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 March 31, 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 March 31, 1997 the
issuer had 3,955,341 shares of common stock outstanding, 2,826,341 shares of
which are restricted and 1,129,000 shares are free trading. As of March 31,
1997 the issuer had 210 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
March 31, 1997.
<PAGE>
D. H. MARKETING & CONSULTING, INC.
and SUBSIDIARIES
Consolidated Financial Report
March 31, 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 March 31, 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for the three months
ended March 31, 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.
April 9, 1997
<PAGE>
D.H. MARKETING & CONSULTING, INC. and SUBSIDIARIES
Consolidated Balance Sheet
March 31, 1997 and December 31, 1996
1997 1996
(Unaudited) (Audited)
___________ __________
Assets
Current Assets
Cash $ 309,587 $ 147,572
Short-Term Investments
Certificates of Deposit 250,000 253,902
Accounts Receivable, Net of Allowance
1997 $2,900; 1996 $2,900 988,553 462,026
Inventory 5,042,350 496,776
Prepaid Expenses and Other 188,370 152,045
___________ __________
Total Current Assets 6,778,860 1,512,321
___________ __________
Investments
Investments in Qualtronics Corporation, Inc. 0 466,720
Mortgage Option 700,000 0
Investments - Other 213,903 13,195
___________ __________
Total Investments 913,903 479,915
___________ __________
Property and Equipment - Net 289,582 22,343
___________ __________
Goodwill - Net 266,510 0
___________ __________
Other Assets 54,995 37,248
___________ __________
Total Assets $ 8,303,850 $2,051,827
=========== ==========
See Notes to Financial Statements
2
<PAGE>
D. H. MARKETING & CONSULTING, INC. and SUBSIDIARIES
Consolidated Balance Sheet
March 31, 1997 and December 31, 1996
1997 1996
(Unaudited) (Audited)
___________ ___________
Liabilities and Stockholders' Equity
Current Liabilities
Line of Credit $ 99,731 $ 0
Current Portion of Long-Term Debt 59,270 1,127
Accounts Payable 424,410 5,112
Accrued Income Taxes 357,800 154,300
Other Current Liabilities 64,525 1,417
___________ ___________
Total Current Liabilities 1,005,736 161,956
___________ ___________
Long-Term Debt 240,375 5,412
___________ ___________
Total Liabilities 1,246,111 167,368
___________ ___________
Minority Interest in Subsidiary 10,585 0
___________ ___________
Stockholders' Equity
Common Stock, 1997 $.0003 Par Value,
Authorized 75,000,000 Shares;
Issued and Outstanding 3,955,341 Shares
(2,826,341 Shares Restricted, 1,129,000
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) 1,318 1,166
Additional Paid-In Capital 6,046,895 1,568,047
Retained Earnings 998,941 315,246
___________ ___________
Total Stockholders' Equity 7,047,154 1,884,459
___________ ___________
Total Liabilities and Stockholders' Equity $ 8,303,850 $ 2,051,827
=========== ==========
See Notes to Financial Statements
3
<PAGE>
D. H. MARKETING & CONSULTING, INC. and SUBSIDIARIES
Consolidated Statement of Income
Three Months Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
___________ ___________
Sales, Less Discounts 1997 $711; 1996 $417 $ 1,864,142 $ 203,783
Cost of Goods Sold 793,281 60,498
___________ ___________
Gross Profit 1,070,861 143,285
___________ ___________
General and Administrative Expenses 382,183 101,770
___________ ___________
Other Income (Expense)
Consulting Fees 400,000 0
Other (9,368) 4,564
___________ ___________
Total Other Income 390,632 4,564
___________ ___________
Net Income Before Income Taxes and
Minority Interest allocation 1,079,310 46,079
___________ ___________
Income Taxes
Federal 330,000 0
State 65,000 0
___________ ___________
Total Income Taxes 395,000 0
___________ ___________
Net Income before Minority Interest
in Net Income of Subsidiary 684,310 46,079
Minority Interest in Net Income of Subsidiary 615 0
___________ ___________
Net Income $ 683,695 $ 46,079
=========== ===========
Net Income Per Share $.18 $.04
=========== ===========
Weighted Average Number of Common Shares 3,819,874 1,152,000
=========== ===========
See Notes to Financial Statements
4
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 1997 and 1996
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
_________________ __________ __________ __________
Balance,
December 31, 1995 1,119,000 $1,119 $ 734,090 $(369,724) $ 365,485
Net Income 0 0 0 46,083 46,083
_________ ______ __________ _________ __________
Balance,
March 31, 1996 1,119,000 $1,119 $ 734,090 (323,641) $ 411,568
========= ====== ========== ========= ==========
Balance,
December 31, 1996 1,166,447 $1,166 $1,568,047 $ 315,246 $1,884,459
Issuance of
Common Stock 102,000 102 2,753,898 0 2,754,000
3 for 1 Stock Split 2,536,894 0 0 0 0
Issuance of Common Stock 150,000 50 1,724,950 0 1,725,000
Net Income 0 0 0 683,695 683,695
_________ ______ __________ _________ __________
Balance,
March 31, 1997 3,955,341 $ 1,318 $6,046,895 $ 998,941 $7,047,154
========= ====== ========== ========= ==========
See Notes to Financial Statements.
5
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1997 and 1996
1997 1996
_________ _________
Cash Flows from Operating Activities
Net Income (Loss) $ 683,695 $ 46,083
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used in Operating Activities:
Depreciation 14,232 1,082
Amortization 10,885 4,052
Minority Interest in Net Income of Subsidiary 615 0
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (208,785) (24,390)
Inventory (4,963) 44,869
Prepaid Expenses and Other (31,574) (36,547)
Increase (Decrease) in:
Accounts Payable 313,456 (1,268)
Accrued Income Taxes 203,500 0
Other Current Liabilities 26,745 (7,727)
_________ ________
Net Cash Provided by Operating Activities 1,007,806 26,154
_________ _________
Cash Flows from Investing Activities
Purchase of Short-Term Investments
Certificates of Deposit (250,000) 0
Redemption of Certificate of Deposit 253,902 0
Purchase of Investments (900,708) (5,795)
Purchase of Property and Equipment (5,849) (16,793)
Acquisition of Subsidiary, Qualtronics
Corporation, Inc., Net of Cash (26,496) 0
_________ _________
Net Cash Used in Investing Activities (929,151) (22,588)
_________ _________
Cash Flows from Financing Activities
Net Borrowings on Line of Credit 99,731 0
Principal Payments on Note Payable - Officer 0 (26,371)
Principal Payments on Long-Term Debt (16,371) (80)
_________ _________
Net Cash Provided by (Used In) Financing Activities 83,360 (26,451)
_________ _________
Net Increase (Decrease) in Cash 162,015 (22,885)
Cash
Beginning 147,572 171,098
_________ _________
Ending $309,587 $148,213
========= =========
See Notes to Financial Statements.
6
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1997 and 1996
1997 1996
_________ _________
(Continued)
Supplemental Disclosures of Cash Flow Information
Cash Payments for Interest $ 13,906 $ 79
========== =========
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 $ 655,924
========== =========
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
March 31, 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.
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.
8
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 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 three months ended March 31, 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 $ 4,926,739
Work in Process and Raw Materials -
Qualtronics Corporation, Inc. 115,611
___________
$ 5,042,350
===========
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
of 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 March 31, 1997.
9
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 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 financials 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.
March 31,
__________________________
1997 1996
___________ __________
Sales $ 1,864,143 $ 511,697
Cost of Goods Sold 793,281 183,498
___________ __________
Gross Profit 1,070,862 328,199
General and Administrative Expenses 381,464 310,648
Other Income (Expenses) 390,631 (2,972)
___________ __________
Net Income Before Income Taxes and
Minority Interest Allocation 1,080,029 14,579
Income Tax (Benefit) 395,000 (2,640)
___________ __________
Net Income Before Minority Interest in
Net Income (Loss) of Subsidiary 685,029 17,219
Minority Interest in Net Income (Loss)
of Subsidiary 615 (517)
___________ ___________
Net Income $ 684,414 $ 17,736
=========== ===========
Net Income Per Share $0.18 $0.02
=========== ===========
Weighted Average Number of
Common Shares 3,819,874 1,154,000
=========== ===========
10
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 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 March 31, 1997, the outstanding balance of the first line is
$99,731 with an interest rate of 7.75%. There is no outstanding balance on
the second line at March 31, 1997.
5. Mortgage Option
This investment represents the option to acquire a mortgage on property in
the City of Wilton, Connecticut. The mortgage is for $1,250,000 at a rate
of 16%. The option may be exercised, subject to certain terms, at any time
between August 3, 1997, March 1, 1999. Monthly payments of $8,867 must be
made to maintain the option.
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 have been granted,
exercisable into 55,000 shares of common restricted stock at an exercise
price of $20 5/8 per share, 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
March 31, 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.
March 31,
1997
____________
Outstanding Options
(after effect of stock split)
September 6, 1996 165,000
January 7, 1997 1,200,000
____________
1,365,000
============
No options were exercised, forfeited, or expired during the period January
1, 1997, to March 31, 1997.
At March 31, 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.
Estimated Fair Value Per Options, January 7, 1997 $6.77
========
Fair value was calculated using the following factors:
January 7, 1997
_________________
o Risk-free Interest Rate 6.02%
o Expected Life 3 Years
o Expected Volatility 25%
o Expected Dividends None
12
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 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 March 31, 1997, under these
leases is $531,352, which is due as follows:
Quarter Ending
March 31, Amount
_______________ __________
1997 $ 93,768
1998 93,768
1999 93,768
2000 93,768
2001 93,768
2002 and Thereafter 62,512
__________
$ 531,352
==========
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
Management's Discussion and Analysis
Overview
The Company's 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's stock participated in a three for one
forward split and, as a result of the stock split, is now traded under the
symbol "DHMG." At the close of business, March 31, 1997, ending the first
quarter of 1997, shares were traded at the closing price of 13 5/32.
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 3/31/97 3/31/96
__________ __________
Network Marketing $ 122,730 $ 97,963
Collectibles 1,245,500 88,925
Burn Cleansing Solution 11,767 10,838
Acquisitions & Consulting <F1> 408,755 0
Other Revenue 75,390 5,640
Total Operating Revenue 1,788,752 203,366
Net Income Prior to Tax 1,079,925 46,083
Net Income Per Share Prior to Tax $.28 $.04
Weighted Average Number of Common Shares 3,819,874 1,119,000
<F1> includes Interest Receivable for Mortgage Option acquired
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 income prior to tax 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.
The Company has recently posted net income prior to tax of $1,079,925 in the
first quarter of 1997 and has recorded Total Current Assets of $6,778,860 and
Total Investments of $913,903 as of March 31, 1997. In addition, Total
Stockholders' Equity at March 31, 1997 was $7,047,154 and the Company had a
Market Capitalization of $52,037,455.
Capital Resources
On March 31, 1997, the Company had recorded Total Current Assets of $6,778,860
and Total Investments of $913,903, of which $559,587 was held in cash and cash
equivalents and $5,042,350 was held in inventory at cost. Approximate Total
Current Assets at March 31, 1996 was $373,304 of which $148,213 was held in
cash and cash equivalents.
Cash Expenditures
Total general and administrative expenses increased from March 31, 1996 to
March 31, 1997 from $101,770 to $382,183. 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 $6,261 in current and
long-term debt.
Qualtronics Corporation, Inc., a subsidiary of the Company contributed toward
$371,247 of Total Liabilities reflected on the Company's Consolidated Financial
Statements dated March 31, 1997, of which $234,963 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 the Company and, as a result of the
acquisition by the Company, is technically in default. As of March 31, 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 $711 in 1997 and $417 in 1996, increased
from March 31, 1996 to March 31, 1997 from $203,366 to $1,788,752 most
significantly, as a result of the Company's Collectible and Fine Art Division,
representing $1,245,500 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
$408,755 in the quarter ending March 31, 1997.
Total revenue from the Company's Network Marketing Division and Burn
Cleansing Solution 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.
Total sales of the Company's burn cleansing solution remained moderate during
the first quarter. The Company stresses sales to Fortune 500 industrial
giants, which is an exhausting task, are expected to increase as name
recognition and familiarity increase.
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 quarter
of 1997 alone total $1,245,500 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 April 15, 1997, the Company received 25,000 shares of restricted
common stock, valued at $8.25 per share, as payment toward an outstanding
receivable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
On April 9, 1997, the Company received notification from T. Christopher
Ciesielka, Vice President, Secretary, Officer and Director of the Company,
in which he presented his resignation from the aforementioned positions and
duties.
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 & Consult-
ing, 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.)
17.1 Resignation Letter dated April 9, 1997 by T. Christopher Ciesielka,
from his positions as an officer and director of the Registrant,
filed in this Form 10-QSB.
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 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 in this Form 10-QSB.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K have been filed during the quarter ending 3/31/97.
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
May 5, 1997 By:/s/ DAVID D. HAGEN
Date David D. Hagen
President, Treasurer and Chief Financial Officer
April 9, 1997
Mr. David D. Hagen
President & CEO
D.H. Marketing & Consulting, Inc.
HC 77 Box 394B
Routes 6 & 209
Milford, PA 18337-9444
Dear Dave;
Please accept this document as my official resignation of the positions of
Vice President, Secretary and Director of D.H. Marketing & Consulting, Inc.,
as well as my immediate release of all duties and responsibilities with respect
to D.H. Marketing & Consulting, Inc. related and unrelated to the positions of
Officer and Director of the Company and all its subsidiaries.
I would motion, that in the interim period between this, my resignation, and
the period in which an individual can be nominated and elected to the resigned
positions, that Michael J. Daily, presently Director and Vice President of
Operations, be placed in the position of Acting Secretary for the Company.
Sincerely,
/s/ T. CHRISTOPHER CIESIELKA
T. Christopher Ciesielka
1262 Forest Road
Whitehall, PA 18052
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use of our report, dated April 9, 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.
April 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL REPORT DATED MARCH 31, 1997 (UNAUDITED) AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 560
<SECURITIES> 0
<RECEIVABLES> 991
<ALLOWANCES> 3
<INVENTORY> 5,042
<CURRENT-ASSETS> 6,779
<PP&E> 290
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,304
<CURRENT-LIABILITIES> 1,006
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,304
<SALES> 1,865
<TOTAL-REVENUES> 1,864
<CGS> 793
<TOTAL-COSTS> 793
<OTHER-EXPENSES> 382
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,080
<INCOME-TAX> 395
<INCOME-CONTINUING> 1,080
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 684
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
