiesPayments on notes payable
    
    
    (43,487
    )
    
    
    (57,186
    )Net cash used by financing activities
    
    
    (43,487
    )
    
    
    (57,186
    )Net increase (decrease) in cash
    
    
    208,082
    
    
    
    (36,960
    )Cash  beginning of year
    
    
    130,886
    
    
    
    167,846Cash  end of year
    
    $
    338,968
    
    
    $
    130,886Supplementary disclosures of cash flow informationCash paid during the year forInterest
    
    $
    317,219
    
    
    $
    230,204Taxes
    
    
    1,232,000
    
    
    
    743,775
  F-6




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 1.
    
    Organization and Nature of Business
   2.
    
    Summary of Significant Accounting Policies
 a.
    
    Basis of presentation The accompanying consolidated financial statements include the
accounts of DAC Technologies Group International, Inc. and its wholly owned subsidiary,
Summit Training International (collectively, the Company). All material intercompany
accounts and transactions have been eliminated in the consolidation.b.
    
    Revenue recognition The Company recognizes sales revenue when the following criteria
are met: persuasive evidence of an agreement exists, risk of loss has been transferred
which is generally F.O.B shipping point, the Companys price to the buyer is fixed and
determinable, and collectibility is reasonably assured.c.
    
    Cash equivalents The Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash equivalents. The
Company held no cash equivalents at December 31, 2006 or 2005.d.
    
    Accounts and notes receivable The majority of the Companys receivables are factored
pursuant to a factoring agreement as described in Note 6. At December 31, 2006 and 2005,
approximately 91% and 87%, respectively, of the Companys accounts receivable, gross of the
balance due to factor, was covered by this agreement. For receivables which are not covered
under this agreement, the Company evaluates customer accounts on a periodic basis and records
an allowance for amounts estimated to be uncollectible. Past due status is determined based
upon contractual terms. Amounts that are determined to be uncollectible are written off
against this allowance when collection attempts on the accounts have been exhausted.
Management
 F-7




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 2.
    
    Summary of Significant Accounting Policies(cont.)
 uses significant judgment in estimating uncollectible accounts. In estimating uncollectible
amounts, management considers factors such as current overall economic conditions,
industry-specific economic conditions, historical customer performance and anticipated
customer performance. While management believes the Company processes effectively address
its exposure to doubtful accounts, changes in economic, industry or specific customer
conditions may require adjustment to the allowance recorded by the Company.Interest income associated with notes receivable is recognized in the period in which
it is earned based upon the terms of the note. At such time that management would deem a
note to be uncollectible, interest income would cease to be recognized. Based on
managements analysis, there were no conditions that existed in the years ended December 31,
2006 or 2005 to indicate the need for the non-accrual of interest income.e.
    
    Inventories Inventories are stated at the lower of weighted-average cost or market.
Costs include freight and applicable customs fees. Market is determined based on net
realizable value. Appropriate consideration is given to obsolescence, excessive levels,
deterioration and other factors in evaluating net realizable value. Inventories are shown
net of a valuation reserve of $82,926 and $52,924 at December 31, 2006 and 2005,
respectively. The Company receives inventory from overseas at terms of F.O.B. shipping
point, bearing the risk of loss at that point in time. During the time period prior to
receipt in the warehouse, inventory is classified and recorded as inventory in transit.
Inventory held in the warehouse is classified as finished goods.f.
    
    Property and equipment Property and equipment are stated at cost. Depreciation is
provided using the straight-line method over the following useful lives:
 Leasehold improvements
    
    8 yearsFurniture and fixtures
    
    10 yearsMolds, dies and artwork
    
    10 years
 Depreciation expense of $55,247 and $55,091 was recognized during the years ended
December 31, 2006 and 2005, respectively. Maintenance and repairs are charged to expense as
incurred. Major additions and improvements of existing facilities are capitalized. For
retirements or sales of property, the Company removes the original cost and the related
accumulated depreciation from the accounts and the resulting gain or loss is reflected in
other income (expense), net in the accompanying consolidated statements of income.
 g.
    
    Patents and trademarks Costs incurred in connection with the acquisition of patents
and trademarks are capitalized and amortized over their estimated useful lives, which range
from five to seventeen years.h.
    
    Income taxes The Company utilizes the liability method of accounting for deferred
income taxes. The liability method requires the recognition of deferred tax liabilities
and assets for the
expected future tax consequences of temporary differences between tax basis and financial
reporting basis of assets and liabilities as of the year end date at the presently enacted
tax rates. A valuation allowance is established when necessary to reduce deferred tax
assets to the amount that is expected to be realized.
 F-8




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 2.
    
    Summary of Significant Accounting Policies(cont.)
 i.
    
    Shipping and handling All shipping and handling costs are included in selling
expense in the accompanying consolidated statements of income. These costs totaled
$488,427 and $389,511 for the years ended December 31, 2006 and 2005, respectively.j.
    
    Earnings per share Basic earnings per share has been calculated using the weighted
average number of common shares outstanding for each year. The dilutive effect of
potential common shares outstanding is included in diluted earnings per share. The
computations of basic earnings per share and diluted earnings per share are as follows:
 2006
    
    
    2005Net earnings from continuing operations
    
    $
    752,838
    
    
    $
    1,180,547Basic weighted-average shares
    
    
    6,158,388
    
    
    
    6,189,905Effect of dilutive securitiesCommon stock warrants
    
    
    
    
    
    
    19,879Dilutive potential common shares
    
    
    6,158,388
    
    
    
    6,209,784Net earnings per share from continuing operationsBasic
    
    $
    0.12
    
    
    $
    0.19Diluted
    
    $
    0.12
    
    
    $
    0.19
 k.
    
    Estimates The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.l.
    
    Fair value of financial instruments The fair values of cash and cash equivalents,
accounts receivables and notes payable approximate their carrying values due to the
short-term nature of the instruments. The fair value of notes receivable, which is based
on discounted cash flows using current interest rates, approximates the carrying value at
December 31, 2006 and 2005.
 F-9




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 2.
    
    Summary of Significant Accounting Policies(cont.)
 m.
    
    Impairment of long-lived assets Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires that
long-lived assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amounts of any asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the amount the
carrying amount of the assets exceeds the fair value of the assets. Based upon
managements assessment of the impairment indicators, no impairment testing was necessary
during the years ended December 31, 2006 or 2005.n.
    
    Impairment of patents and trademarks SFAS No. 144 requires that separate intangible
assets that have finite lives be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts of any asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the
amount the carrying amount of the assets exceeds the fair value of the assets. Based on
managements assessment of the impairment indicators, no impairment testing was necessary
during the years ended December 31, 2006 or 2005.o.
    
    New accounting pronouncements In May 2005, the Financial Accounting Standards Board
(FASB) issued SFAS No. 154, Accounting Changes and Error Corrections. This statement
replaces Accounting Principles Board Opinion No. 20, Accounting Changes, and SFAS No. 3,
Reporting Accounting Changes in Interim Financial Statements, and changes the
requirements for the accounting for and reporting of a change in accounting principle.
This statement applies to all voluntary changes in accounting principles. It also applies
to changes required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. When a pronouncement
includes specific transition provisions, those provisions should be followed. The
implementation of this pronouncement did not have a significant impact on the consolidated
financial statements in the current year.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This
statement defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures about fair value
measurements. The Companys management does not anticipate that this pronouncement will
have a significant impact on the consolidated financial statements.
 F-10




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 2.
    
    Summary of Significant Accounting Policies(cont.)
 In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48), which clarifies
the accounting for uncertainty in income tax positions. FIN 48 requires that the Company
recognize in the consolidated financial statements the impact of a tax position that is more
likely than not to be sustained upon examination based on the technical merits of the
position. The provisions of FIN 48 will be effective for the Company as of the beginning of
the Companys 2007 fiscal year, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. The Company is currently
evaluating the impact of adopting FIN 48 on the consolidated financial statements.In September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effect of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). SAB 108 requires that
registrants quantify errors using both a consolidated balance sheet and consolidated
statement of income approach and evaluate whether either approach results in a misstated
amount that, when all relevant quantitative and qualitative factors are considered, is
material. SAB 108 is effective for the Company in fiscal 2006 and did not have a material
impact on the Companys consolidated financial statements.
 3.
    
    Variable Interest Entities
  4.
    
    Inventories
  2006
    
    
    2005Finished goods
    
    $
    2,551,464
    
    
    $
    2,282,743Inventory in transit
    
    
    556,394
    
    
    
    398,600Parts
    
    
    22,967
    
    
    
    22,967$
    3,130,825
    
    
    $
    2,704,310
 F-11




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 5.
    
    Intangible Assets
  2006
    
    
    2005Finite-livedPatents and trademarks, net of accumulated
amortization of $88,465 and $72,439 in 2006
and 2005, respectively
    
    $
    147,750
    
    
    $
    156,531
  2007
    
    $
    15,1722008
    
    
    14,8972009
    
    
    13,6362010
    
    
    12,6502011
    
    
    12,650Thereafter
    
    
    78,745$
    147,750
  6.
    
    Due From Factor
  F-12




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 6.
    
    Due From Factor(cont.)
  2006
    
    
    2005Accounts receivable factored
    
    $
    5,101,783
    
    
    $
    4,819,503Amounts advanced and outstanding
    
    
    3,819,575
    
    
    
    3,505,885Due from factor
    
    $
    1,282,208
    
    
    $
    1,313,618
 7.
    
    Notes Payable
  2006
    
    
    2005Note payable with a bank; interest at 7.70%; payable
on demand or if no demand, November 1, 2008;
collateralized by the Companys inventories,
property and equipment, and personal guarantees
of the Companys major stockholders.
    
    $
    105,762
    
    
    $
    125,580Note payable with a bank; interest at 7.70%; payable
on demand or if no demand, November 12, 2008;
collateralized by the Companys inventories,
property and equipment, and personal guarantees
of the Companys major stockholders.
    
    
    86,971
    
    
    
    104,674Note payable with a bank; interest at 7.00%; payable
on demand or if no demand, April 30, 2006; secured
by the Companys inventories and personal
guarantees of the Companys major stockholders.
    
    
    
    
    
    
    5,966$
    192,733
    
    
    $
    236,220
  F-13




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 8.
    
    Equity
    9.
    
    Treasury Stock
  10.
    
    Stock Option Plan
  
 F-14




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 11.
    
    Warrants
  Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Warrants
    
    
    ExerciseWarrants
    
    
    Price
    
    
    Exercisable
    
    
    PriceOutstanding, January 1, 2005
    
    
    393,901
    
    
    $
    2.57
    
    
    
    
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, December 31,
2005
    
    
    393,901
    
    
    $
    2.57
    
    
    
    
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, December 31,
2006
    
    
    393,901
    
    
    $
    2.57
    
    
    
    
    
    
    $
    
  12.
    
    Income Taxes
  2006
    
    
    2005Current provision
    
    $
    480,745
    
    
    $
    782,917Deferred benefit
    
    
    (8,615
    )
    
    
    $
    472,130
    
    
    $
    782,917
  2006
    
    
    2005Income taxes computed at federal statutory
tax rate
    
    $
    416,489
    
    
    $
    667,578State tax provision, net of federal benefits
    
    
    52,551
    
    
    
    84,233Nondeductible expenses and other
    
    
    3,090
    
    
    
    31,106Provision for income taxes
    
    $
    472,130
    
    
    $
    782,917
 F-15




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 12.
    
    Income Taxes(cont.)
  2006
    
    
    2005Allowance for doubtful accounts
    
    $
    1,915
    
    
    $
    1,915Allowance for excess inventory
    
    
    38,125
    
    
    
    22,389Accumulated tax depreciation in excess of
book depreciation
    
    
    (35,467
    )
    
    
    (28,857
    )Accumulated tax amortization in excess of
book amortization
    
    
    (1,858
    )
    
    
    (1,347
    )Net deferred tax assets (liabilities)
    
    $
    2,715
    
    
    $
    (5,900
    )
 13.
    
    Related Party Transactions
      F-16




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 14.
    
    Commitments and Contingencies
 a.
    
    The Company leased office and warehouse space for $5,537 per month under a lease that
expired on April 30, 2005. The lease agreement provided for renewal options through April
30, 2007 at a rate of $6,436 per month.In December 2006, the Company leased new office and warehouse space. The office space
lease agreement provides for rent at a rate of $7,757 per month and expires on January 31,
2011, with a renewal option through January 31, 2015. The warehouse space lease agreement
provides for rent at a rate of $9,366 per month and expires on December 31, 2010, with a
renewal option through December 31, 2014.Additionally, the Company leases space from a shareholder for office space for $5,500
per month under no formal lease agreement. Total rent expense for the Company for the years
ended December 31, 2006 and 2005 was $238,433 and $201,887, respectively.At December 31, 2006, future minimum rental commitments under non-cancelable operating
leases in excess of one year are as follows:
 2007
    
    $
    205,9032008
    
    
    211,0112009
    
    
    218,9122010
    
    
    215,8292011
    
    
    8,229$
    859,884
 b.
    
    The Company is involved in various legal actions arising in the normal course of
business. In the opinion of management, the ultimate resolution of these matters will not
have a material adverse effect on the Companys consolidated financial position or results
of operations.c.
    
    During 1998, the Company entered into an asset purchase agreement, wherein it acquired
certain assets and assumed certain liabilities of DAC Technologies of America, Inc. in a
combination that was accounted for in a manner similar to a pooling of interest. Assets
and liabilities that were not included in this transaction consisted of a receivable from a
major stockholder and President, certain bridge loans, stockholder advances, an automobile,
certain accounts payable, accrued commissions and accrued payroll totaling $200,488. The
Company could be held liable in the event of litigation, for the outstanding balances of
certain unsecured liabilities of DAC
Technologies of America, Inc. totaling approximately $119,000. No accrual has been made for
this contingency.
 F-17




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 15.
    
    Major Customers and Suppliers
   16.
    
    Concentrations of Credit Risk
   17.
    
    Financial Information by Business Segment
  F-18




---



##### Table of Contents



DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
 Notes to Consolidated Financial Statements
December 31, 2006 and 2005
 17.
    
    Financial Information by Business Segment(cont.)
  2006
    
    
    2005RevenuesGun cleaning and maintenance
    
    $
    10,872,871
    
    
    $
    9,953,390Hunting and camping
    
    
    2,700,191
    
    
    
    1,502,553Gun safety
    
    
    1,867,427
    
    
    
    1,818,439Other
    
    
    35,391
    
    
    
    76,733Total revenues
    
    $
    15,475,880
    
    
    $
    13,351,115Income (loss) before income tax provisionGun cleaning and maintenance
    
    $
    1,215,318
    
    
    $
    1,562,218Hunting and camping
    
    
    (124,433
    )
    
    
    216,298Gun safety
    
    
    149,395
    
    
    
    183,739Other
    
    
    (15,312
    )
    
    
    1,209Total income (loss) before income tax provision
    
    $
    1,224,968
    
    
    $
    1,963,464Identifiable assetsGun cleaning and maintenanceUnited States
    
    $
    2,033,062
    
    
    $
    1,617,351Hunting and campingUnited States
    
    
    627,222
    
    
    
    674,522Gun safetyUnited States
    
    
    484,854
    
    
    
    389,709China
    
    
    28,829
    
    
    
    38,475OtherUnited States
    
    
    108,441
    
    
    
    154,003China
    
    
    34,889
    
    
    
    41,587Corporate
    
    
    3,100,278
    
    
    
    2,583,855Total identifiable assets
    
    $
    6,417,575
    
    
    $
    5,499,502
  F-19