COMPANY BACKGROUND

DACO Manufacturing Ltd. (the “Company”) was incorporated under the laws of the Province of Ontario.  The Company along with its affiliated companies, JB Manufacturing, Inc. and J&B Manufacturing Company were acquired on June 30, 1995 by 1140934 Ontario, Inc., a wholly owned subsidiary of Imperial World, Inc. of Chicago, Illinois (“Imperial”).  Prior to this acquisition, the company had been owned by a group of individuals in Canada, a number of whom were active in the business.  The company and its predecessors have been engaged in the manufacture and distribution of costume jewelry in Canada since 1972.

On September 6, 1995, J&B Manufacturing Company was liquidated into 1140934 Ontario, Inc. and DACO Manufacturing Ltd. and JB Manufacturing, Inc. were merged with 1140934 Ontario, Inc.  The combined company thereafter changed its name to DACO Manufacturing Ltd.

 DACO Manufacturing Ltd. was operated as a wholly-owned subsidiary of Imperial World, Inc. from September 6, 1995 through August 31, 1998 when, because of financial difficulties experienced by Imperial, it was forced to divest itself of its interests in the Company.  Effective as of the close of business of August 31, 1998, all of the issued and outstanding shares of the Company were sold to DACO (USA), Inc. a Nevada corporation headquartered in Houston, Texas.  DACO (USA), Inc. also purchased the inter-company debt ($1,412,000) owed by the Company to Imperial.

 The Company operates from a 40,000 square foot leased facility in Concord, Ontario Canada, and a suburb on the north side of Toronto.   The Company is a major manufacturer of costume and precious jewelry including chains, pendants, earrings, charms, bracelets and various accessories.  The Company markets its jewelry to a customer base, which includes department stores such as Wal-Mart, Peoples, Zellers, and to drug stores such as Shoppers, Drug Trading as well as to miscellaneous chains and other independents throughout Canada.  The Company presently employs a staff of approximately 90 people.  For the year ended December 31, 1998, the Company had net sales of $12,910,510 compared with $14,438,000 for the year ended December 31, 1997 and $14,622,000 for the year ended December 31, 1996.

As a result of the acquisition of the Company by DACO (USA), Inc. approximately $2,100,000 has been injected into the Company.  A portion of these proceeds has been used to buy additional equipment, a portion for the new computer system and the balance for working capital.  In addition, the Company has hired a number of outside sales persons on a commission basis, both in the United States and Canada.  This has resulted in the two new accounts, Sears (Canada), and Meijers of Grand Rapids, Michigan.  Presentations have also been made to AVON (Montreal and New York), Wal-Mart (USA) and Target stores.  In addition, a number of additional companies have been contacted both in Canada and the United States for which the outside sales persons are awaiting appointments.

 Because of steps implemented by new management, the break even sales point for the Company has been reduced to approximately $1,000,000 in sales per month.  Additional costs and expenses are being targeted for elimination to reduce this number further.  Because of the reduction in expenses, the Company hopes to earn approximately $1,000,000 of pre-tax income during the current fiscal year.

To date, approximately 95% of the Company’s sales have been to the Canadian market and 5% to the U.S. market.  It is new management’s objective to increase sales for the fiscal year ending December 31, 1999 to the U.S. market so that they will constitute at least 15% to 20% of total sales.

In previous years, the Company has had a number of growth opportunities, but was unable to capitalize on them because of its lack of capital.  With the additional capital from the new owner, the Company should be able to substantially expand its sales without a significant increase in overhead because its facility is only approximately 35% utilized.  At current profit margin levels, an increase in sales of $5,000,000 would yield approximately $1.5 of additional pre-tax income.  Now that expenses have been and are being significantly reduced, the focus will be increasing sales.