UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-QSB

For the quarterly period ended September 30, 2004

For the transition period from ______ to ______

Commission File Number 000-29211

DAC Technologies Group International, Inc.

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

     Check whether the Issuer (1) has filed all reports required to be filed by the Section 13 or 15(d) of the Exchange Act during the past 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

     State the number of shares outstanding of each of the issuer’s class of common equity, as of the latest practicable date. As of November 4, 2004, 6,180,864 shares of Common Stock are issued and outstanding.

     Transitional Small Business Disclosure Format: Yes o No x

TABLE OF CONTENTS

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PART I

ITEM 1. FINANCIAL STATEMENTS

     Our financial statements are contained in pages 4 through 9 following.

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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Balance Sheet (Consolidated)

September 30, 2004
Unaudited

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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Balance Sheet (Consolidated)

September 30, 2004
Unaudited

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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Statements of Operations (Consolidated)

For The Nine Months Ended September 30, 2004 and 2003
Unaudited

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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Statements of Operations (Consolidated)

For The Three Months Ended September 30, 2004 and 2003
Unaudited

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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Statements of Cash Flows (Consolidated)

For the Nine Months Ended September 30, 2004 and 2003
Unaudited

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DAC TECHNOLOGIES GROUP INTERNATIONAL, INC.

Statements of Cash Flows (Consolidated)

For the Three Months Ended September 30, 2004 and 2003
Unaudited

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PART F/S

     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. The Company’s primary business is gun safety and gun maintenance; with a target consumer base of sportsmen, hunters and outdoors men, and recreational enthusiasts. The Company’s products have historically been security related, evolving from various personal, home and automotive electronic security devices, to firearm safety devices such as gun and trigger locks, cable locks and safes. In 2003, the product line was expanded to include a line of gun cleaning kits.

     The majority of the Company’s products are manufactured and imported from mainland China and shipped to a central location 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 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 consolidated financial statements - The accompanying consolidated financial statements of the Company as of and for the nine months ended September 30, 2004 and 2003 and for the three months ended September 30, 2004 and 2003 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 significant accounting policies applied to these interim financial statements are consistent with those applied to the Company’s December 31, 2003 audited financial statements included in the Company’s Form 10KSB. The results of operations for an interim period are not necessarily indicative of the results for a full year.

     On March 11, 2004, the Company engaged Keane Securities Co., Inc., our placement agent, to raise a maximum of $1.7 million with a minimum of $500,000 through a private placement offering of the Company’s common stock. The offering closed on June 29, 2004, and raised approximately $800,000 before issuance costs. A total of 467,808 shares of common stock were sold at a price of $1.71 per share. In addition to the shares, investors were also issued 233,904 warrants, and our placement agent was issued 160,000 warrants, which upon collective exercise, will enable the warrant holders to purchase an additional 393,904 shares at a price of $2.57 per share. These warrants were not included in a computation of diluted net earnings per share, as the effect would have been antidilutive.

     On October 20,2004, the Company filed a registration statement with the Securities and Exchange Commission on Form SB-2, pursuant to its obligations under the Registration Rights Agreement between the Company and the aforementioned investors in the private placement. The registration statement is presently pending before the SEC.

     During 2003, the Company received a final audit determination letter from the Internal Revenue Service which disallowed the S-Corporation status of DAC Technologies of America, Inc., the predecessor to the Company. As a result of this determination, net tax losses recognized by the members of DAC Technologies of America, Inc. were disallowed resulting in such losses inuring to the Company and as such, becoming additional net operating losses. Previously, the tax impact to be recorded by the Company based on this event had been undeterminable. However, during the second quarter of 2004, the amount of these net tax losses was determined to be $420,634. Pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”, the full effect of these net operating losses was recorded in the second quarter. These net operating losses have been fully utilized to offset 2004 net income earned.

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The following Management Discussion and Analysis of Financial Condition is qualified by reference to and should be read in conjunction with our 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 10QSB 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.

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

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) Summary

The third quarter saw the Company continue to improve its sales and profits for 2004 over prior periods. Net sales for the third quarter, for the first time in Company history, exceeded two million dollars on a quarterly basis. The key to this success, and continued success in the future, has been management’s ability to identify, develop and bring to market new products of high quality, and at prices at or below its competition. The development of these new products, particularly the Company’s GunMaster line of gun cleaning kits in 2003, has enabled the Company to significantly increase its revenues and net income during the first nine months of 2004 over the prior year.

For the nine months ended September 30, 2004, net sales and net income were $5,053,397 and $501,154, respectively. These represent increases of 81% and 288%, respectively, over the same nine month period in 2003. Earnings per share for the nine months was nine cents per share as compared with two cents for the same period in 2003.

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The fourth quarter has historically been the Company’s strongest quarter in terms of both sales and profits. Management still expects sales for 2004 to be in the $8,000,000 to $10,000,000 range with earnings in the 18 to 20 cents per share range.

We have introduced a new product in October, our GunMaster wooden tool box/workbench. This new item is currently being run as a Christmas promotion in Wal-Mart. We have also been working on our product line for 2005, and anticipate adding 20 to 30 new products to complement our existing line. These new products will be primarily additional gun cleaning kits, a line of accessories for All Terrain Vehicles and softline (cut & sew) items for the hunting accessory market.

     Details

     We are in the business of developing, marketing and outsourcing the manufacture of various consumer products, patented and non-patented, designed to enhance and provide security for the consumer and for his property. We have placed particular emphasis on Original Equipment Manufacturers (OEM) gun manufacturers, gun cleaning kits and gun accessories. In particular, our products consist of gun locks, trigger locks, gun cleaning and accessory items, security safes, specialty safes, personal protection devices and items for the health care industry.

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

     The Company’s business plan and strategy for growth focuses on:

     Management believes that continued growth will require the Company to continually innovate and improve its existing line of products and services to meet consumer, industry and governmental demands. In addition, we must continue to develop or acquire new and unique products that will appeal to gun owners.

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     In addition to our traditional products, our management is actively pursuing initiatives which may add complementary businesses, products and services. These initiatives are intended to broaden the base of revenues to make us less dependent on particular products. By developing businesses which focus on products and services which complement our current line of products, management hopes to leverage these opportunities to not only develop new sources of revenue, but to strengthen the demand for our existing products.

     Our products can be grouped into four main categories: (a) gun safety, (b) gun maintenance, (c) personal security and (d) non-security 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 our products with the assistance of our Chinese and domestic manufacturers, who are responsible for the tooling, manufacture and packaging of our products.

     Our website (www.dactec.com) has been redesigned. All of our products will be available via e-commerce on this new site. Our web site is intended to be the only direct link by the Company to the retail market.

(b) Financial Condition and Results of Operations

     Financial Condition

     The Company’s overall financial condition continues to improve greatly. A summary of significant balance sheet items as of September 30, 2004 as compared to December 31, 2003 is summarized below:

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     The primary reasons for the Company’s improved financial condition are the income for the nine month period ended September 30, 2004, and the net proceeds of $714,156 from the private placement of the Company’s stock in the second quarter of 2004.

     Cash, accounts receivable and due from factor are inter-related. The Company maintains a factoring agreement wherein it assigns its receivables. The Company is able to borrow against these receivables prior to their collection as a means of generating immediate cash if needed. For financial statement purposes, the Company’s total accounts receivables are reduced by the total assigned receivables. The total assigned receivables are reduced by the outstanding loan balance with the factor to arrive at “Due from factor”, which represents the net cash available to the Company upon collection of the receivables by the factor. The Company’s “Accounts receivable” therefore represent receivables that have not yet been legally assigned to the factor.

     A summary of this allocation is summarized below:

     The increase in inventories is due to our anticipated increase in sales in the fourth quarter of 2004, thereby increasing inventory requirements.

     The increase in current liabilities is directly related to the increase in inventory.

     Results of Operations: Summary.

     A summary of the significant operating items for both the nine month and three month periods ended September 30, 2004 as compared to the same periods in 2003 is summarized below:

     Details. The increases in sales and net income are due primarily to our GunMaster gun cleaning kits. Sales of these gun cleaning kits accounted for $3,193,339 of the total sales for the nine months and $1,480,660 for the three months ended September 30, 2004, or 63% and 71% of total sales, respectively.

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     Sales volume of our other major product line, gunlocks, remains stable, accounting for $1,174,824 of the total sales for the nine months and $331,394 for the three months ended September 30, 2004, or 23% and 16% of total sales, respectively.

     Gross margins for both the nine month and three month periods ended September 30, 2004 was 39%. This is down slightly from 40% and 41% for the same periods in 2003.

     The primary reason for the increases is in operating expenses is the cost associated with increased sales. Variable costs directly related to sales, such as sales commissions, freight costs, insurance and warehouse labor accounts for 66% of the increase for the nine month period and 63% for the three month period.

     In addition, we have been exploring possible acquisitions and development of products related to the less than lethal market. Expenses incurred directly related to these activities accounts for 14% and 25% of the increases in operating expenses for the nine month and three month periods, respectively.

     During the quarter ended September 30, 2003, we recorded income of $74,450 from the receipt of treasury stock awarded in our lawsuit against our former manufacturer. Adjusting net income for the net after tax effect of this one time, non-operating event, would result in an increase in net income from operations of 498% and 393% for the nine month and three month periods over the prior year.

     We have benefitted from the income tax effect of net operating losses incurred prior to 2002. As of June 30, 2004, these net operating losses have been fully utilized. Consequently, beginning in the third quarter of 2004, we will no longer receive any benefit from these prior losses.

(c) Liquidity and Capital Resources

     Our primary source of cash are funds generated from our operations. We believe that external sources of liquidity could be obtained in the form of bank loans, letters of credit, etc., or from the sale of our equity as was recently demonstrated with our private placement. We maintain an account receivable factoring arrangement in order to insure an immediate cash flow. The factor may also, at its discretion, advance funds prior to the collection of our accounts. Advances are payable to the factor on demand. Should our sales revenues significantly decline, it could affect our short-term liquidity. For the period ending September 30, 2004, our factor had advanced us $1,023,054.

(d) Trends

     As we have discussed in previous reports, handgun safety remains a major concern, and interest to the American public, particularly in light of the accidental and intentional shootings involving children. Moreover, the tragic terrorist attack against the United States on September 11, 2001, continues to have many Americans concerned about their personal security. As a result, many people are purchasing firearms to maintain for home defense purposes. While they are purchasing handguns, many are also concerned with the safe storage and maintenance of the firearm in the home and want to purchase affordable gun safes to increase security and cleaning kits for gun care.

     The focus continues to be one of gun safety rather than legislative attempts to ban guns possibly due to the strong gun lobby and the nature of politics. Gun safety issues have been moving from the federal level to the state level through the introduction of mandatory gun lock legislation, while those at the federal level are seemingly in accord with the approach being taken by the Consumer Products Safety Commission to set measurable standards of performance for gun locking devices. The Company, with developed products that address preventive handgun safety, anticipates that it will be in a position to benefit from this trend, although this, of course, cannot be guaranteed. We believe that the continued focus on handgun safety, the use of gun locks by law enforcement agencies, the litigation aimed at gun manufacturers and corresponding about-face regarding gun safety locks begun by Smith & Wesson, as well as the gun legislation will hopefully enhance our product line revenues. In March 2000, Smith & Wesson entered into a legal settlement with the federal administration in which it pledged to equip its handguns with safety features on a schedule similar to the one proposed in the Maryland legislation, and specifically to put built-in locks in all of its handguns within the next few years.

     State legislation has been effective in increasing gun safety and minimizing gun violence. One way of accomplishing this is to require gun manufacturers to incorporate safety devices similar to the Company’s products into all handguns sold. The first regulation of this kind was passed by the Maryland state legislature in early April 2000. This legislation required gun manufacturers to incorporate safety devices similar to the Company’s products into all handguns sold. The State of California enacted legislation to establish performance standards for “firearm Safety devices,” “lock-boxes,” and “safes”. These standards permit an attack on the gun lock or safe with hand tools, such as hammers, screwdrivers, electric drills, screw and hack saws. This legislation requires manufacturers to have their products tested by an independent testing laboratory in order to be listed as an approved device. This testing has resulted in significant expenditures to the company. We anticipate that similar standards will be adopted throughout the United States in the next few years.

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(e) Critical Accounting Estimates

     The Company prepares its 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, 2003 audited consolidated financial statements included in the Company’s Form 10K-SB. 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 judgements and uncertainties. For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

     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.

     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.

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ITEM 3. CONTROLS AND PROCEDURES

PART II

ITEM 1. LEGAL PROCEEDINGS

     We were the plaintiff against our former manufacturer SKIT International, Ltd. and Uni-Skit Technologies, Inc. which alleged breach of a manufacturing contract which required defendants to manufacture certain of our products with the range of “competitive pricing”, a defined term. We sought damages and recision of 165,000 shares of our common stock as part of the compensation paid to the defendants. The defendants denied the allegations and counterclaimed for an outstanding balance of $182,625, for recision of the manufacturing agreement and for damage to its business reputation.

     In August of 2003, this suit went to trial before a twelve member jury in the Circuit Court of Pulaski County, Arkansas. The jury awarded the Company damages in the amount of $1,650,560, which includes the value of the returned shares of stock previously issued to the defendants. In addition, all counterclaims of the defendants were dismissed. Pursuant to an order of the Court, the shares issued to the defendants have been cancelled and reissued to the Company. We have not yet been successful in collecting the damage award, thus it has not been provided for in the Company’s consolidated financial statements, with the exception of the return of the shares of common stock into the Company’s treasury.

     On October 23, 2003, the Company initiated suit, seeking unspecified damages, in the Circuit Court of Pulaski County, Arkansas against former manufacturers, Uni-Tat International, Inc., Uni-Champion Ltd., and their respective principals, Victor Lee and Arthur Yung, for common law fraud (as to Unit-Tat, Lee and Yung), breach of contract, and violation of the Deceptive Trade Practices Act, and for vicarious liability.

     We instituted suit along with The Collins Family Trust, our affiliate in which David Collins, our Chairman claims a beneficial interest, and DAC Technologies of America, Inc., our predecessor, against Larry Legel, our former CPA, Director and the Trustee of The Collins Family Trust. The suit, commenced in March 2001 alleged a transfer of 180,000 shares of our common stock for services which the Defendant did not provide. The suit also alleges that the Defendant breached an agreement not to sell his shares before certain private investors had recouped their investment. In October 2002, the Arkansas Court ordered the transfer rescinded and the stock returned to David Collins. Mr. Legal has noticed the appeal of the Court’s October Order.

     Subsequent to the Arkansas action, Mr. Legal instituted against the Company in August, 2001, alleging failure by the Company and its officers to permit the sale of his shares of the Company, which were the same shares that were the subject of the Arkansas action. A Motion to Dismiss was filed and granted. In February,2003, Legal filed an amended complaint, alleging that the Company failed to honor his request to sell the shares. The Company has answered the Amended Complaint, denying the substantive allegations, and affirmatively asserts that the Amended Complaint be abated or dismissed due to the decision and pendency of the Arkansas Court’s determination.

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ITEM 2. CHANGES IN SECURITIES

     On March 11, 2004, the Company engaged Keane Securities Co., Inc., our placement agent, to raise a maximum of $1.7 million with a minimum of $500,000 through a private placement offering of the Company’s common stock. The offering closed on June 29, 2004, and raised $800,000. A total of 467,808 shares of common stock were sold at a price of $1.71 per share. In addition to the shares, investors were also issued 233,904 warrants, which upon exercise, will be able to purchase an additional 233,904 shares at a price of $2.57 per share. Keane Securities Co., Inc. received a $69,000 fee and was issued 160,000 warrants that allows it to purchase up to 160,000 shares of the Company’s common stock at a price of $2.57 per share. Additionally, legal expenses incurred related to the private placement were $16,844. The warrant holders have until June 28, 2009 to exercise the warrants. The effect of this private placement was to increase the issued and outstanding shares by 8% (exclusive of the exercise of the warrants). The proceeds are to be used to reduce outstanding debt, effectuate product development and acquisitions, and provide additional working capital.

     On October 20,2004, we filed a registration statement with the SEC on form SB-2, pursuant to our obligations under the Registration Rights Agreement between us and the aforementioned investors in the private placement. The registration statement is presently pending before the SEC.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

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

     None.

ITEM 5. OTHER INFORMATION

     None.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8 -K

     No Form 8K was filed during this reporting period. The following documents required by Item 601 of Regulation S-B 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 required by Item 601 of Regulation S-B attached:

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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

November  , 2004

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