FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ________
Commission file number _______________
D.H. MARKETING & CONSULTING, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 88-0330263
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
HC 77 Box 394 B, Routes 6 & 209, Milford, PA 18337 (717) 296-8515
(Address of principal executive offices) (Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
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.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of June 30, 1997 the
issuer had 4,005,341 shares of common stock outstanding, 2,826,341 shares of
which are restricted and 1,302,300 shares are free trading. As of June 30,
1997 the issuer had 430 shareholders.
Transitional Small Business Disclosure Format (Check one);
Yes [ ] No [X]
<PAGE>
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
See attached Financial Statements for the quarter ending June 30, 1997.
<PAGE>
D. H. MARKETING & CONSULTING, INC.
and SUBSIDIARIES
Consolidated Financial Report
June 30, 1997
(Unaudited)
<PAGE>
D.H. MARKETING & CONSULTING, INC.
and SUBSIDIARIES
Contents
Page
Independent Accountant's Report on the
Consolidated Financial Statements 1
Consolidated Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Income 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 8
<PAGE>
Niessen, Dunlap & Pritchard, P.C.
Certified Public Accountants & Business Consultants
590 Bethlehem Pike
P.O. Box 606
Colmar, PA 18915-0606
Phone (215) 997-7200
Fax (215) 997-7295
Independent Accountant's Report on the Consolidated Financial Statements
To the Board of Directors and Stockholders
D.H. Marketing & Consulting, Inc.
Milford, Pennsylvania
The accompanying consolidated balance sheet of D.H. Marketing & Consulting,
Inc., and Subsidiaries as of June 30, 1997, and the related consolidated
statement of income for the three months ended June 30, 1997, and six months
ended June 30, 1997 and 1996; and statements of stockholders' equity and cash
flows for the six months ended June 30, 1997 and 1996, were not audited by us
and, accordingly, we do not express an opinion on them.
The consolidated balance sheet as of December 31, 1996, was audited by us and
we expressed an unqualified opinion on it in our report dated January 29, 1997,
but we have not performed any auditing procedures since that date.
/s/ NIESSEN, DUNLAP & PRITCHARD, P.C.
NIESSEN, DUNLAP & PRITCHARD, P.C.
Colmar, Pa.
July 7, 1997
<PAGE>
D.H. MARKETING & CONSULTING, INC. and SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1997, and December 31, 1996
1997 1996
(Unaudited) (Audited)
____________ ___________
Assets
Current Assets
Cash $ 284,556 $ 147,572
Short-Term Investments
Certificates of Deposit 250,000 253,902
Accounts Receivable, Net of Allowance
1997 $2,900; 1996 $2,900 1,233,618 462,026
Inventory 2,013,809 496,776
Prepaid Expenses and Other 160,204 152,045
___________ ___________
Total Current Assets 3,942,187 1,512,321
___________ ___________
Investments
Investments in Qualtronics Corporation, Inc. 0 466,720
Investments in Universal Network, Inc. 3,650,000 0
Investments - Other 491,903 13,195
___________ ___________
Total Investments 4,141,903 479,915
___________ ___________
Property and Equipment - Net 285,053 22,343
___________ ___________
Goodwill - Net 259,677 0
___________ ___________
Other Assets 300,943 37,248
___________ ___________
Total Assets $ 8,929,763 $ 2,051,827
============ ===========
See Notes to Financial Statements.
2
<PAGE>
D. H. MARKETING & CONSULTING, INC. and SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1997 and December 31, 1996
1997 1996
(Unaudited) (Audited)
____________ ___________
Liabilities and Stockholders' Equity
Current Liabilities
Line of Credit $ 250,000 $ 0
Current Portion of Long-Term Debt 58,993 1,127
Accounts Payable 74,966 5,112
Accrued Income Taxes 661,750 154,300
Other Current Liabilities 66,344 1,417
____________ ___________
Total Current Liabilities 1,112,053 161,956
Long-Term Debt 225,853 5,412
____________ ___________
Total Liabilities 1,337,906 167,368
____________ ___________
Minority Interest in Subsidiary 12,359 0
____________ ___________
Stockholders' Equity
Common Stock, 1997 $.0003 Par Value,
Authorized 75,000,000 Shares;
Issued and Outstanding 4,005,341 Shares
(2,826,341 Shares Restricted, 1,302,300 Shares Free Trading)
1996 - $.001 Par Value, Authorized 25,000,000 Shares;
Issued and Outstanding 1,166,447 Shares
(876,947 Shares Restricted,
289,500 Shares Free Trading 1,333 1,166
Additional Paid-In Capital 6,496,880 1,568,047
Retained Earnings 1,762,535 315,246
____________ ___________
8,260,748 1,884,459
Less Cost of 75,000 Shares of Treasury Stock (681,250) 0
____________ ___________
Total Stockholders'Equity 7,579,498 1,884,459
Total Liabilities and Stockholders'Equity $ 8,929,763 $ 2,051,827
============ ===========
See Notes to Financial Statements.
3
<PAGE>
D. H. MARKETING & CONSULTING, INC. and SUBSIDIARIES
Consolidated Statement of Income
Three Months Ended June 30, and Six Months Ended
June 30, 1997 and 1996
(Unaudited)
1997 1997 1996
Second Year to Year to
Quarter Date Date
__________ ___________ ___________
Sales, Less Discounts
1997 $2,056; 1996 $26,984 $ 4,423,605 $ 6,287,747 $ 579,749
Cost of Goods Sold 2,923,998 3,717,279 198,087
____________ ____________ ___________
Gross Profit 1,499,607 2,570,468 391,662
____________ ____________ ___________
General and Administrative
Expenses 382,183 764,366 211,776
____________ ____________ ___________
Other Income (Expense)
Consulting Fees 100,000 500,000 0
Other 32,944 23,576 6,288
____________ ____________ ___________
Total Other Income 132,944 523,576 6,288
(Expense) ____________ ____________ ___________
Net Income Before Income Taxes
and Minority Interest
allocation 1,250,368 2,329,678 186,174
___________ ____________ ___________
Income Taxes
Federal 410,000 740,000 0
State 75,000 140,000 0
____________ ____________ ___________
Total Income Taxes 485,000 880,000 0
____________ ____________ ___________
Net Income before Minority
Interest in Net Income
of Subsidiary 765,368 1,449,678 186,174
Minority Interest in Net
Income of Subsidiary 1,774 2,389 0
____________ ____________ ___________
Net Income $ 763,594 $ 1,447,289 $ 186,174
============ ============ ===========
Net Income Per Share $.19 $.38 $.16
============ ============ ===========
Weighted Average
Number of Common Shares 3,950,671 3,818,507 1,129,577
============ ============ ==========
See Notes to Financial Statements
4
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 1997 and 1996
(Unaudited)
Additional Retained
Common Stock Paid-In Earnings Treasury
_________________
Shares Amount Capital (Deficit) Stock Total
_________ _______ _________ __________ ________ __________
Balance,
December 31,
1995 1,119,000 $ 1,119 $ 734,090 $ (369,724) $ 0 $ 365,485
Issuance of
Common Stock 25,000 25 318,725 0 0 318,715
Net Income 0 0 0 186,174 0 186,174
_________ _______ _________ __________ _______ _________
Balance,
June 30, 1996 1,114,000 $1,144 $1,052,815 (183,550) $ 0 $ 870,409
========= ====== =========== ========== ===== ==========
Balance,
December 31,
1996 1,166,447 $1,166 $1,568,047 $ 315,246 0 $1,884,459
Issuance of
Common Stock 102,000 102 2,753,898 0 0 2,754,000
3 for 1 Stock
Split 2,536,894 0 0 0 0 0
Issuance of
Common Stock 200,000 65 2,174,935 0 0 2,175,000
Purchase of
75,000 Shares
for Treasury
Stock 0 0 0 0 (681,250) (681,250)
Net Income 0 0 0 1,447,289 0 1,447,289
___________ _______ __________ __________ ________ _________
Balance,
June 30,
1997 4,005,341 $ 1,333 $6,496,880 $1,762,535 $(681,250)$7,579,498
========= ======= ========== ========== ========= =========
See Notes to Financial Statements.
5
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement of Cash Flows
Six Months Ended June 30, 1997 and 1996
(Unaudited)
1997 1996
___________ ___________
Cash Flows from Operating Activities
Net Income $ 1,447,289 $ 186,174
Adjustments to Reconcile Net Income to
Net Cash Provided by (Used)in Operating
Activities:
Depreciation 28,466 2,263
Amortization 21,770 8,103
Gain on Sale of Investment (75,000) 0
Minority Interest in Net Income of Subsidiary 2,389 0
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (5,010,100) (48,112)
Inventory (3,423,578) (153,590)
Prepaid Expenses and Other (253,408) (10,186)
Increase (Decrease) in:
Accounts Payable 364,012 (1,268)
Accrued Income Taxes 507,450 0
Other Current Liabilities 28,564 (7,383)
___________ __________
Net Cash Provided by Operating Activities 485,010 (23,999)
___________ __________
Cash Flows from Investing Activities
Purchase of Short-Term Investments
Certificates of Deposit (250,000) 0
Proceeds from Sale of Investment 200,000 0
Redemption of Certificate of Deposit 253,902 0
Purchase of Investments (728,708) (5,795)
Purchase of Property and Equipment ( 15,554) (16,792)
Acquisition of Subsidiary, Qualtronics
Corporation, Inc., Net of Cash (26,496) 0
___________ __________
Net Cash Used in Investing Activities (566,856) (22,587)
___________ __________
Cash Flows from Financing Activities
Net Borrowings on Line of Credit 250,000 0
Net Proceeds from Issuance of Common Stock 0 318,750
Principal Payments on Note Payable - Officer 0 (54,371)
Principal Payments on Long-Term Debt (31,170) (324)
___________ __________
Net Cash Provided by (Used In) Financing Activities 218,830 264,055
__________ __________
Net Increase in Cash 136,984 217,469
Cash
Beginning 147,572 171,098
__________ __________
Ending $284,556 388,567
========== ==========
See Notes to Financial Statements.
6
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement of Cash Flows
Six Months Ended June 30, 1997 and 1996
(Unaudited)
1997 1996
___________ __________
(Continued)
Supplemental Disclosures of Cash Flow
Information Cash Payments for Interest $ 35,814 $ 308
============ ==========
Supplemental Schedule of Noncash
Investing and Financing Activities
Capital Lease Obligations Incurred
for Use of Equipment $ 0 $ 7,375
============ ==========
Purchase of Inventory through
Issuance of Company Stock $ 4,425,000 $ 318,750
============ ==========
Purchase of Investments through
Issuance of Common Stock $ 450,000 $ 0
============ ==========
Acquisition fo Investment in Satisfaction
of Accounts Receivable $ 3,650,000 $ 0
============ =========
Acquisition of Treasury Stock
in Satisfaction ofAccounts Receivable $ 681,250 $ 0
============ =========
Acquisition of Subsidiary,
Qualtronics Corporation, Inc.
Working Capital Assumed Net
of Cash of $48,504 $ 295,899
Fair Value of Other Assets Acquired,
Principally Property and Equipment 297,421
Cost in Excess of Net Assets Acquired 273,343
Company Investment in Qualtronics
Corporation, Inc as of December 1996 (466,720)
Long-Term Debt Assumed (309,477)
Minority Interests (9,970)
Issuance of Company Common Stock (54,000)
___________
Net Cash Paid in January 1997 to
Acquire Qualtronics Corporation, Inc $ 26,496
===========
See Notes to Financial Statements.
7
<PAGE>
D. H. MARKETING & CONSULTING, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
1. Significant Accounting Policies
Nature of Business
D. H. Marketing & Consulting, Inc., a New York corporation, was organized
on January 4, 1994, and was actively engaged in business operations through
September 29, 1994. On September 29, 1994, the Company merged with D. H.
Marketing & Consulting, Inc., a Nevada corporation, incorporated under the
laws of the State of Nevada on September 8, 1994, for the purpose of
acquiring D. H. Marketing & Consulting, Inc., the New York corporation. The
Company is engaged in four main areas of business: marketing and
distributing of chemical burn cleansing solutions (the solutions have been
in use in Europe for six years); the purchase and sale of valuable and
rare stamps, coins, fine art, and other tangible asset collectibles;
network marketing;and general consultation to and possible acquisition of
small growth oriented companies. The Company markets its products
throughout the continental United States and Canada.
Qualtronics Corporation, Inc., a 97%-owned subsidiary, is a contract
manufacturer, specializing in prototype and low volume electronic and
electro-mechanical assemblies, utilizing surface mount and hybrid
microcircuit technologies. Qualtronics' customers are predominately in
northeastern U.S.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and Qualtronics Corporation, Inc., a
97%-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Investment in Common Stock of Universal Network, Inc.
The company is accounting for its 28% investment in Universal network,
Inc., by the equity method of accounting under which the Company's share
of the net income or loss of the entity is recognized in the Company's
income statement and added to or deducted from the investment account, and
dividends received from the subsidiary are treated as a reduction of
the investment account.
Property and Equipment
Property and equipment are stated at cost. Major replacements and
betterments are capitalized while maintenance and repairs are expensed as
incurred.
Depreciation is provided generally on a straight-line basis over the
estimated service lives of the respective classes of property.
Other Assets
Organization expenses are recorded at cost and are being amortized on a
straight-line basis over five years. The expenses represent pre-
incorporation cost to establish the entity and develop various sales
venues. At Junr 30, 1997, the net unamortized balance was $21,129.
8
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
1. Significant Accounting Policies (Continued)
Fair Value of Financial Instruments
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments (none of which are
held for trading purposes) approximate the carrying values of such
amounts.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited financial
statements contain all necessary adjustments (consisting only of normal
recurring accruals) to present fairly the Company's financial position,
results of operations, and cash flows for the interim periods presented.
For further information, refer to the audited financial statements
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996.
Operating results for the six months ended June 30, 1997 and 1996, are not
necessarily indicative of the operating results for the full fiscal year.
3. Inventory
Inventories consisted of the following:
Artwork and Collectibles $ 1,868,432
Work in Process and Raw Materials -
Qualtronics Corporation, Inc. 145,377
___________
$ 2,013,809
===========
Artwork and collectibles are valued on a specific identified cost basis,
while other inventory is valued on a first-in, first-out basis at the
lower cost or market.
Inventory with a value of $4,425,000 was acquired by the issuance of
Company common stock during the period January 1, 1997, to June 30, 1997.
9
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
3. Qualtronics Corporation, Inc.
On January 9, 1997, the Company acquired an additional 55% of the
outstanding common stock of Qualtronics Corporation, Inc. The Company
currently owns 97% of the stock of Qualtronics Corporation, Inc., with its
results from operations reflected in the consolidated financial statement
since January 9, 1997.
The following unaudited pro forma information combines the results of the
Company and Qualtronics Corporation, Inc., as if the acquisition had
occurred at the beginning of the periods presented.
June 30,
________________________________
1997 1996
____________ ____________
Sales $ 6,287,747 $ 1,274,326
Cost of Goods Sold 3,717,279 510,786
___________ ___________
Gross Profit 2,570,468 763,540
General and
Administrative Expenses 764,366 632,693
Other Income (Expenses) 523,576 (10,993)
___________ ___________
Net Income Before
Income Taxes and
Minority Interest Allocation 2,329,678 119,854
Income Tax (Benefit) 880,000 (2,640)
___________ ____________
Net Income Before Minority
Interest in Net Income (Loss)
of Subsidiary 1,449,678 122,494
Minority Interest in Net
Income (Loss) of Subsidiary 2,389 (1,910)
____________ ___________
Net Income $ 1,447,289 $ 124,404
============ ===========
Net Income Per Share $0.38 $0.11
============ ===========
Weighted Average Number of
Common Shares 3,818,507 1,129,577
============ ============
10
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
4. Lines of Credit
On March 20, 1997, the Company entered into two line of credit agreements
with a bank, due on demand, which permit borrowing up to $250,000 on each
line. Interest on the first line is charged monthly on the outstanding
balance at 1.5% in excess of interest paid by the bank on the certificate
of deposit which is the collateral of the first line. Interest on the
second line is charged monthly on the outstanding balance at the lender's
prime rate. The second line is secured by 50,000 shares of common stock of
the Company and its inventory, property and equipment, and accounts
receivable. At June 30, 1997, the outstanding balance of the first line
is $250,000 with an interest rate of 6.75%. There is no outstanding
balance on the second line at June 30, 1997.
5. Investment in Universal Network, Inc.
The Company has received 1,825,000 shares of Universal Network, Inc., in
satisfaction of accounts receivable from the entity. As of June 30, 1997,
this represented 28% of the outstanding stock of the entity, for a total
investment of $3,650,000.
Universal Network, Inc., is involved in the network marketing of bullion
and numismatic coins, artwork, jewelry, and other assorted tangible asset
collectibles.
6. Common Stock Split
On February 24, 1997, the Company recorded a three-for-one stock split of
the Company's common stock to shareholders of record on that date. Par
value of the common stock has been adjusted for the three-for-one stock
split. Authorized shares have been increased to 75,000,000 shares.
7. Stock Options
On September 6, 1996, the Company made available to key employees a plan
for granting options on the Company's stock. The options are for a three-
year period from September 6, 1996. Such options are fully vested when
exercised. The options will exist for restricted securities which
typically require the shareholder to hold for a period of two years before
they may be sold, in whole or in part. Options numbering 55,000
(165,000 options after giving effect of the Company's three-for-one stock
split) have been granted, exercisable into an equal number of shares of
common restricted stock at an exercise price of $20 5/8 per share (prior
to three-for-one stock split), the closing price of the publicly-traded
shares as of September 6, 1996.
11
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
7. Stock Options (Continued)
On January 7, 1997, 400,000 options were granted to certain key employees
of the Company (1,200,000 options after giving effect of the Company's
three-for-one stock split). The options are for a three-year period from
January 7, 1997. These options are for restricted securities, are fully
vested to the employee, and are exercisable into shares of common
restricted stock at $8.92 per share after giving effect of the Company's
three-for-one stock split.
On January 13, 1997, 250,000 options were granted to a certain individual
for a five-year period from January 13, 1997 (750,000 options after
giving effect of the Company's three-for-one stock split). These options
are for restricted securities, are fully vested to the individual and
are exercisable into shares of common restricted at $9 per share after
giving effect of the Company's three-for-one stock split.
June 30,
1997
____________
Outstanding Options
(after effect of stock split)
September 6, 1996 165,000
January 7, 1997 1,200,000
January 13, 1997 750,000
____________
2,115,000
============
No options were exercised, forfeited, or expired during the period
January 1, 1997, to June 30, 1997.
At June 30, 1997, the Company's stock option plan was accounted for based
upon APB Opinion No. 25 and related interpretations. Accordingly, no
compensation cost has been recognized for options under this plan. Had
compensation cost for the plan been determined based on the grant date
and fair values of options, and estimated options to be exercised,
reported net income and earnings per share would have been reduced.
Management does not believe any of the current options will be exercised.
Fair value was calculated using the following factors:
January 7, 1997 January 13, 1997
_______________ ________________
o Risk-free Interest
Rate 6.02% 6.02%
o Expected Life 3 Years 5 years
o Expected Volatility 25% 25%
o Expected Dividends None None
o Estimated Fair Value
Per Options $6.77 $6.77
===== =====
12
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
8. Facility Lease
Qualtronics Corporation, Inc., leases its facility under a lease that
expires on November 30, 2002. The lease provides that, in addition to the
monthly rent, the lessee pay 16.64% of the cost of real estate taxes, all
risk insurance, and common area charges. These costs will be considered
as additional rent. The Company will also pay the cost of utilities.
The total future minimum rental commitment at June 30, 1997, under these
leases is $507,910, which is due as follows:
Year Ending
June 30, Amount
____________ ___________
1997 $ 93,768
1998 93,768
1999 93,768
2000 93,768
2001 93,768
2002 and Thereafter 39,070
___________
$ 507,910
===========
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND
PLAN OF OPERATION.
Management's Discussion and Analysis
Overview
D. H. Marketing & Consulting, Inc.'s (the "Company") Initial Public Offering
became effective with the Securities Exchange Commission on August 11, 1995.
The Company completed its Initial Public Offering October 11, 1995, having
sold 119,000 shares and received net proceeds of $537,990.
The proceeds of the Initial Public Offering significantly increased the
Company's working capital, cash availability, inventory and general business
capabilities. Shares first traded on the NASD Bulletin Board on January 4,
1996 at $5 per share under the symbol "DHMK."
On February 25, 1997, the Company undertook a three for one forward split of
its common stock and, as a result of the stock split, is now traded under the
symbol "DHMG." At the close of business, June 30, 1997, ending the second
quarter of 1997, shares were traded at the closing price of 14 1/2.
The Company is segmented into four distinct operations, consisting of the
Network Marketing Division, the Collectible Division, the Burn Cleansing
Solution Division and the Acquisitions & Consulting Division. At December 31,
1995, the Company's headquarters were located in Tarrytown, New York, with
regional offices in Vancouver, British Columbia, Canada and Hawley,
Pennsylvania. As of February 1, 1996, the Company relocated its headquarters
from Tarrytown, New York, to Milford, Pennsylvania. During the fourth quarter
of 1996, the Company opened a West Coast Relations Office in Las Vegas,
Nevada and has recently, in the early part of the second quarter of 1997,
reopened its regional office in Vancouver, British Columbia.
Selected Financial Data
Sales 1996 1995 1994
__________ _________ _________
Network Marketing $ 556,393 $ 136,425 $ 0
Collectibles 1,172,698 58,500 0
Burn Cleansing Solution 38,265 50,541 44,200
Acquisitions & Consulting 250,000 0 0
Total Operating Revenue, Less Discounts 1,767,356 245,466 44,200
Net Gain (Loss) Before Income Taxes 917,970 (186,082) (183,642)
Net Gain (Loss) Per Share Before .80 (.18) (.23)
Income Taxes
1/1/97- 1/1/96-
Sales 6/30/97 6/30/96
___________ ____________
Network Marketing $ 282,249 $ 221,934
Collectibles 5,008,209 376,996
Burn Cleansing Solution 19,922 20,813
Acquisitions & Consulting 647,253 0
Other Revenue 0 0
Total Operating Revenue 5,957,633 589,749
Net Income Prior to Tax 2,327,289 186,174
Net Income Per Share Prior to Tax $.61 $.16
Weighted Average Number of Common Shares 3,818,507 1,163,588
Liquidity
During 1995 and 1994, the first two years of operation, the Company invested
significant amounts of capital in formulating its business plan, establishing
market penetration and presence and preparing and completing its Initial Public
Offering. During this two-year period, the Company experienced insufficient
levels of sales to meet operating needs. This resulted in operating losses
for 1994 and 1995 of $183,657 and $192,852, respectively. The Company
supplemented cash availability by issuing stock in 1994 through a private
placement and in 1995 through the Initial Public Offering. Management believes
that as a result of the Initial Public Offering and increased revenues, the
Company now has adequate cash availability and income to satisfy present
operating needs. The Company posted net pre-tax income of $41,519,
$140,095, $218,566 and $517,790 in the first, second, third and fourth quarters
of 1996, respectively, which would indicate management's expectations were
correct. In 1997, the Company has posted pre-tax income of $1,078,695
and $1,248,594 respectively in the first and second quarters.
The Company has recently posted net pre-tax income of $1,248,594 in the
second quarter of 1997 and has recorded Total Current Assets of $3,942,187
and Total Investments of $4,141,903 as of June 30, 1997. In addition, Total
Stockholders' Equity at June 30, 1997 was $7,579,498 and the Company had a
Market Capitalization of $55,368,352.
Capital Resources
On June 30, 1997, the Company had recorded Total Current Assets of
$3,942,187 and Total Investments of $4,141,903, of which $534,556 was held in
cash and cash equivalents and $2,013,809 was held in inventory at cost.
Approximate Total Current Assets at June 30, 1996 was $809,478 of which
$388,567 was held in cash and cash equivalents.
Cash Expenditures
Total general and administrative expenses increased from $211,776 on June 30,
1996 to $764,366 on June 30, 1997. The most significant increases were due to
increased employment, advertising and general office activity.
Long-Term Debt/Current Liabilities
The Company has satisfactorily retired all Long-Term Debt with the exception
of a Capital Lease for Office Equipment that totaled $5,993 in current and
long-term debt.
At June 30, 1997, the outstanding balance of the Company's lines of credit
was $250,000 with an interest rate of $6.75%.
Qualtronics Corporation, Inc. ("QCI"), a subsidiary of the Company,
contributed toward $397,638 of Total Liabilities reflected on the Company's
Consolidated Financial Statements dated June 30, 1997, of which $220,441 was
considered long-term debt. The long-term debt of the subsidiary consists of
a note payable and obligation under capital lease for machines used in its
manufacturing process. The note payable is a seven-year term loan due in 84
equal monthly installments of $2,976 plus interest at prime plus 2.25%. The
final payment is due in April 2003. The loan is secured by the assets of QCI
and, as a result of the acquisition by the Company, is technically in
default. As of June 30, 1997, the bank has made no demand for repayment and
has indicated the terms will be adjusted to reflect the change in ownership
without adjustment to the terms of the loan agreement.
Revenue
Total revenue, less sales discounts of $2,056 in 1997 and $26,984 in 1996,
increased from June 30, 1996 to June 30, 1997 from $589,749 to $6,287,747 most
significantly, as a result of the Company's Collectible and Fine Art Division,
representing $5,008,209 of total revenue. Revenue as a result of the
Company's Acquisitions & Consulting Division also added significantly to
this quarter's growth. This division, instituted by the Company in the third
quarter of 1996, had no operating revenue in the period one year ago and
posted revenues of $647,253 year to date as of June 30, 1997.
Total revenue from the Company's Network Marketing Division also increased
steadily from 1996 to 1997. In the network marketing division, representatives
qualify Retail Sales Centers with items of intrinsic value, and earn
commissions or products as the system is being built around them.
Items that can be purchased include jewelry, authentic leafs from the First
Edition Noah Webster's American Dictionary of the English Language; authentic
leafs from the original issue of the King James Bible and collectible
numismatic Morgan Silver Dollars. Representatives then earn commissions
corresponding to the sales volume generated at their portion of the network.
Revenue related to the Company's Burn Cleansing Solution Division remains
moderate to steady as representatives continue to develop relationships with
industrial consumers and expand upon the product's visibility.
Plan of Operation
D. H. Marketing & Consulting, Inc. (the "Company") was incorporated under the
laws of the State of Nevada on September 8, 1994 for the purpose of acquiring
D. H. Marketing & Consulting, Inc., a New York corporation ("D. H. Marketing-
New York"). D. H. Marketing-New York was organized on January 6, 1994 and has
been actively engaged in business operations since that time. On September
29,1994, the Company entered into a merger agreement with D. H. Marketing-New
York in a transaction in which the Company was the surviving entity. The
Company is segmented into four distinct operations, consisting of the Burn
Cleansing Solution Division, Network Marketing Division, the Collectible
Division and the Acquisitions & Consulting Division.
Burn Cleansing Solution Division
In 1986, the PREVOR Laboratory of Valmondois, France, developed a revolutionary
chemical burn cleansing solution. Unlike current rinsing solutions that dilute
chemicals while they continue to burn the skin, diphoterine absorbs the
burning molecules on contact, preventing additional exposure to the skin.
Diphoterine is effective on the skin for burns resulting from caustic acids,
bases and solvent. Testimonies from European Fortune 500 Companies credit
diphoterine for improving productivity, decreasing absence, preventing
permanent injury and improving employee safety.
Diphoterine is effective on the skin for burns caused by all acids, bases and
caustic solvents except white phosphor and hydrofluoric acid. Hexafluorine
was developed specifically for use against burns caused by hydrofluoric acid.
Both cleansing solutions have been in use in Europe for seven years.
European users include Rohm and Haas, IBM, Proctor and Gamble, BASF and
DuPont. A Rhone Poulenc five year study showed use of diphoterine
decreased both the number of chemical spatters reported and the number
of employees requiring emergency treatment due to chemical burns.
Any employee exposed to acids, bases and caustic solvents is at risk of being
injured as a result of a chemical spatter. Current good manufacturing
practices require cleansing solutions be in close proximity to these employees.
But current solutions dilute and wash away only some of the chemical while the
remaining chemical continues to attack the body, causing permanent injury and
scarring. Diphoterine and hexafluorine are chemical burn cleansing solutions
that will absorb all the caustic chemical, normalizing pH levels and stop the
burning within seconds.
There were 60,000 individuals in 1993 requiring emergency treatment due to
chemical burns at an average cost of over $50,000. The Company believes that
use of diphoterine and hexafluorine in the work place will decrease the number
of individuals permanently injured from chemical spatters.
Network Marketing Division
During the second quarter of 1995, The Company became a Representative within
Universal Network, Inc.'s Network Marketing system. In the system,
representatives sell products and qualify retail sales centers with items of
intrinsic and/or collectible value. In addition, by purchasing these items,
representatives are also eligible to earn commission and/or sell products.
At the close of 1995, the Company had earned over $136,00 in commissions and
was the third largest dollar earner within the entire system. At the close of
1996, the Company had earned commissions in excess of $500,000 and was the
largest dollar earner within the entire system.
The network marketing system was developed and is governed by Universal
Network, Inc., also known as Universal Network of America, Inc.
Collectible Division
The Company's collectible and fine arts division is involved with the purchase
and sale of valuable and rare stamps, coins, fine art and other tangible asset
collectibles. Principals of the Company are experts at locating and
negotiating transactions to acquire investment-grade collectibles. Clients are
then able to purchase these items directly from the Company. By selecting only
the most valuable, highest quality, and collectible pieces, both the Company
and its clients profit from the transaction.
Total revenue for this division totaled just over $58,000 in 1995 and over
$1,172,698 in 1996. The substantial increase in sales was partially
attributable to time. This division commenced activity already one half way
through 1995. However, this increase in sales is more attributable to the
Company's increased ability to participate in more sizable and profitable
activities as a result of its increased asset base and cash position. Evidence
to the aforementioned statement is provided in that sales for the first
half of 1997 alone total $5,008,209 for this division.
Acquisitions and Consulting Division
The Acquisitions and Consulting Division commenced activities late in the
third quarter of 1996, acquiring 42% of Qualtronics Corporation, Inc., a
contract manufacturer of electromechanical and electronic devices, and
provided general consultation services.
The Company is looking for this division to expand significantly in 1997, as
the Collectible and Fine Art Division did from 1995 to 1996 and as it has
continued to expand in 1997. The Company is looking to acquire additional
small growth oriented companies, in addition to commercial real estate, as
well as continuing to provide general consultation services.
This division was successful in acquiring an additional 55% of Qualtronics
Corporation, Inc. in the first quarter of 1997, increasing its total holdings
to 97%.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings and, to
the best of its knowledge, no such action by or against the Company has been
threatened.
ITEM 2. CHANGES IN SECURITIES
On August 30, 1996, the Company purchased 42% of the issued and outstanding
stock of Qualtronics Corporation, Inc., whereby it issued, in reliance upon
Section 4(2) of the Securities Act of 1933, to 28 shareholders of Qualtronics
Corporation, Inc. 8,960 shares of restricted common stock, valued at $19.875
per share.
On October 4, 1996, the Company purchased items to be held in inventory,
whereby it issued, in reliance upon Section 4(2) of the Securities Act of
1933, 13,487 shares of restricted common stock to nine individuals, valued
at $27 per share.
On January 8, 1997, the Company purchased 55% of the issued and outstanding
stock of Qualtronics Corporation, Inc., whereby it issued, in reliance upon
Section 4(2) of the Securities Act of 1933, to one shareholder of Qualtronics
Corporation, Inc. 2,000 shares of restricted common stock, valued at $27
per share.
On January 13, 1997, the Company purchased items to be held in inventory,
whereby it issued, in reliance upon Section 4(2) of the Securities Act of
1933, 100,000 shares of restricted common stock, valued at $27 per share.
On March 6, 1997, the Company purchased items to be held in inventory,
whereby it issued, in reliance upon Section 4(2) of the Securities Act of
1933, 150,000 shares of restricted common stock, valued at $11.50 per share.
On May 5, 1997, the Company purchased 450,000 common shares of Frama,
Inc., whereby it issued, in reliance upon Section 4(2) of the Securities
Act of 1933, 50,000 shares of restricted common stock, valued at $9 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 20, 1997, the Company held its Annual Meeting of the Stockholders in
which a majority of the stockholders elected or re-elected (as the case may
be) the following individuals to the Board of Directors:
David D. Hagen
Michael J. Daily
Martin Grossbach
Steve Krakonchuk
Davis R. Chant
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits and Reports on Form 8-K (including related comments thereto) filed as
part of this report are listed below:
(a) Exhibits. The following exhibits are filed with or incorporated by
reference in this report.
The Exhibits required by Item 6 are incorporated by reference in the
Registration Statement File No. 33-91240 filed with the SEC on April 14, 1995
and Amendments No. 1 through 4 filed in connection therewith.
Exhibit Description and Method of Filing
No.
2.0 The Merger Agreement entered into by and between D.H. Marketing &
Consulting, Inc. a New York Corporation, and the Registrant, dated
September 29, 1994, filed with the Nevada Secretary of State,
November 10, 1994. (Filed with SEC on April 14, 1995, in
Registration Statement.)
3.0 Certificate of Incorporation of the Registrant, consisting of
Articles of Incorporation filed with the Secretary of State of the
State of Nevada on September 8, 1994. (Filed with SEC on April 14,
1995, in Registration Statement.)
3.1 By-Laws of the Registrant, dated September 8, 1994. (Filed with
SEC on April 14, 1995, in Registration Statement.)
3.2 Articles of Incorporation for FCS Financial Communication Services
Inc., filed in the Province of British Columbia, dated October 12,
1994. (Filed with SEC on April 14, 1995, in Registration
Statement.)
10.0 Engagement Letter between D.H. Marketing & Consulting, Inc., a
Nevada Corporation, and Max C. Tanner, Esquire, dated July 18,
1994. (Filed with SEC on April 14, 1995, in Registration
Statement.)
10.1 Stock Redemption Agreement between D.H. Marketing & Consulting,
Inc., a Nevada Corporation, and David D. Hagen, dated October 24,
1994. (Filed with SEC on April 14, 1995, in Registration
Statement.)
10.2 Distribution Agent Agreement between D.H. Marketing & Consulting,
Inc., a Nevada Corporation, and All Safety and Supply, dated August
17, 1994. (Filed with SEC on April 14, 1995, in Registration
Statement.)
10.3 Sales Agent Agreement between D.H. Marketing & Consulting, Inc., a
Nevada Corporation, and Jack Yee, dated July 6, 1994. (Filed with
SEC on April 14, 1995, in Registration Statement.)
10.4 Regional Sales Manager Agreement for the Western Territory between
D.H. Marketing & Consulting, Inc., a Nevada Corporation, and Billy
J. Richardson, dated June 24, 1994. (Filed with SEC on April 14,
1995, in Registration Statement.)
10.5 Regional Sales Manager Agreement for the Northwest Territory
between D.H. Marketing & Consulting, Inc., a Nevada Corporation,
and David J. Miller, dated August 8, 1994. (Filed with SEC on April
14, 1995, in Registration Statement.)
10.6 Marketing Agent Agreement between D.H. Marketing & Consulting,
Inc., a Nevada Corporation, and Leon Barnett & Associates. (Filed
with SEC on April 14, 1995, in Registration Statement.)
10.7 Distribution Agent Agreement between D.H. Marketing & Consulting,
Inc., a Nevada Corporation, and Demoore Products & Services.
(Filed with SEC on April 14, 1995, in Registration Statement.)
10.8 Promissory Note for the amount of $87,500.00 between D.H. Marketing
& Consulting, Inc., a Nevada Corporation, and David D. Hagen, dated
February 9, 1995. (Filed with SEC on April 14, 1995, in
Registration Statement.)
10.9 Distribution Agent Agreement between D.H. Marketing & Consulting,
Inc., a Nevada Corporation, and Hazmat Medical Associates, LTD.,
dated July 26, 1994. (Filed with SEC on April 14, 1995, in
Registration Statement.)
10.10 Regional Sales Manager Agreement for the Northeast Territory
between D.H. Marketing & Consulting, Inc., a Nevada Corporation and
David J. Miller, dated August 8, 1994. (Filed with SEC on April 14,
1995, in Registration Statement.)
10.11 Employment Contract Agreement between D.H. Marketing & Consulting,
Inc., a Nevada Corporation, and Steven Olivieri. (Filed with SEC
on April 14, 1995, in Registration Statement.)
10.12 Independent Contractor Agreement between D.H. Marketing &
Consulting, Inc., a Nevada Corporation and Stevie Holland. (Filed
with SEC on April 14, 1995, in Registration Statement.)
10.13 Installation and Support of Accounting System Contract and
Managerial Support Contract between D.H. Marketing & Consulting,
Inc., a Nevada Corporation, and Runes Corporation, a Pennsylvania
Corporation, dated December 8, 1994. (Filed with SEC on April 14,
1995, in Registration Statement.)
10.14 Amended Regional Sales Manager Agreement for the Western Territory
between D.H. Marketing & Consulting, Inc., a Nevada Corporation,
and Billy J. Richardson, dated February 21, 1995. (Filed with SEC
on April 14, 1995, in Registration Statement.)
10.15 Fund Escrow Agreement between Brighton Bank, and D.H. Marketing &
Consulting, Inc., a Nevada Corporation, dated May 1995. (Filed in
Amendment No. 1 to Registration Statement.)
10.16 Selected Dealer Agreement. (Filed in Amendment No. 1 to
Registration Statement.)
10.17 Selected Dealer Agreement - Revised. (Filed in Amendment No. 2 to
Registration Statement.)
21. Subsidiaries of the Registrant: Financial Communication Services
Inc. (FCS) a corporation organized in the Province of British
Columbia, Canada. (Filed with the SEC on March 27, 1997 in Form
10-KSB.)
23.1 Consent of Accountants, Niessen, Dunlap & Pritchard, P.C., dated
May 19, 1995, to the publication of their report, dated May 19,
1995. (Filed in Amendment No. 1 to Registration Statement.)
23.2 Consent of Accountants, Niessen, Dunlap & Pritchard, P.C., dated
May 19, 1995 to the publication of their report, dated May 19,
1995. (Filed in Amendment No. 1 to Registration Statement.)
23.3 Consent of Accountants, Niessen, Dunlap & Pritchard, P.C., dated
June 30, 1995, to the publication of their report, dated December
31, 1994. (Filed in Amendment No. 2 to the Registration
Statement.)
23.4 Consent of Accountants, Niessen, Dunlap & Pritchard, P.C., dated
August 3, 1995, to the publication of their report, dated December
31, 1994, and March 31, 1995 and 1994. (Filed with Amendment No. 3
to the Registration Statement.)
23.5 Consent of the Accountants, Niessen, Dunlap & Pritchard, P.C.,
dated August 8, 1995, to the publications of their report, dated
December 31, 1994, and March 31, 1995 & 1994. (Filed with Amendment
No. 4 to the Registration Statement.)
23.6 Consent of the Accountants, Niessen, Dunlap & Pritchard, P.C.,
dated March 15, 1996 to the publications of their report, dated
February 26, 1996 and December 31, 1995 & 1994. (Filed with SEC on
April 1, 1996 Form 10-KSB.)
23.7 Consent, dated April 26, 1996, of the Accountants, Niessen, Dunlap
& Pritchard, P.C., to the publication of their report, dated April
4, 1996. (Filed with SEC on May 1, 1996 Form 10-QSB.)
23.8 Consent, dated July 30, 1996, of the Accountants, Niessen, Dunlap &
Pritchard, P.C., to the publication of their report, dated July 8,
1996. (Filed with SEC on August 7, 1996 Form 10-QSB and on October
16, 1996 Form 10-QSB/A.)
23.9 Consent, dated October 21, 1996, of the Accountants, Niessen,
Dunlap & Pritchard, P.C., to the publication of their report, dated
October 3, 1996. (Filed with the SEC on November 6, 1996 in Form
10-QSB.)
23.10 Consent, dated March 12, 1997, of the Accountants, Niessen, Dunlap
& Pritchard, P.C., to the publication of their report, dated
January 29, 1997. (Filed with the SEC on March 27, 1997 in Form
10-KSB.)
23.11 Consent, dated April 30, 1997, of the Accountants, Niessen, Dunlap
& Pritchard, P.C., to the publication of their report, dated
April 9, 1997. (Filed with the SEC on May 27, 1997 in Form
10-QSB/A.)
23.12 Consent, dated July 28, 1997, of the Accountants, Niessen, Dunlap
& Pritchard, P.C., to the publication of their report, dated
July 7, 1997, filed with the SEC in this Form 10-QSB.
27.1 Financial Data Schedule for the 6-month period ending June 30,
1996. (Filed with the SEC on October 16, 1996 in Form 10-QSB/A.)
27.2 Financial Data Schedule for the 9-month period ending September
30, 1996. (Filed with the SEC on November 6, 1996 in Form 10-QSB.)
27.3 Financial Data Schedule for the 3-month period ending March 31,
1997. (Filed with the SEC on May 27, 1997 in Form 10-QSB/A.)
27.4 Financial Data Schedule for the 6-month period ending June 30,
1997, filed with the SEC in this Form 10-QSB.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K have been filed during the quarter ending 6/30/97.
SIGNATURES
In Accordance to the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
D.H. Marketing & Consulting, Inc.
A Nevada Corporation
8/7/97 By: /s/ DAVID D. HAGEN
Date David D. Hagen
President, Treasurer and Chief Financial Officer
Niessen, Dunlap & Pritchard, P.C.
Certified Public Accountants & Business Consultants
590 Bethlehem Pike, P.O. Box 606, Colmar, PA 18915-0606
(215) 997-7200, Fax (215) 997-7295
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use of our report, dated July 7, 1997, in this
quarterly report on Form 10-QSB for D.H. Marketing & Consulting, Inc.
/s/ NIESSEN, DUNLAP & PRITCHARD, P.C.
NIESSEN, DUNLAP & PRITCHARD, P.C.
Colmar, Pa.
July 28, 1997
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