Saturday, September 17, 2005
DAC Technologies (DAAT)
Otis seems like a strong gun cleaning supplies competitor.
Ok, let's take a look at their financials.
In the year ending Dec 31, 2004, their revenues went up 96%. This leveled off to 41% in Q2 2005 (68% in Q1) from the year earlier. Quarter over quarter from Q1 to Q2: Q1 had $2.26 million in sales, Q2 had nearly the same level of sales. On Sept 13, 2005, they announced August sales of $1.11 million. July sales were $740K.
There is legislation working its way through Congress to require a trigger lock or safe storage device for every handgun sold by a dealer. DAC would profit from this. Cabela's made a 6-figure order. Also Wal*Mart made low 7 figure commitments. At that point in August, the company was foreseeing $9 million to $11 million in revenues in 2nd half.
Let's follow the financials over time.
Dec 31, 2004:
cash = $168K
AR= $477K (allow of $7.5K) way up over prior year of $100K
due from factor = $1.3 million, way up over prior year of $223K
inventories = $1.9 million, more than double what it was a year earlier
AP doubled from the prior year
Sales doubled in 2004 from 2003.
Gross margins dropped from 40% in 2003 to 37% in 2004.
Selling cost percentages stayed the same.
G&A went from 15% to 9%.
Operating margins for 2004 were 17%. 12% in 2003.
Net margins for 2004 were 11%. 7% in 2003.
Share count increased mostly due to private placement.
Cash flow from operations sucked in 2004 (due from factor and inventories).
So the majority of receivables are factored. I view this as kind of ugly. Factoring fees are 0.65% to 1.8% monthly. The Company can get advances (currently charged 5.25%).
Bank debt is at 7%.
less than 400K stock options outstanding., ave strike $2.57.
They burned off $161K of NOLs in 2004.
One customer accounted for 55% of sales!
Their AR was factored.
Company purchased 98% of its products from one supplier.
What's to stop the 55% customer from going directly to the 98% supplier????
Bzzzt. I've seen enough. This company is selling for about 15 times trailing earnings. It doesn't seem very cheap to me at this point.