FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-91240
D.H. MARKETING & CONSULTING, INC.
(Name of small business issuer in its charter)
Nevada 88-0330263
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
HC 77 394 B Route 209 Milford, PA 18337-9444
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (717) 296-8515
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of exchanges on which registered
(None) (None)
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock (Par Value $.001 Per Share as of 12/31/96)(Effective
February 25, 1997, the Issuer has undertaken a Three for One Forward Stock
Split, pursuant to which the Par Value changed to $.0003 Per Share)
(Title of Class)
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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year, ending December 31,
1996, were $2,017,356, net of discounts.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of February 28, 1997, was
$9,365,606.25.
This issuer has not been involved in a bankruptcy proceeding during the
last five years.
As of March 18, 1997, the issuer has 3,955,341 outstanding shares of
its $.0003 par value Common Stock, after the undertaking of a Three for One
Forward Stock Split, effective February 25, 1997.
The following documents are incorporated by reference
<PAGE>
TABLE OF CONTENTS AND CROSS REFERENCE SHEET
PART I
Item 1 Description of Business
Item 2 Description of Property
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
PART II
Item 5 Market for Registrants' Common Equity and Related Stockholder Matters
Item 6 Management's Discussion and Analysis
Item 7 Financial Statements
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with 16(a) of the Exchange Act
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners and Management
Item 12 Certain Relationships and Related Transactions
Item 13 Exhibits and Index
<PAGE>
PART I
ITEM 1 - BUSINESS
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, collectible &
fine art division and the acquisitions & consulting division.
Burn-Cleansing Solution Division
In 1986, the PREVOR Laboratory of Valmondois, France, developed a
revolutionary chemical burn cleaning solution. Unlike current rinsing
solutions that dilute chemicals while they continue to burn the skin and eyes,
diphoterine absorbs the burning molecules on contact, preventing additional
exposure to the skin. Diphoterine is effective on the skin and eyes 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 and eyes 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
five 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, normalize 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 over $550,000 in commissions 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 art 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 most 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 gain 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.
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, as well as
providing consultation services to Universal Network, Inc. and Qualtronics
Corporation, Inc.
The Company is looking for this division to expand significantly in 1997,
as the Collectible and Fine Art Division did from 1995 to 1996. 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.
ITEM 2 - PROPERTIES
As of February 1, 1996, the Company is currently leasing approximately
2,600 square feet in Milford, Pennsylvania at an annual cost of $33,750. The
current lease expires January 31, 1998.
The Company also occupies approximately 1,500 square feet of space in Las
Vegas, Nevada to house the West Coast Relations Office for which the Company
pays $500.00 per month. In addition, the Company has plans to re-open an
office in Vancouver, British Columbia for its Canadian subsidiary, FCS, and
expects a monthly rental fee of $400.00 Canadian currency for approximately
1,000 square feet.
ITEM 3 - 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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Holders of the Common Stock are not entitled to accumulate their votes for
the election of directors or otherwise. Accordingly, the holders of a majority
of the shares present at a meeting of shareholders will not be able to elect
all of the directors of the Company and the minority shareholders will not be
able to elect a representative to the Company's Board of Directors.
<PAGE>
PART II- OTHER INFORMATION
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) Market Information - The Company's Common Stock has been quoted on
the NASD electronic Bulletin Board, under the symbol "DHMK", since January 4,
1996. As a result of a three for one forward stock split effective February
25, 1997, the symbol was temporarily changed to "DHMG." The Company has
intentions of changing the symbol permanently to "DHMC" by April 1, 1997.
Trading Prices - The following table shows the range of high and low
trading prices for the months of 1996, as reported by the National Associations
of Securities Dealers. (Such quotations represent prices between dealers and do
not include retail markups, markdowns, or commissions and do not necessarily
represent actual transactions.)
There was no activity for the year of 1995. D. H. Marketing & Consulting
began trading in January of 1996.
These prices DO NOT reflect the three for one forward stock split
effective February 25, 1997.
Trading Prices
Common Stock
Month Ended High Low
January 31, 1996 $ 8 $ 5
February 29, 1996 $ 9 3/8 $ 7 1/8
March 29, 1996 $ 10 7/8 $ 8 15/16
April 30, 1996 $ 13 3/8 $ 10 3/8
May 31, 1996 $ 14 1/8 $ 12 7/8
June 28, 1996 $ 15 3/4 $ 13 1/2
July 31, 1996 $ 17 3/8 $ 15 1/4
August 30, 1996 $ 20 1/8 $ 16 7/8
September 30, 1996 $ 24 $ 19 5/8
October 31, 1996 $ 27 1/2 $ 23 3/4
November 29, 1996 $ 31 7/8 $ 27
December 31, 1996 $ 32 3/4 $ 26 1/2
(b) Stockholders - To date, the Company has approximately 185 holders of
record of the Company's Common Stock.
(c) Dividends - To date, no dividends have been paid by the Company and the
Company does not anticipate paying dividends on its Common Stock in the
foreseeable future, but plans to retain earnings, if any, for the operation and
expansion of its business.
ITEM 6 - 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." As a result of a three
for one forward stock split effective February 25, 1997, the symbol was
temporarily changed to "DHMG." The Company has intentions of changing the
symbol permanently to "DHMC" by April 1, 1997.
The Company is segmented into four distinct operations, consisting of the
Network Marketing Division, the Collectible Division, Acquisitions and
Consulting Division and the Burn Cleansing Solution Division. At December 31,
1995, the Company's headquarters were located in Tarrytown, New York, with
regional offices in Vancouver, British Columbia 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 plans
to reopen its offices in Vancouver, British Columbia during the second quarter
of 1997.
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) (.22)
Income Taxes
Liquidity
During 1995 and 1994, the first two years of operation, the Company invested
significant amounts of capital and formulated 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. As a result
of this Initial Public Offering and most attributable to the subsequent
earnings of the Company throughout 1996, the Company's operating needs are more
than adequately met with the current level of sales. Total Current Assets as
of December 31, 1996 totaled $1,512,321.
Capital Resources
On December 31, 1995, the Company had $382,934 in total current assets, of
which $171,098 was held in cash and cash equivalents and $142,268 was held in
inventory at the lower of cost or market.
On December 31, 1996, the Company managed to increase total current assets to
$1,512,321, of which $147,572 was held in cash and cash equivalents, $253,902
was held in Certificates of Deposit, $462,026 was held in Accounts Receivable
net of allowances and $496,776 was in inventory at the lower of cost or market.
Cash Expenditures
Total general and administrative expenses increased from 1994 to 1995 from
$183,193 to $380,000. The most significant expenditures were Salaries and
Wages, Outside Services and Consulting Fees, most of which indirectly related
to the Company's Initial Public Offering. The Company had previously reported
total general and administrative expenses for 1995 of $366,900. However, a
change in accounting policy reallocated a prior Credit of Commission advance
from General and Administrative Expenses to Other Income. There is no net
effect on earnings.
Total general and administrative expenses increased from 1995 to 1996 from
$380,000 to $528,038. The most significant increases in expenditures were
directly related to the Company's increased sales activity and business
operation, including Salaries and Wages, Office Expenditures and
Requalification of the Company's network marketing sales centers.
Long Term Debt
The Company has satisfactorily retired all Long Term Debt.
Revenue
Total revenue increased from 1994 to 1995 from $44,200 to $245,466 most
significantly as a result of the Company's network marketing division,
representing $136,425 of total revenue. In the network marketing division,
representatives qualify Retail Sales Centers with items of intrinsic value, and
earn commissions or product as the system is being built around them.
Items that can be purchased include jewelry, authentic leafs from the First
Edition of Noah Webster's American Dictionary of the English Language,
authentic leafs from original issue King James Bible and collectible numismatic
Morgan Silver dollars. Representatives then earn commissions corresponding to
the sale volume generated at their portion of the network.
Total revenue, less discounts, increased from 1995 to 1996 from $245,466 to
$1,767,356, most significantly as a result of an increase in network marketing
sales from $136,425 to $556,393 and an increase in collectible sales from
$58,500 to $1,172,698. The Company also added a new division, Acquisitions and
Consulting, that attributed toward $250,000 of the total increase.
The network marketing division was in operation approximately 60% of the 1995
fiscal year. Therefore, principals expected at least a portion of the increased
revenues in 1996 from this Division.
PART II - OTHER INFORMATION
ITEM 7 - FINANCIAL STATEMENTS
The consolidated Financial Statements that constitute Item 7 are included
at the end of this report, beginning on Page F-1.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS
Director Principal Occupation
Name Since Age for various Years
David D. Hagen 1993 44 Chairman of the Board, President, Treasurer and
Chief Executive Officer of the Company since
1993. Mr. Hagen was the President of Hagen
Development and Improvement Corp., a real estate
company. From 1978-1982 Mr. Hagen was the
President of an investment firm in Greenwich,
Connecticut. He structured and operated an
investment banking, private placement and
franchising organization. As Vice President of
Sales of International Stamp Exchange in New
York, Mr. Hagen developed an international
network for the sale and distribution of
collectible stamps, collectible coins, and hired,
trained and expanded the sales force from 1982-
1985. From 1985-1988, Mr. Hagen was Sales
manager of International Coin Exchange Company,
located in Brooklyn, New York. Mr. Hagen
developed an international network for the sale
and distribution of collectible coins, and hired,
trained and expanded the sales force. From 1988-
1993, Mr. Hagen has traded coins, stamps, art and
miscellaneous investments for private investors
and investment bankers, has owned and operated
Park Avenue Fine Art Archives among other
collectible galleries. From 1993, Mr. Hagen has
been the President of the Company in Milford, PA.
T. Christopher
Ciesielka 1994 26 Vice President, Secretary and a director with the
Company since September 1994. Mr. Ciesielka
received a B. S. degree in Chemical Engineering
in 1993. Mr. Ciesielka has owned and operated a
variety of businesses including Qualtronics
Corporation, Inc. which the Company has recently
acquired. Past business experiences include
management of third party financial audits and
private negotiations to raise capital for
privately held corporations.
Martin
Grossbach 1994 60 A director of the Company since September 1994.
In 1958, Mr. Grossbach received a B. S. in
Accounting from Queen's College and in 1961, he
received his law degree from New York Law School.
Mr. Grossbach has been an attorney in Westchester
County, New York for the last 32 years,
specializing in commercial real estate.
Michael
J. Daily 1996 48 A director of the Company since January, 1996.
Mr. Daily was honorably discharged from the U. S.
Army in 1969. He majored in Business
Administration in the California College system
from 1970-1973. Mr. Daily was the plant manager
of a large California based mail order firm from
1971-1976. From 1977-1985, Mr. Daily was a
manager in the Food & Beverage industry in the
Pennsylvania Pocono Mountains. Mr. Daily has
been active in the Real Estate Industry from 1985
to May 1995 when he joined D. H. Marketing &
Consulting, Inc. Mr. Daily was not on the Board
of Directors in 1995.
EXECUTIVE OFFICERS
The executive officers of the Company are elected annually at the annual
meeting of the Company's Board of Directors held after each annual meeting of
the shareholders. Each executive officer of the Company holds office until a
successor is duly elected and qualified, or until death or resignation or
removal in the manner provided by the Company's bylaws.
There are no family relationships between any of the directors and executive
officers.
There was no arrangement or understanding between any executive officer and any
other person pursuant to which any person was selected as an executive officer.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent (10%) of the
Company's Common Stock, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers, directors and
greater than 10 percent (10%) stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
ITEM 10 - EXECUTIVE COMPENSATION.
Summary Compensation Table
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities during each of the last three fiscal years
by the Chief Executive Officer. No executive officer's salary and bonus
exceeded $100,000 in 1995 or 1996. The following information for the Chief
Executive Officer includes the dollar value of base salaries, bonus awards, the
number of stock options granted and certain other compensation, if any, whether
paid or deferred.
SUMMARY COMPENSATION TABLE
Name and Principal Other Annual
Position at 12/31/96 Year Salary Bonus Compensation
______________________ ____ ___________ ___________ ____________
David D. Hagen 1994 - 0 - - 0 - - 0 -
President & Chief 1995 $26,291.94 $10,616.27 - 0 -
Executive Officer 1996 $40,833.33 $20,000.00 - 0 -
Restricted Number of
Stock Options All Other
Awards Granted (1) Compensation
___________ ____________ _____________
1994 - 0 - - 0 - - 0 -
1995 - 0 - - 0 - - 0 -
1996 - 0 - 60,000 - 0 -
Option Grants in the Last Fiscal Year
Principal Position Number of Options
Name at 12/31/96 Granted 9/6/96<F1>
___________________ ______________________________ ____________________
David D. Hagen President, Treasurer, Chief 60,000
Executive Officer & Director
T. Christopher Ciesielka Vice President, Secretary & 30,000
Director
Michael J. Daily Vice President of Operations 30,000
& Director
Steve Krakonchuk Vice President of Sales 30,000
Becky Anke Administrative Assistant 15,000
_____________
Total 165,000
<F1> Number of shares indicated include the effect of a three for one forward
stock split the Company undertook February 25, 1997.
Aggregated Option Exercises in the Last Fiscal Year and the Fiscal Year-End
Option Values
Set forth below is information with respect to the un-exercised options to
purchase the Company's Common Stock held by David D. Hagen at December 31,
1996. No options were exercised during fiscal years 1994, 1995 or 1996.
Value of Unexercised
Number of Unexercised in-the-Money Options
Options at FY-End(#) at FY-End ($)<F1>
___________________________ __________________________
Name Exercisable Un-exercisable Exercisable Un-exercisable
__________________ ___________ ______________ ___________ ______________
David D. Hagen 60,000 -0- 130,800 -0-
<F1> Estimated Fair Value Per Option was calculated to be $2.18 per share
based upon a Risk-Free Interest Rate of 6.55%, Expected Life of 3 Years,
Expected Volatility of 35% and No Expected Dividends.
Compensation of Directors
Directors who are employees do not receive additional compensation for service
as directors. Other directors do not receive any compensation for meetings
attended or conducted via telephone conference.
Employment Contract with a Director
D. H. Marketing & Consulting, Inc. currently employs Runes Corporation, owned
by T. Christopher Ciesielka, a director and officer of the Company, for
computer consultation and general administrative services. Total compensation
for 1995 was $40,000 and 1996 was $21,667. Total annual compensation for 1997
is expected to increase moderately. No other compensation arrangements exist.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The Company undertook a three for one forward split of its common stock on
February 25, 1997 resulting in a total of 3,805,341 shares issued and
outstanding. The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock, its only class of
outstanding voting securities, which includes the total number of pre-forward
split shares beneficially owned as of December 31, 1996 and the number of post-
forward split shares beneficially owned as of March 18, 1997, by (i) each
person who is known to the Company to own beneficially more than 5% of the
outstanding Common Stock with the address of each such person, (ii) each of the
Company's directors and officers, and (iii) all officers and directors as a
group:
as of 12/31/96 as of 3/18/97
______________________ __________________
Name and Address of Amount of Amount of
Beneficial Owner or Pre-Split Pre-Split Post-Split Post-Split
Name of Officer or Director Shares Percent Shares Percent
__________ _________ __________ __________
David D. Hagen<F1><F2> 189,000<F3> 16.2% 398,250<F3> 10.1%
P. O. Box 621
Hawley, PA 18428
T. Christopher Ciesielka 90,000 7.7% 234,000 5.9%
<F1><F2> <F3><F4> <F3><F5>
Post Office Box 100
Whitehall, PA 18052
Martin Grossbach<F2> 40,000<F3> 3.4% 90,000<F3> 2.3%
303 South Broadway
Suite 100
Tarrytown, NY 10591
Michael J. Daily<F2> 13,450<F3> 1.2% 41,350<F3> 1%
405 Prospect Street
Hawley, PA 18428
Charles Polete 106,465<F3> 9.1% 202,395<F3> 5.1%
10 Christopher Drive
Long Valley, NJ 07853
All Officers and Directors as
a Group (4 persons) 332,450<F3> 28.5% 763,600<F3> 19.3%
_________________
<F1> An Officer of the Company.
<F2> A Director of the Company.
<F3> Restricted stock under the provisions of Rule 144.
<F4> 80,000 of these shares are in the name of Runes Corporation, which is
owned by T. Christopher Ciesielka, an officer and director of the
Company.
<F5> 204,000 of these shares are in the name of Runes Corporation, which is
owned by T. Christopher Ciesielka, an officer and director of the
Company.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Each of the officers and directors of the Company are engaged in other
businesses, either individually or through partnerships and corporations in
which they have an interest, hold an office or serve on boards of directors.
Certain conflicts of interest may arise between the Company and its officers
and directors. All of the officers and directors have other business interests
to which they devote a portion of their time.
Until the end of January, 1996 the Company leased approximately 600 square
feet of space which was subdivided into three main offices in Tarrytown, New
York for $2,000 per month at 303 South Broadway, Suite 100, Tarrytown, New York
10591. That office served as the both the National and the International
Headquarters for the Company.
As of February 1, 1996, the Company is currently leasing approximately 2,600
square feet in Milford, Pennsylvania at an annual cost of $33,750. The current
lease expires January 31, 1998.
From date of inception through August 3, 1995, Mr. David D. Hagen, President
and a director of the Company, loaned the Company approximately $150,000. The
loan has since been serviced in full.
David D. Hagen, President of the Company personally acquired all of the
outstanding shares of common stock of Financial Communication Services, a
Canadian corporation, for $10,000, which he sold to the Company for $10,000 on
a Promissory Note.
The Company will attempt to resolve any such conflicts of interest in favor
of the Company. The officers and directors of the Company are accountable to
it and its shareholders as fiduciaries, which requires that such officers and
directors exercise good faith and integrity in handling the Company's affairs.
A Shareholder may be able to institute legal action on behalf of the Company
or on behalf of itself and all similarly situated shareholders to recover
damages or for other relief in cases of the resolution of conflicts in any
manner prejudicial to the Company.
<PAGE>
PART IV
ITEM 13 - EXHIBITS INDEX
Exhibit No. Description and Method of Filing
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 and incorporated herein by reference.
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 and incorporated herein by
reference.
3.1 By-Laws of the Registrant, dated September 8, 1994 filed with the
SEC on April 14, 1995, in Registration Statement and incorporated
herein by reference.
3.2 Articles of Incorporation for FCS Financial Communication Services
Inc., filed in the the Province of British Columbia, dated October
12, 1994, filed with SEC on April 14, 1995, in Registration
Statement and incorporated herein by reference.
5.0 Opinion of Max C. Tanner, Esquire, regarding legality, dated April
7, 1995, filed in Amendment No. 1 to Registration Statement and
incorporated herein by reference.
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
and incorporated herein by reference.
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
and incorporated herein by reference.
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 and incorporated herein by reference.
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 and incorporated
herein by reference.
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 and incorporated herein by
reference.
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 and incorporated herein by
reference.
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 and
incorporated herein by reference.
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 and
incorporated herein by reference.
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 and incorporated herein by reference.
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 and incorporated herein by reference.
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 and incorporated herein by
reference.
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 and incorporated herein
by reference.
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 and
incorporated herein by reference.
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 and incorporated herein by
reference.
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 and incorporated herein
by reference.
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 and incorporated herein
by reference.
10.16 Selected Dealer Agreement, filed in Amendment No. 1 to Registration
Statement and incorporated herein by reference.
10.17 Selected Dealer Agreement - Revised, filed in Amendment No. 2 to
Registration Statement and incorporated herein by reference.
21.0 Subsidiaries of the Registrant: Financial Communication Services
Inc. (FCS) a corporation organized in the Province of British
Columbia, Canada. (See Exhibit 3.2, filed with SEC on April 14,
1995, in Registration Statement and incorporated herein by
reference.
21.1 Subsidiaries of the Registrant as of December 31, 1996, filed
with the SEC in this 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 and
incorporated herein by reference.
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 and
incorporated herein by reference.
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
and incorporated herein by reference.
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 and incorporated herein by reference.
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 and incorporated herein by
reference.
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 Form
10-KSB for December 31, 1995 and incorporated herein by reference.
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 in Form 10-QSB and
incorporated herein by reference.
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 in Form 10-QSB and on
October 16, 1996 in Form 10-QSB/A and incorporated herein by
reference.
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 and incorporated herein by reference.
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 in this Form 10-KSB.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
D.H. Marketing & Consulting, Inc.
a Nevada Corporation
By: /s/ DAVID D. HAGEN Date: 3/20/97
David D. Hagen
President, Treasurer and
Chief Financial Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ T. CHRISTOPHER CIESIELKA Date: 3/20/97
T. Christopher Ciesielka
Secretary and Director
By: /s/ MARTIN GROSSBACH Date: 3/21/97
Martin Grossbach
Director
By: /s/ MICHAEL J. DAILY Date: 3/20/97
Michael J. Daily
Director
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 & 1995
<PAGE>
D. H. MARKETING & CONSULTING, INC.
and SUBSIDIARIES
Consolidated Financial Report
December 31, 1996 and 1995
<PAGE>
D.H. MARKETING & CONSULTING, INC.
and SUBSIDIARIES
Contents
Page
Independent Auditor's Report on the
Consolidated Financial Statements 1
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statement of Income 4
Consolidated Statement of Stockholders' Equity 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 9
<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 Auditor's Report on the Consolidated Financial Statements
To the Board of Directors and Stockholders
D.H. Marketing & Consulting, Inc.
Milford, Pennsylvania
We have audited the accompanying consolidated balance sheets of D.H. Marketing
& Consulting, Inc., and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of D.H. Marketing &
Consulting, Inc., and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles..
/s/ NIESSEN, DUNLAP & PRITCHARD, P.C.
NIESSEN, DUNLAP & PRITCHARD, P.C.
Colmar, Pa.
January 29, 1997
<PAGE>
D.H. MARKETING & CONSULTING, INC. and SUBSIDIARIES
Consolidated Balance Sheet
DECEMBER 31, 1996 & 1995
1996 1995
___________ __________
Assets
Current Assets
Cash and Cash Equivalents $ 147,572 $ 171,098
Short-Term Investments
Certificates of Deposit 253,902 0
Accounts Receivable, Net of Allowance
1996 $2,900; 1995 $2,900 462,026 47,447
Other Receivables 147,374 20,920
Inventory 496,776 142,268
Prepaid Expenses 4,671 1,201
_________ _________
Total Current Assets 1,512,321 382,934
_________ _________
Investments
Investments in Qualtronics Corporation, Inc. 466,720 0
Investments - Other 13,195 12,400
_________ _________
Total Investments 479,915 12,400
_________ _________
Property and Equipment
Office Furniture and Equipment 28,086 3,919
Accumulated Depreciation ( 5,743) ( 1,020)
_________ __________
Net Property and Equipment 23,343 2,899
_________ __________
Other Assets
Organization Costs 71,030 71,030
Client Lists 10,000 10,000
__________ _________
81,030 81,030
Less Accumulated Amortization ( 46,595) ( 30,389)
__________ _________
34,435 50,641
Deposits 2,813 675
__________ _________
Net Other Assets 37,248 51,316
__________ _________
TOTAL ASSETS $ 2,051,827 $ 449,549
============== ===========
See Notes To Financial Statements
2
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Balance Sheet
DECEMBER 31, 1996 & 1995
1996 1995
___________ ___________
Liabilities and Stockholders' Equity
Current Liabilities
Current Obligations Under Capital Lease $ 1,127 $ 0
Accounts Payable 5,112 1,268
Sales Tax Payable 417 0
Accrued Wages 1,000 7,167
Accrued and Withheld Payroll Taxes 0 883
Accrued Expenses 0 375
Accrued Income Taxes 154,300 0
__________ __________
Total Current Liabilities 161,956 9,693
__________ __________
Long-Term Debt
Obligation Under Capital Lease 5,412 0
Note Payable - Officer 0 74,371
__________ __________
Total Long-Term Debt 5,412 74,371
__________ __________
Total Liabilities 167,368 84,064
__________ __________
Stockholders' Equity
Common Stock, $.001 Par Value, Authorized
25,000,000 Shares; 1996 - Issued & Outstanding
1,166,447 Shares (876,947 Shares Restricted,
289,500 Shares Free Trading) 1995 - Issued &
Outstanding 1,119,000 Shares (1,000,000 Shares
Restricted, 119,000 Shares Free Trading) 1,166 1,119
Additional Paid-In Capital 1,568,047 734,090
Retained Earnings (Deficit) 315,246 ( 369,724)
__________ __________
Total Stockholders' Equity 1,884,459 365,485
__________ __________
Total Liabilities and Stockholders' Equity $ 2,051,827 $ 449,549
=========== ==========
See Notes to Financial Statements
3
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement Of Income
Years Ended December 31, 1996 & 1995
1996 1995
___________ __________
Sales, Less Discounts 1996 $41,432; 1995 $0 $ 1,767,356 $ 245,466
___________ __________
Cost of Goods Sold
Purchases 572,216 63,728
Commissions 0 2,325
Freight-Out 11,001 4,395
Transportation In 3,433 970
__________ __________
Total Cost of Goods Sold 586,650 71,418
__________ __________
Gross Profit 1,180,706 174,048
__________ __________
General and Administrative Expenses
Advertising 19,855 5,366
Amortization 16,206 16,136
Bank Charges 631 1,797
Bad Debt 3,621 3,057
Depreciation 4,723 688
Dues and Subscriptions 2,164 809
Employee Benefits 2,134 0
Insurance 1,279 14,455
Licenses and Permits 359 5,105
Miscellaneous 3,625 3,922
Office 14,906 5,958
Outside Services 9,106 44,987
Postage and Printing 17,228 10,661
Professional Fees 26,194 12,470
Requalifying 43,195 3,880
Rent 34,802 26,821
Repairs and Maintenance 843 154
Salaries and Wages 191,738 94,009
Consulting Fees 34,663 41,038
Taxes - Franchise 11,422 999
Taxes - Payroll 17,826 9,320
Taxes - Other 1,020 0
Telephone 53,263 27,517
Travel and Auto 17,235 50,851
_________ _________
Total General and Administrative Expenses 528,038 380,000
_________ _________
Operating Income (Loss) (Forwarded) $ 652,668 $( 205,952)
_________ ___________
See Notes to Financial Statements
4
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement of Income
Years Ended December 31, 1996 & 1995
1996 1995
___________ __________
Operating Income (Loss) (Forwarded) $ 652,668 $( 205,952)
___________ ___________
Other Income (Expense)
Consulting Fees 250,000 0
Other Income 3,942 5,942
Equity Earnings in Qualtronics Corporation, Inc. 2,825 0
Recovery of Commission Advance 0 13,100
Interest Income 9,279 1,194
Interest Expense (744) (366)
____________ ___________
Total Other Income 265,302 19,870
____________ ___________
Net Income (Loss) Before Income Taxes 917,970 (186,082)
____________ ___________
Income Taxes
Federal 174,000 0
State 59,000 0
------------ -----------
Total Income Taxes 233,000 0
------------ -----------
Net Income (Loss) $ 684,970 $ (186,082)
============ ===========
Net Income (Loss) Per Share $.60 $(.18)
============ ===========
Weighted Average Number of Common Shares 1,142,981 1,023,800
See Notes to Financial Statements.
5
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1996 and 1995
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
_________________ __________ __________ __________
Balance,
December 31, 1994 1,000,000 $1,000 $ 196,100 $(183,642) $ 13,458
Issuance of Common Stock 119,000 119 561,581 0 561,700
Stock Issuance Costs 0 0 (23,591) 0 (23,591)
Net Loss 0 0 0 (186,082) (186,082)
_________ ______ __________ _________ __________
Balance,
December 31, 1995 1,119,000 1,119 734,090 (369,724) 365,485
========= ====== ========== =========
==========
Issuance of Common Stock 47,447 47 833,957 0 834,004
Net Income 0 0 0 684,970 684,970
_________ ______ __________ ________ __________
Balance,
December 31, 1996 1,166,447 $1,166 $1,568,047 $ 315,246 $1,884,459
========= ====== ========== =========
==========
See Notes to Financial Statements.
6
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement of Cash Flows
Years Ended December 31, 1996 and 1995
1996 1995
_________ _________
Cash Flows from Operating Activities
Net Income (Loss) $ 684,970 $(186,082)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used in Operating Activities:
Depreciation 4,723 688
Amortization 16,206 16,136
Provision for Doubtful Accounts 0 2,900
Undistributed Earnings of Qualtronics Corporation, Inc. (2,825) 0
Provision for Uncollectible Commission Advance 0 (31,050)
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (414,579) (39,764)
Other Receivables (126,454) (20,920)
Inventory 301,416 (139,029)
Commission Advance 0 32,550
Prepaid Expenses (3,470) 2,299
Organization Costs 0 (601)
Deposits (2,138) (675)
Increase (Decrease) in:
Accounts Payable 3,844 (23)
Accrued Expenses (7,008) 4,722
Accrued Income Taxes 154,300 0
_________ ________
Net Cash Provided by (Used in) Operating Activities 608,985 (358,849)
_________ _________
Cash Flows from Investing Activities
Purchase of Short-Term Investments
Certificates of Deposit (253,902) 0
Purchase of Investments (286,610) (12,400)
Purchase of Property and Equipment (16,792) (469)
_________ _________
Net Cash Used in Investing Activities (557,304) (12,869)
_________ _________
Cash Flows from Financing Activities
Cash Overdraft 0 (2,664)
Proceeds from Note Payable - Officer 0 117,507
Net Proceeds from Issuance of Common Stock 0 538,109
Principal Payments on Note Payable - Officer (74,371) (110,136)
Principal Payments on Capital Lease Obligations (836) 0
_________ _________
Net Cash Provided by Financing Activities (75,207) 542,816
_________ _________
Net Increase (Decrease) in Cash and Cash Equivalents
(Forwarded) $(23,526) $171,098
_________ _________
See Notes to Financial Statements.
7
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Consolidated Statement of Cash Flows
Years Ended December 31, 1996 and 1995
1996 1995
_________ _________
Net Increase (Decrease) in Cash and Cash Equivalents
(Forwarded) $ (23,526) $ 171,098
Cash and Cash Equivalents
Beginning 171,098 0
_________ _________
Ending $ 147,572 $ 171,098
========= =========
Supplemental Disclosures of Cash Flow Information
Cash Payments for Interest $ 743 $ 366
========= =========
Supplemental Schedule of Noncash Investing and
Financing Activities
Capital Lease Obligations Incurred for
Use of Equipment $ 7,375 $ 0
========= =========
Purchase of Investment through
Issuance of Company Stock $ 178,080 $ 0
========= =========
Purchase of Inventory through
Issuance of Company Stock $ 655,924 $ 0
========= =========
See Notes to Financial Statements.
8
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
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.
Estimates in the Preparation of Financial Statements
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.
Business Combination
In December 1994, the Company acquired for cash all of the outstanding
shares of Financial Communication Services, Inc. (F.C.S.) The total
acquisition cost was $10,000. F.C.S.'s only asset, a client and lead list,
is being amortized on a straight-line basis over five years.
The acquisition has been accounted for as a purchase and results of
operations of Financial Communication Services, Inc., since date of
acquisition are included in the consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company maintains its cash accounts in two commercial banks. The
amount on deposit at one of the banks usually exceeds the federally insured
limit. The Company does not consider this to be a significant risk.
9
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
1. Significant Accounting Policies (Continued)
Cash and Cash Equivalents (Continued)
For purposes of reporting cash flows, the Company considers all cash
accounts which are not subject to withdrawal restrictions or penalties, and
certificates of deposits with original maturities of 90 days or less to be
cash or cash equivalents. At December 31, 1995, cash deposits exceeded
federally insured limits by approximately $52,450.
Short-Term Investments
Short-term investments consist of certificates of deposit of greater than
90 days maturity which are stated at cost which approximates market.
Inventory
The total inventory balance is comprised of collectibles and is valued at
the lower of cost or market on the specific identification basis.
Investment in Common Stock of Qualtronics Corporation, Inc.
The Company is accounting for its investment in Qualtronics Corporation,
Inc., a 42% owned subsidiary, by the equity method of accounting under
which the Company's share of the net income of the subsidiary is recognized
as income in the Company's income statement and added to 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.
10
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
2. 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.
3. Cash and Cash Equivalents
Cash and cash equivalents consist of the following:
1996 1995
_________ _________
Cash $ 147,572 $ 20,769
Certificates of Deposit 0 150,329
_________ _________
$ 147,572 $ 171,098
========= =========
4. Related Party Transactions
Purchases
During 1996 and 1995, the Company purchased $208,125 and $48,750,
respectively, of collectibles from certain shareholders of the Company.
Sales
During 1996 and 1995, the Company sold $11,794 and $0, respectively, of
collectibles to certain shareholders and directors of the Company.
Consulting Fees
During 1996 and 1995, the Company paid consulting fees of $34,663 and
$40,000, respectively, to a related corporation who is a shareholder of the
Company.
Other Income
During 1996, the Company was paid a consulting fee of $150,000 by
Qualtronics Corporation, Inc., a 42% owned subsidiary.
11
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
5. Major Supplier - Burn Cleansing Solution
A part of the Company's business is dependent upon the availability of
burn cleansing solution available from a sole provider. At the present
time, the Company does not have a signed exclusive sales agreement with
this supplier. It is anticipated that an exclusive sales agreement will
be signed by the Company and the supplier in the near future. The Company
has been the only marketing agent for the supplier in the United States.
For the years ended December 31, 1996 and 1995, all purchases of burn
cleansing solution sold were from this supplier. At December 31, 1996 and
December 31, 1995, there was no payable due the supplier.
6. Major Customer
For the year ended December 31, 1996, there was one customer who accounted
for 35% of sales volume. At December 31, 1996, the trade receivable and
commission receivable was $422,200 and $82,600, respectively, from this
customer. No other customer was in excess of 10% in sales volume. During
the year ended December 31, 1995, there were no major customers.
7. Investment in Qualtronics Corporation, Inc.
On September 3, 1996, the company purchased 42% of the outstanding stock of
a company involved in the manufacturing of electronic and electro-
mechanical assemblies. The Company paid $285,815 in cash and issued 8,960
shares of stock for a total investment of $463,895.
Condensed financial information of Qualtronics Corporation, Inc., as of and
for the year ended December 31, 1996, is as follows:
Assets 1996
__________
Cash $ 48,504
Accounts Receivable 317,742
Inventory 115,611
Prepaid Expenses 4,751
__________
Total Current Assets 486,608
__________
Property and Equipment 650,199
Less Accumulated Depreciation (374,576)
__________
Net Property and Equipment 275,623
__________
Other Assets 21,798
__________
Total Assets $ 784,029
==========
12
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
7. Investment in Qualtronics Corporation, Inc. (Continued)
Liabilities and Stockholders' Equity
Current Liabilities
Notes Payable, Bank $ 35,714
Current Obligation Under Capital Lease 22,697
Accounts Payable and Accrued Expenses 142,205
__________
Total Current Liabilities 200,616
__________
Long-Term Debt
Note Payable, Bank 190,476
Obligation Under Capital Lease 60,590
__________
Total Long-Term Debt 251,066
__________
Total Liabilities 451,682
__________
Stockholders' Equity
Common Stock, No Par Value,
Authorized and Issued, 5,000,000 Shares 100,205
Additional Paid-In Capital 194,987
Retained Earnings 37,155
__________
Total Stockholders' Equity 332,347
__________
Total Liabilities and Stockholders' Equity $ 784,029
==========
Net Sales $1,856,855
==========
Gross Profit $ 920,588
==========
General and Administrative Expenses $ 719,354
==========
Other Expenses $ 176,850
==========
Income Taxes $ 17,659
==========
Net Income $ 6,725
==========
There were no dividends declared or paid during 1996. The investment
amount, approximately two and one-half times the proportional book value of
the stock purchased, was valued by independent consultants at greater than
three times the proportional book value. In evaluating Qualtronics
Corporation, Inc., as an investment opportunity, management of the Company
placed weighted emphasis on Qualtronics Corporation, Inc.'s long-term
earnings and sales growth potential, as well as added leverage to potential
and subsequent purchases of Qualtronics Corporation, Inc.'s stock that may
or may not interest or benefit the Company.
13
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
8. Office Lease
On February 1, 1996, the Company entered into an agreement to lease its
office suite for two years. The future minimum lease payments required are
as follows:
Year Ending
December 31, Amount
_______________ __________
1997 $ 33,750
1998 2,812
__________
$ 36,562
==========
The Company is also responsible for maintenance and capital improvements,
and must carry property, fire, and casualty insurance.
9. Income Taxes
The provision for income tax for the year ended December 31, 1996,
consisted of the following:
Federal State
__________ __________
Current Income Tax $ 294,750 $ 59,000
Reduction Due to Carryforward of
Prior Years Net Operating Losses (120,750) 0
__________ __________
Total Income Tax $ 174,000 $ 59,000
========== ==========
Prior years' net operating losses cannot be utilized as an offset of state
taxable income since the Company moved to Pennsylvania on February 1, 1996,
and prior losses were generated in the State of New York.
10. 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.
14
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
10. Stock Options (Continued)
December 31, December 31,
1996 1995
_____________ _____________
Outstanding Options 55,000 0
======== ======
No options were exercised, forfeited, or expired during the period
September 6, 1996, to December 31, 1996.
At December 31, 1996, 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, reported net income and earnings per share would
have been reduced to the pro forma amounts shown below:
1996
_____________
Net Income $ 505,170
=============
Earnings Per Share $.44
=============
1996 1995
_____________ ___________
Estimated Fair Value Per Options $6.54 $0
============= ===========
Fair value was calculated using the following factors at September 6, 1996:
o Risk-Free Interest Rate 6.55%
o Expected Life 3 Years
o Expected Volatility 35%
o Expected Dividends None
15
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
11. Segment Data
For the years ended December 31, 1996 and 1995, the Company had four
reportable industry segments: (i) network marketing, (ii) collectibles,
(iii) chemical burn cleansing solutions, and (iv) acquisitions and
consulting.
Year Ended Year Ended
December 31, December 31,
1996 1995
___________ ___________
Sales (Net of Discounts)
Multi-Level Network Marketing $ 556,393 $ 136,425
Collectibles 1,172,698 58,500
Burn Cleansing Solution 38,265 50,541
Acquisitions and Consulting 250,000 0
___________ ___________
Consolidated $ 2,017,356 $ 245,466
=========== ===========
Operating Income (Loss)
Multi-Level Network Marketing $ 501,039 $ 117,068
Collectibles 613,598 17,218
Burn Cleansing Solution 12,124 16,360
Acquisitions and Consulting 252,825 0
___________ ___________
Consolidated 1,379,586 150,646
Other Income 13,221 7,136
General Corporate Expenses (474,093) (343,498)
Interest Expense (744) (366)
___________ ___________
Net Income (Loss) Before
Income Taxes $ 917,970 $ (186,082)
Accounts and Other Receivables
Multi-Level Network Marketing $ 467,506 $ 20,244
Collectibles 39,825 44,250
Burn Cleansing Solution 0 3,197
Acquisitions and Consulting 100,000 0
___________ ___________
Consolidated 607,331 67,691
Corporate 2,069 676
___________ ___________
Total Accounts and Other Receivables $ 609,400 $ 68,367
=========== ===========
16
<PAGE>
D. H. MARKETING & CONSULTING, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
11. Segment Data
Year Ended Year Ended
December 31, December 31,
1996 1995
___________ ___________
Identifiable Assets
Multi-Level Network Marketing $ 487,947 $ 34,752
Collectibles 536,601 186,518
Burn Cleansing Solution 2,871 3,197
Acquisitions and Consulting 466,720 0
___________ ___________
Consolidated 1,494,139 224,467
Corporate Assets 557,688 225,082
___________ ___________
Total Assets at Period End $ 2,051,827 $ 449,549
=========== ===========
12. Subsequent Events
On January 9, 1997, the Company purchased an additional 55% of the
outstanding shares of Qualtronics Corporation, Inc. The Company paid
$75,000 in cash and 2,000 shares of restricted stock for a total additional
investment of $129,000. The Company now owns 97% of Qualtronics
Corporation, Inc.
On February 24, 1997, the Company recorded a three-for-one stock split of
the Company's common shares to shareholders of record on that date.
17
SUBSIDIARIES OF REGISTRANT
Wholly-owned subsidiaries:
FCS Financial Communication Services, Inc., a Canadian corporation
Acquisitions & Sales, Inc., a Pennsylvania corporation
42%-owned subsidiary:
Qualtronics Corporation, Inc., a Pennsylvania corporation
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 January 29, 1997, in this
annual report on Form 10-KSB for D.H. Marketing & Consulting, Inc.
/s/ NIESSEN, DUNLAP & PRITCHARD, P.C.
NIESSEN, DUNLAP & PRITCHARD, P.C.
Colmar, Pa.
March 12, 1997
