DAAT DAC Technologies Group International Inc (CE)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from                      to                     

Commission File Number 000-29211

DAC Technologies Group International, Inc.

(Exact name of registrant as specified in its charter)

Florida		65-0847852
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12120 Colonel Glenn Road, Suite 6200 Little Rock, AR		72210
(Address of principal executive offices)		(Zip Code)

(501) 661-9100
(Registrant’s telephone number)

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     (1) Yes  x      No  o           (2) Yes  x      No  o

     Indicate by check mark whether the registrant is a large filer, an accelerated filer, a non-accelerated filer, or a small reporting company.

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o		Smaller reporting company x

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o  Yes      x  No

     State the number of shares outstanding of each of the issuer’s class of common equity, as of the latest practicable date. As of August 14, 2009, 6,323,364 shares of Common Stock are issued and 5,793,699 are outstanding.

     Transitional Small Business Disclosure Format: Yes  o      No  x

 

 

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION					1
ITEM 1.		FINANCIAL STATEMENTS			1
PART F/S					7
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			11
		Background			12
		Financial Condition and Results of Operations			13
		Liquidity and Capital Resources			14
		Trends			14
		Gun Legislation			15
		Critical Accounting Estimates			16
		Off-Balance Sheet Arrangements			16
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			17
ITEM 4.		CONTROLS AND PROCEDURES			17
ITEM 4T.		CONTROLS AND PROCEDURES			17
PART II		OTHER INFORMATION			18
ITEM 1.		LEGAL PROCEEDINGS			18
ITEM 1A.		RISK FACTORS			18
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			18
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES			18
ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			18
ITEM 5.		OTHER INFORMATION			18
ITEM 6.		EXHIBITS AND REPORTS ON FORM 8-K			19
SIGNATURES					19
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

     Our financial statements are contained in pages 2 through 6 following.

DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Condensed Consolidated Balance Sheet
June 30, 2009 and December 31, 2008

		June 30				December 31
		2009				2008
		(unaudited)
Assets
Current assets
Cash		$	69,026			$	599,103
Accounts receivable, less allowance for doubtful accounts of $20,000 in 2009 and 2008			610,838				495,718
Due from factor			524,170				1,542,918
Inventories			5,399,082				2,742,563
Prepaid expenses and deferred charges			108,184				72,068
Current deferred income tax benefit			31,019				31,019
Total current assets			6,742,319				5,483,389
Property and equipment
Leasehold improvements			57,232				55,323
Furniture and fixtures			311,330				297,356
Molds, dies, and artwork			549,530				536,809
			918,092				889,488
Accumulated depreciation			(648,149	)			(623,477	)
Net property and equipment			269,943				266,011
Other assets
Patents and trademarks, net of accumulated amortization of $127,078 and $119,772 in 2009 and 2008			115,202				121,718
Deposits			17,351				17,351
Advances to employees			35,011				28,617
Note receivable
Long-term			20,000				20,000
Related party			72,518				72,518
Shareholder			220,644				170,382
Total other assets			480,726				430,586
Total assets		$	7,492,988			$	6,179,986

The accompanying selected notes are an integral part of these condensed consolidated financial statements.

DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Condensed Consolidated Balance Sheet
June 30, 2009 and December 31, 2008

		June 30				December 31
		2009				2008
		(unaudited)
Liabilities and Stockholders’ Equity
Current liabilities
Notes payable		$	80,155			$	104,609
Accounts payable			1,838,194				795,136
Accrued payroll tax withholdings			26,660				25,519
Accrued expenses-other			43,621				92,850
Income taxes payable			148,240				89,700
Total current liabilities			2,136,870				1,107,814
Deferred income tax liability			66,574				66,574
Stockholders’ equity
Preferred 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 at June 30, 2009 and December 31, 2008; 5,793,699 and 5,882,999 shares outstanding at June 30, 2009 and December 31, 2008, respectively			6,323				6,323
Additional paid-in capital			1,963,102				1,963,102
Treasury stock, at cost			(401,043	)			(372,124	)
Retained earnings			3,721,162				3,408,297
Total stockholders’ equity			5,289,544				5,005,598
Total liabilities and stockholders’ equity		$	7,492,988			$	6,179,986

The accompanying selected notes are an integral part of these condensed consolidated financial statements.

DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Condensed Consolidated Statements of Operations
For The Three Months Ended June 30, 2009 and 2008
Unaudited

		2009				2008
Net sales		$	3,143,041			$	2,724,258
Cost of sales			2,195,174				2,043,077
Gross profit			947,867				681,181
Operating expenses
Selling			399,352				336,131
General and administrative			298,514				287,764
Total operating expenses			697,866				623,895
Income from operations			250,001				57,286
Other income (expense)
Interest expense			(41,265	)			(43,579	)
Total other income (expense)			(41,265	)			(43,579	)
Income before income tax provision			208,736				13,707
Provision for income taxes			80,170				5,617
Net income		$	128,566			$	8,090
Basic and diluted earnings per share		$	0.02			$	—
Weighted average number of common shares:
Basic and diluted			5,793,699				6,032,899

The accompanying selected notes are an integral part of these condensed consolidated financial statements.

DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Condensed Consolidated Statements of Operations
For The Six Months Ended June 30, 2009 and 2008
Unaudited

		2009				2008
Net sales		$	6,676,498			$	5,440,027
Cost of sales			4,656,934				4,029,985
Gross profit			2,019,564				1,410,042
Operating expenses
Selling			845,140				651,893
General and administrative			576,564				569,351
Total operating expenses			1,421,704				1,221,244
Income from operations			597,860				188,798
Other income (expense)
Interest expense			(88,319	)			(106,456	)
Other income			14				0
Total other income (expense)			(88,305	)			(106,456	)
Income before income tax provision			509,555				82,342
Provision for income taxes			196,690				32,278
Net income		$	312,865			$	50,064
Basic and diluted earnings per share		$	0.05			$	0.01
Weighted average number of common shares:
Basic and diluted			5,825,528				6,034,534

The accompanying selected notes are an integral part of these condensed consolidated financial statements.

DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2009 and 2008
Unaudited

		2009				2008
Cash flows from operating activities
Net income		$	312,865			$	50,064
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation			24,672				24,342
Amortization			7,306				7,734
Changes in operating assets and liabilities
Accounts receivable			(115,120	)			(311,233	)
Due from factor			1,018,748				462,812
Inventories			(2,656,519	)			563,691
Prepaid expenses and deferred charges			(36,116	)			(40,390	)
Income taxes receivable			—				32,278
Advances to employees			(6,394	)			(1,650	)
Accounts payable			1,043,058				(1,009,446	)
Accrued payroll tax withholdings			1,141				13
Accrued expenses other			(49,229	)			(20,984	)
Income taxes payable			58,540				—
Net cash used in operating activities			(397,048	)			(242,769	)
Cash flows from investing activities
Purchases of property and equipment			(28,604	)			(29,942	)
Payments for patents and trademarks			(790	)			(3,520	)
Net payments (advances) on notes receivable – stockholder			(50,262	)			4,743
Net cash used by investing activities			(79,656	)			(28,719	)
Cash flows from financing activities
Payments on notes payable			(24,454	)			(55,235	)
Purchase of treasury stock			(28,919	)			(6,800	)
Net cash used in financing activities			(53,373	)			(62,035	)
Net decrease in cash			(530,077	)			(333,523	)
Cash – beginning of period			599,103				402,468
Cash – end of period		$	69,026			$	68,945

The accompanying selected notes are an integral part of these condensed consolidated financial statements.

PART F/S
DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      Forward-Looking Statements

This document includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this document, including, without limitation, the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Liquidity and Sources of Capital” regarding the Company’s strategies, plans, objectives, expectations, and future operating results are forward-looking statements. Such statements also 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. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to have been correct. Actual results could differ materially based upon a number of factors including, but not limited to, risks attending litigation and government investigation, inability to raise additional capital or find strategic partners, leverage and debt service, governmental regulation, dependence on key personnel, competition, including competition from other manufacturers of gun locks, and gun cleaning kits, costs and risks attending manufacturing, expansion of operations, market acceptance of the Company’s products, limited public market and liquidity, shares eligible for future sale, the Company’s common stock (“Common Stock”) being subject to penny stock regulation and other risks detailed in the Company’s filings with the United States Securities and Exchange Commission (“SEC” or “Commission”).

      Nature of Business

     DAC Technologies Group International, Inc. (the “Company”), is in the business of developing, marketing and outsourcing the manufacture of various consumer products, patented and non-patented. Since 2003, the Company’s primary business has been gun maintenance and gun safety, with a target consumer base of sportsmen, hunters and outdoorsmen, and recreational enthusiasts. In 2005, the Company began developing products in the hunting and camping market, and has continued to develop this market. In 2007 and 2008, the Company added a line of household products.

     Although a significant portion of our business is with the mass-market retailer Wal-Mart (approximately 71% during 2008 and 50% for the first six months in 2009), we have been able to considerably increase our business with large sporting goods retailers, distributors and catalog companies.

     Virtually all of the Company’s products are manufactured and imported from mainland China and shipped to the Company’s central warehouse facility in Little Rock, Arkansas for distribution. These products, along with other items manufactured in the United States, are sold primarily to mass merchants and sporting goods retailers throughout the United States and international locations.

      Organization and Summary of Significant Accounting Policies

      Organization and basis of presentation

     The Company was incorporated as a Florida corporation in July 1998 under the name DAC Technologies of America, Inc. In July 1999, the Company changed its name to DAC Technologies Group International, Inc.

      Unaudited interim condensed consolidated financial statements

     The accompanying condensed consolidated financial statements of the Company as of and for the six months ended June 30, 2009 and 2008, and three months ended June 30, 2009 and 2008, 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 accounting principles generally accepted in the United States. The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest 10-K. The results of operations for an interim period are not necessarily indicative of the results for a full year.

      Use of Estimates

     The preparation of consolidated financial statements in accordance 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 disclosures 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 may vary from those estimates.

      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 $61,011 at June 30, 2009 and December 31, 2008. 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.

		June 30, 2009				Dec. 31, 2008
Inventories consist of:
Finished goods		$	4,476,438			$	2,314,319
Inventory in transit			898,406				415,102
Parts			24,238				13,142
		$	5,399,082			$	2,742,563

      Due from Factor

     The Company factors a majority of its receivables without recourse under a credit risk factoring agreement. The fair values of accounts receivables and the amount due to the factor under this factoring agreement approximate their carrying values due to the short-term nature of the instruments. The amounts borrowed are collateralized by the outstanding accounts receivable, and are reflected as a reduction to accounts receivable in the accompanying condensed consolidated balance sheet. These amounts are as follows:

		June 30, 2009				Dec. 31, 2008
Accounts receivable factored		$	1,940,729			$	4,724,918
Amounts advanced and outstanding			1,416,559				3,182,000
Due from factor		$	524,170			$	1,542,918

     Currently, the Company’s factor, The CIT Group, Inc. is facing a financial crisis which may require the Company to obtain loans or make other factoring arrangements. See “ Management Discussion and Analysis of Financial Condition—Liquidity and Capital Resources.”

      Earnings per Share: Dilutive Effect

     Basic earnings per share of common stock are computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of common shares and, if dilutive, the incremental common shares issuable upon the exercise of outstanding stock warrants (using the treasury stock method). For the six months ended June 30, 2009 and 2008, there was no dilutive effect related to these outstanding stock warrants as their exercise price of $2.57 was greater than the average market price of the common stock during the period. These warrants expired June 28, 2009.

      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 June 30, 2009 and December 31, 2008.

      New Accounting Pronouncements Adopted

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements.” SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity and should be reported as equity in the financial statements, rather than in the liability or mezzanine section between liabilities and equity. SFAS No. 160 also requires consolidated net income be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company adopted the provisions of SFAS No. 160 on January 1, 2009. There was no immediate impact on these consolidated financial statements as a result of the adoption of the standard.

     In March 2008 the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” This statement amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. To meet those objectives, this statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This pronouncement is effective for consolidated financial statements issued for fiscal years and interim periods beginning November 15, 2008, with early application encouraged. The Company adopted the provisions of SFAS No. 161 on January 1, 2009. There was no immediate impact on these consolidated financial statements as a result of the adoption of these standards.

     In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with GAAP (the “GAAP hierarchy”). The hierarchical guidance provided by SFAS No. 162 did not have a significant impact on the Company’s consolidated financial statements.

     In May 2009, the FASB issued SFAS No. 165, “Subsequent Events (as amended).” SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 is effective for interim and annual financial periods ending after June 15, 2009. The Company does not expect the implementation of this pronouncement to have a material effect on its consolidated financial statements.

Treasury Stock Transactions

     During the three months ended March 31, 2009 the Company purchased 89,300 shares of its common stock in the open market at a total cost of $28,919. These shares are accounted for as treasury stock (at cost) in the accompanying condensed consolidated financial statements.

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following Management Discussion and Analysis of Financial Condition is qualified by reference to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the Notes thereto as set forth at the end of this document. We include the following cautionary statement in this Form 10Q 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.

     Historically, the identification and development of new products and expansion of the Company’s sales organization have achieved growth. There can be no assurance that we will be able to continue to develop new products or expand sales to sustain rates of revenue growth and profitability in future periods. Any future success that the Company may achieve will depend upon many factors including those that may be beyond the control of the Company or which cannot be predicted at this time. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, actual results may differ materially from our expectations.

     Factors that could cause actual results to differ from expectations include, without limitations:

	•		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.

     In evaluating these statements, you should consider various factors, including those summarized above, and, from time to time, in other reports the Company files with the SEC. These factors may cause the Company’s actual results to differ materially from any forward-looking statement. The Company disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

     (a) Background

     We are in the business of developing, marketing and outsourcing the manufacture of various consumer products, patented and non-patented. Our products consist of gun cleaning kits and accessories, gun safety items such as gun locks, trigger locks and security safes, hunting and camping accessories, and household items.

     A significant portion of our business is with mass-market retailers, primarily Wal-Mart, as well as gun manufacturers. With the addition of our “Gunmaster” gun cleaning kits, we continue to increase our business with sporting goods retailers and distributors.

     Our products can be grouped into four main categories: (a) gun cleaning and maintenance, (b) hunting and camping, (c) gun safety, and (d) household products. In developing these products, we focus on developing features, establishing patents, and formulating pricing to obtain a competitive edge. We currently design and engineer most of our products with the assistance of our Chinese trading agent and manufacturers. They are, in addition, responsible for the tooling, manufacture and packaging of our products.

      Gun Maintenance. We market over fifty (50) different gun cleaning kits, rod sets, tools and accessories 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, 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 market several kits that have been privately labeled for certain customers. This product area accounted for 62% and 53% of gross sales during the first six months of 2009 and 2008, respectfully.

      Hunting and camping. This category includes Sportsman’s Lighter, two aluminum camping tables, and a turkey seat. In 2008, this category also included three meat processing items and game processing kit. This product area accounted for 13% and 20% of gross sales during the first six months of 2009 and 2008, respectfully.

      Gun Safety. We market twelve (12) different gun safety locks and five (5) security and specialty safes. The gun-locks’ composition range from plastic to steel and keyed trigger locks 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 gunlocks and two safes have been certified for sale consistent with the standards set out by the State of California. This product area accounted for 16% and 14% of gross sales during the first six months of 2009 and 2008, respectfully.

      Household Products. We market five household cleaner dusters and a line of household fireplace screens, tools and accessories. This product area accounted for 9% and13% of gross sales during the first three months of 2009 and 2008, respectfully.

(b) Financial Condition and Results of Operations

Financial Condition

     There has been no material change in the overall financial condition of the Company for the period ending June 30, 2009 as compared to December 31, 2008.

     The only significant changes on the Company’s balance sheet at June 30, 2009 as compared to December 31, 2008 were in accounts receivable/due from factor, inventories and accounts payable. The combined accounts receivable/due from factor decreased $903,628. Inventories increased $2,656,519 and accounts payable accordingly increased $1,043,058. These changes are normal and expected based on the seasonality of the Company’s line of products.

Results of Operations

Six Months Ended June 30, 2009 and 2008

     For the six months ended June 30, 2009, the Company had net income of $312,865 on net sales of $6,676,498, as compared to $50,064 and $5,440,027, respectively, for the same period in 2008. This is an increase of $262,801, or 525% in net income, and $1,236,471, or 23% in net sales.

     Sales of the Company’s gun cleaning and maintenance and gun safety products increased 43% for the six months ended June 30, 2009 as compared to 2008. This trend has been seen across the nation for guns and gun related products since President Obama took office.

     The Company’s gross margins continue to increase over 2008 due to reversal of the significant commodity price increases in 2008. Gross margins for the six months ended June 30, 2009 were 30.2%, as compared to 25.9% for the same period in 2008.

     Operating expenses for the six months ended June 30, 2009 increased $200,460, or 16% over the six months ended June 30, 2008. This increase is a direct result of the increase in sales, resulting in increases in sales commissions, freight and other shipping costs.

Three Months Ended June 30, 2009 and 2008

     For the three months ended June 30, 2009, the Company had net income of $128,566 on net sales of $3,143,041, as compared to net income of $8,090 on net sales of $2,724,258 for the same period ending June 30, 2008. The increase in net income of $120,476 represents a 1489% over 2008, while the increase in net sales of $418,783 is a 15% increase over 2008.

     Sales of the Company’s gun cleaning and maintenance and gun safety products increased $600,257, or 36%, over 2008. This increase is consistent with the trend discussed above.

     The Company’s gross margins increased from 25% for the three months ended June 30, 2008, to 30.2% for the three months ended June 30, 2009. This improvement over the prior year is explained above and the Company expects this improvement to continue through the rest of 2009.

     Operating expenses for the three months ended June 30, 2009 increased $73,971, or 12% over the three months ended June 30, 2008. This increase is related primarily to the increase in sales, resulting in increased sales commissions, freight costs and other related warehouse costs.

(c) Liquidity and Capital Resources

     Our liquidity needs arise primarily from inventory. Our primary source of cash is funds from our operations. We believe that external sources of liquidity could be obtained in the form of bank loans, letters of credit, etc. The Company maintains a factoring agreement wherein it assigns its receivables (on a non-recourse basis). Consequently, should our sales revenues significantly decline, it could affect our short-term liquidity. The factor performs all credit and collection functions, and assumes all risks associated with the collection of the receivables. The Company pays a fee of 65/100ths of 1% of the face value of each receivable for this service. This fee is included in interest expense on the Company’s condensed consolidated statements of operations. The factor may also, at its discretion, advance funds prior to the collection of our accounts, for which the Company is charged interest. The interest rate charged is the JPMorgan Chase Bank prime rate, or 4%, whichever is greater. Advances are payable to the factor on demand. For the three-month period ending June 30, 2009, our factor had advanced us $1,416,559.

     The Company’s factor, The CIT Group, Inc. (CIT) has been experiencing financial difficulties, and its ability to continue to operate in the future is the subject of great debate in the financial markets. On July 15, 2009 CIT announced there was no appreciable likelihood of immediate government aid and it was evaluating alternatives. According to a report filed by CIT on July 20, 2009, CIT’s funding strategy and liquidity position have been materially adversely affected by the ongoing stress in the credit markets, credit ratings downgrades, and regulatory and cash restrictions and, accordingly, there is substantial doubt about the its ability to continue as a going concern. As a result of these developments, CIT has been forced to reduce its funding sources almost exclusively to secured borrowings, where available. While management of CIT continues to search for solutions to their financial troubles, some type of bankruptcy remains a possibility.

     The Company has taken the steps necessary to protect itself in the event CIT files bankruptcy, or is otherwise unable to fulfill its obligations to the Company. Since the end of the reporting period covered by this 10-Q, the Company has received additional advances from CIT that virtually eliminate all risk of financial loss to the Company. In addition, the Company has secured a six month, $1,000,000 line of credit, collateralized by its inventory, with its local bank. This credit line has been secured to meet the Company’s cash flow needs during any transition period in moving from CIT to another factor. The Company currently has obtained proposals from two other factors under terms and conditions more favorable to the Company than its existing contract with CIT, although there can be no assurance that these proposals will eventually be closed. Additionally, the Company is currently examining its legal options regarding termination of its existing agreement with CIT and the consequences, if any, which a CIT bankruptcy could have on the Company’s outstanding loans.

(d) Trends

     Our business has faced the issue of increased manufacturing costs and margin erosion as a result of raw material, fuel and other utility price increases, and a weak U.S. dollar. This put pressure on our margins and overhead costs. This trend began to reverse during the later part of 2008, as global commodity prices and oil prices began to decrease. This reversal has benefited the Company, as reflected in its increased gross margins. Should this trend continue, the Company would continue to benefit. Accordingly, any reversal of this current trend could result in increased prices for our products, which could result in declining margins.

(e) Gun Legislation

     Several federal laws, including the National Firearms Act (1934), Gun Control Act (1968), Firearms Owner’s Protection Act (1986), Brady Handgun Violence Prevention Act (1993), the 1994 Omnibus Crime Control Act and other laws, regulate the ownership, purchase and use of handguns. Notwithstanding these and other laws, there is not any federal law that requires the use of gunlocks, despite numerous attempts in Congress to pass such legislation.

     In March 2008, the U. S. Supreme Court decided the case of District of Columbia vs. Heller , relating to the issue of whether the gun control laws of Washington, D. C. on non-government persons violated the Second Amendment to the U. S. Constitution, the right to bear arms. The District of Columbia law banned handgun possession by making it a crime to carry an unregistered firearm and prohibiting the registration of handguns. The law separately provided that no person may carry an unlicensed handgun, but authorizes the police chief to issue 1-year licenses; and requires residents to keep lawfully owned firearms unloaded and disassembled or bound by a trigger lock or similar device. The Supreme Court held the Second Amendment to the U.S. Constitution protects an individual right to possess a firearm unconnected with service in a militia, and to use that firearm for traditionally lawful purposes, such as self-defense within the home. The District’s total ban on handgun possession in the home amounts to a prohibition on an entire class of “arms” that Americans overwhelmingly choose for the lawful purpose of self-defense. The Court also held the handgun ban and the trigger-lock requirement (as applied to self-defense) violate the Second Amendment, finding the requirement that any lawful firearm in the home be disassembled or bound by a trigger lock makes it impossible for citizens to use firearms for the core lawful purpose of self-defense and hence, is unconstitutional. It is unknown what impact, if any, this ruling will have on our business.

     In addition to federal gun laws, most states and some local jurisdictions have imposed their own firearms’ restrictions. Some states have passed Child Access Prevention (or CAP) Laws which hold gun owners responsible if they leave guns easily accessible to children and a child improperly gains access to the weapon. Additionally, the State of California has enacted legislation that establishes basic performance standards for “firearm safety devices”, “lock-boxes” and” safes. California law also requires every gun to be sold with a state-approved child-safety lock to make it easier for gun owners to lock up their weapons. The locks must be of sufficient quality to meet state approval. The state contracts with independent laboratories to test gun locks to make sure the locks will work and cannot be easily removed by unauthorized people.

     The fact that gun safety laws are passed by federal, state, or local governments does not ensure that the demand for our products will increase. With the election of President Barack Obama his views on gun control may have an impact on our sales of gun safety devices. While in the US Senate, Obama has supported several gun control measures, including restricting the purchase of firearms at gun shows and the reauthorization of the Federal Assault Weapons Ban. Obama voted against legislation protecting firearm manufacturers from certain liability suits, which gun-rights advocates say are designed to bankrupt the firearms industry. Obama did vote in favor of the 2006 Vitter Amendment to prohibit the confiscation of lawful firearms during an emergency or major disaster, which passed. More recently, Obama initially voiced support of Washington DC’s handgun ban. Following the Supreme Court decision that the ban was unconstitutional, he revised his position in support of the decision overturning the law, saying and affirming that the Second Amendment protects the right of individuals to bear arms.

(f) Critical Accounting Estimates

     The Company prepares its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The Company’s significant accounting policies are discussed in detail in Note 2 to the December 31, 2008 audited consolidated financial statements included in the Company’s Form 10-K. The quarterly financial statements for the period ended June 30, 2009, attached hereto, should therefore be read in conjunction with that discussion. Certain of these accounting policies, as discussed below, require management to make estimates and assumptions about future events that could materially affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Since December 31, 2008, there have been no changes in our critical accounting policies and no significant change to the assumptions and estimates related to them.

      Long-lived Assets . Depreciation expense is based on the estimated useful lives of the underlying property and equipment. Although the Company believes it is unlikely that any significant changes to the useful lives of its property and equipment will occur in the near term, an increase or decrease in the estimated useful lives would result in changes to depreciation expense.

     The Company continually reevaluates the carrying value of its long-lived assets, for events or changes in circumstances, which indicate that the carrying value may not be recoverable. As part of this reevaluation, if impairment indicators are present, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposal. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the asset, an impairment loss is recognized to reduce the carrying value of the long-lived asset to the estimated fair value of the asset.

      Inventories. Inventories are valued at the lower of weighted cost or market. 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. The Company records a valuation reserve for inventories for which costs exceed the net realizable value. Although the Company believes it is unlikely that any significant changes to the valuation reserve will be necessary in the near term, changes in demand for our products would result in changes to the valuation reserve.

      Patents and Trademarks. Amortization expense is based on the estimated economic useful lives of the underlying patents and trademarks. Although the Company believes it is unlikely that any significant changes to the useful lives of its patents and trademarks will occur in the near term, rapid changes in technology or changes in market conditions could result in revisions to such estimates that could materially affect the carrying value of these assets and the Company’s future consolidated operating results.

(g) Off-Balance Sheet Arrangements

     Since 2003, our Chief Executive Officer, David Collins, has leased a portion of his home in Miami, Florida to the Company, which serves as the Company’s executive office. The Company pays a monthly office allowance to Mr. Collins of $5,500, for approximately 1,200 square feet and secretarial support. There is no lease agreement for these premises. This office arrangement was not the product of arm’s length negotiation; however, the Company has determined the arrangement to be competitive with comparable office space and secretarial support. Other lease Management Discussion and Analysis of Financial Condition.

     The Company does not use affiliation with special purpose entities, variable interest entities or synthetic leases to finance its operations. Additionally, the Company has not entered into any arrangement requiring it to guarantee payment of third party debt or to fund losses of an unconsolidated special purpose entity.

ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.

ITEM 4.		CONTROLS AND PROCEDURES

     We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

     As of June 30, 2009, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded the Company’s disclosure controls and procedures were not effective, because certain deficiencies involving internal controls constituted a material weakness as more fully detailed in Item 9A of the Company’s December 31, 2008 Form 10-K. The material weakness identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of the Company’s financial statements for the current reporting period.

Item 4T.		CONTROLS AND PROCEDURES.

     There was no material change to the Company’s internal control over financial reporting during its most recent fiscal quarter from that of December 31, 2008.

PART II — OTHER INFORMATION

ITEM 1.		LEGAL PROCEEDINGS

     None

ITEM 1A.		RISK FACTORS

     Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, and trading price of our common stock. Please refer to our annual report on Form 10-K for fiscal year 2008 for additional information concerning these and other uncertainties that could negatively impact the Company.

ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3.		DEFAULTS UPON SENIOR SECURITIES

     None.

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

     None.

ITEM 5.		OTHER INFORMATION

     None.

ITEM 6.		EXHIBITS

     The following documents are incorporated by reference from Registrant’s Form 10SB filed with the Securities and Exchange Commission (the “Commission”), File No. 000-29211, on January 28, 2000:

Exhibits
	2			Acquisition Agreement
	3	(i)		Articles of Incorporation
3(ii)				By-laws

     Exhibits required by Item 601 of Regulation S-K attached:

Exhibits
	31.1			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 1350
	32.2			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

SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, hereunto duly authorized:

Dated: August 14, 2009

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