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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-91240
VERSATECH, INC.
(formerly 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.)
300 Keystone Street, Hawley, PA 18428
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (570) 226-8515
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 $.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, 1999, were $795,848 net of discounts.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of 12/31/99, was $2,125,074.
This issuer has not been involved in a bankruptcy proceeding during the
last five years.
As of March 31, 2000 the issuer has 11,805,964 outstanding shares of
its $.0003 par value Common Stock.
Transition Small Business Disclosure Format (check one)
Yes [ ] No [x]
<PAGE> 1
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 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 Reports On Form 8-K
<PAGE> 2
PART I
ITEM 1 - BUSINESS
VersaTech, Inc. (the "Company") was incorporated under the laws of the
State of Nevada on September 8, 1994, under the name D.H. Marketing &
Consulting, Inc., for the purpose of acquiring D. H. Marketing & Consulting,
Inc., a New York corporation (D. H. Marketing-New York). On March 22, 2000,
the Company changed its name to VersaTech, Inc. 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 was segmented into four distinct
operations, consisting of the burn-cleansing solution division, network
marketing division, collectible & fine art division and the acquisitions &
consulting division. During fiscal 1998, the company completed the divestiture
of its Acquisitions and Consulting Division, divested itself of the Burn-
Cleansing Division except for a remaining royalty agreement as part of the
final divestiture. The Network Marketing Division was developed by the wholly
owned subsidiary Universal Network and its parent company, Universal Network
of America, Inc. ("Universal") The Network Marketing Division is the main
focus of this subsidiary. In April 1999, LongerLiving.com was introduced as a
domain for the Company. With the establishing of a presence on the world wide
web, the Company focus will be divided between the Collectibles Division and
the newly formed, wholly-owned subsidiary LongerLiving.com, Inc.
Network Marketing Division
The network marketing system was developed and is governed by Universal
Network, Inc., a wholly-owned subsidiary of Universal Network of America,
Inc., which is a wholly-owned subsidiary of the Company ("Universal").
During the calendar year ending December 31, 1997, the business
relationship between Universal and the Company matured significantly.
Universal acquired a substantial portion of its inventory from the Company,
totaling $4,986,554, thereby becoming the Company's largest customer of its
Collectibles and Fine Art Division, concurrent with the Company's continued
performance as Universal's largest distributor within the Network Marketing
system. The Company, through satisfaction of open receivables from Universal,
with that Company's treasury stock, became a shareholder of Universal.
On December 31, 1997, the Company acquired the balance of all the issued
and outstanding capital stock of Universal Network of America, Inc., through a
stock exchange agreement. Universal Network of America, Inc. now operates as,
and functionally is, a wholly-owned subsidiary of the Company.
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.
<PAGE> 3
Total revenue for this division totaled just over $2,035,611 in 1997,
having been discounted to eliminate sales of inventory to Universal Network,
Inc., now a wholly-owned subsidiary of the Company. Total revenue for 1998
totaled $612,675 and in 1999 it was further reduced to $32,646. The decrease
in revenues of the collectibles division was due to a shift in focus from this
division into the healthcare products of Universal and the further
introduction and expansion of presence on the Internet.
LongerLiving.com Division
The intent of LongerLiving.com is to become the leading provider of
quality content covering anti-aging advances and health on the Internet. The
site will bring together the most prolific writers around the world and will
serve as a database of great articles and breaking news in the health
industry. With the redesigning of the website in September 1999, came
expanding opportunities to provide a wider range of health news and features.
This eventually led to the incorporation of LongerLiving.com, Inc. on December
28, 1999. It is anticipated that LongerLiving.com will generate significant
revenues through sponsorships, banner advertising and co-branding.
ITEM 2 - DESCRIPTION OF PROPERTY
From February 1, 1996 to January 31, 1998, the Company leased
approximately 2,600 square feet in Milford, Pennsylvania. The Company is
currently leasing approximately 1,200 square feet in Hawley, Pennsylvania at
an annual cost of $3,900. The current lease expires January 31, 2001.
The Company has re-opened an office of approximately 1,000 square feet in
Vancouver, British Columbia for its Canadian facility at an annual cost of
$4,500.
The Company's subsidiary, Universal, occupies both an office space in
Sarasota, Florida totaling approximately 4,000 square feet at an annual cost
of $36,000. As of fiscal year end 1998, financing had been procured for the
purchase of this office location. The actual closing on the property
transpired in January of 1999. The commitment on the warehouse space expired
in May of 1999 and the lease was not renewed.
ITEM 3 - LEGAL PROCEEDINGS
The United States Securities and Exchange Commission is conducting a
formal investigation of the Company, with which the Company's management is
in full cooperation. The outcome of such investigation is not known at this
time. 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
During the fourth quarter of 1999, no matters were submitted to the
Security Holders for their approval.
<PAGE> 4
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 OTC 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 changed to "DHMG." On March 27, 2000, as a result of
the Company's name change to VersaTech, Inc., the symbol became "VITC."
Trading Prices - The following table shows the range of high and low
trading prices quarterly for the years 1997, 1998 and 1999 (such quotations
represent prices between dealers and do not include retail markups, markdowns,
or commissions and do not necessarily represent actual transactions.):
During the first quarter of 1997, the Company effected a 3-1 forward
stock split which was effective on February 25, 1997.
Trading Prices
Common Stock
Quarter Ending High Low
__________________________________________________________
March 31, 1997 $ 13.313 $ 11.25
June 30, 1997 $ 15.75 $ 9.25
September 30, 1997 $ 13.625 $ 9.063
December 31, 1997 $ 7.437 $ 3.875
March 31, 1998 $ 4.438 $ 4.188
June 30, 1998 $ 2.563 $ 2.563
September 30, 1998 $ 2.1562 $ 2.00
December 31, 1998 $ 1.688 $ 1.375
March 31, 1999 $ 1.15 $ 1.09
June 30, 1999 $ .5625 $ .53
September 30, 1999 $ .2810 $ .218
December 31, 1999 $ .18 $ .156
(b) Stockholders - To date, the Company has approximately 850 confirmed
holders of record of the Company's Common Stock, although the Company
believes it has a total of approximately 925 shareholders.
(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.
<PAGE> 5
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 changed to
"DHMG."
The Company had segmented into four distinct operations, consisting of
the Network Marketing Division, the Collectible Division, Acquisitions and
Consulting Division and the Burn Cleansing Solution Division. As of December
31, 1997, the Company had re-opened its Vancouver, British Columbia office and
closed its Las Vegas, Nevada office. On February 1, 1998, the Company
relocated its headquarters from Milford, Pennsylvania to Hawley, Pennsylvania.
During the fiscal year 1998, the company completed the divestiture of all
operations except the network marketing division and the collectibles
division. The Company still maintains a royalty agreement on the Burn-
Cleansing division as part of the divestiture of that division. The Company
has turned its attention, its focus, and its resources to the growth
and expansion of its wholly owned subsidiary, Universal Network, Inc., and to
its Internet presence via LongerLiving.com and the newly incorporated wholly-
owned subsidiary LongerLiving.com, Inc.
Selected Financial Data
Sales 1999 1998 1997
______________________________________________________________________
Network Marketing $ 763,202 $ 1,224,140 $ 483,000
Collectibles 32,646 612,675 2,053,611
Burn Cleansing Solution 0 19,422 38,547
Acquisitions & Consulting 0 0 448,200
Mechanical Assemblies 0 0 2,503,684
Total Operating Revenue
(Less Discounts) $ 795,848 $ 1,964,862 $ 5,509,042
Net Gain (Loss)
(Pre-Tax) $(4,754,344) $(3,344,928) $ 384,579
Net Gain (Loss) Per Share (.83) (.51) (.10)
Liquidity
As a result of the Initial Public Offering and most attributable to the
subsequent earnings of the Company throughout 1996 and continued earnings in
1997, the Company's operating needs more than adequately met with the current
level of sales. Total Current Assets as of December 31, 1997 totaled
$6,976,966 and as of December 31 1998, the Total Current Assets totaled
$5,557,936 and the Total Current Assets as of December 31, 1999 totaled
$193,020.
Capital Resources
On December 31, 1997, the Company had $6,976,966 in total current assets,
of which $706,609 was held in cash and cash equivalents and $5,559,132 was
held in inventory at the lower of cost or market value.
On December 31, 1998, the Company had $5,557,936 in total current assets,
of which $308,838 was held in cash and cash equivalents and $5,163,969 was
held in inventory at the lower of cost or market value.
<PAGE> 6
On December 31, 1999, the Company had $193,020 in total current assets of
which $53,724 was held in cash or cash equivalents and $139,296 was held in
inventory at the lower of cost or market value. The major reduction in total
current assets in 1999 was due to the large inventory devaluation of
$3,481,800 and the reclassification of the arts and collectibles inventory to
long term assets. These adjustments were due to the change in focus of the new
management team from collectibles to health care and internet related issues.
Cash Expenditures
Total general and administrative expenses increased from 1996 to 1997
from $528,038 ($507,109 excluding amortization and depreciation) to
$2,350,736. During 1997, the Company pursued many activities in the interests
of its shareholders, including the engagement of expert legal and financial
counsel related to its acquisition of Universal Network of America, Inc. and
divestiture of Acquisitions & Sales, Inc. (completion of the divestiture
occurred in 1998). These services where performed by unrelated parties.
Increases of general salaries and wages costs did not contribute significantly
to the increased general and administrative expenses.
Consolidated expenses as of 12/31/98 were $5,303,423. Increases were due
in part to the completion of the divestiture of other divisions and the
efforts in the network marketing and collectibles divisions to develop a
marketing system that would encompass traditional marketing methods with
network marketing operations and the associated systems development that was
required.
Consolidated operating expenses as of December 31, 1999 totaled
$1,286,967. This figure represents a 76% reduction in operating expenses as
compared with 1998. It also coincides with the new management team's refocus
on reducing operating expenses while focusing on the Internet and health
related products. Total consolidated expenses increased overall by 9% when
compared with 1998. As discussed before, the one time inventory adjustment
expense incurred during 1999 tends to skew the operational performance.
Management has made the continued reduction of operating expenses a focal
point for the year 2000 and beyond.
Long Term Debt
The Company has satisfactorily retired all Long Term Debt. The Company's
subsidiary, Qualtronics Corporation, Inc., held long-term debt of $42,149 at
December 31, 1997. The Company has since divested itself of its interest in
Qualtronics Corporation, Inc. on February 5, 1998. The Company's wholly-owned
subsidiary, Universal Network, Inc. received financing for its office location
in Sarasota, Florida. The amount due on this mortgage as of December 31, 1999
was $293,332. The subsidiary has also incurred a notes payable from related
parties as of December 31, 1999 of $81,030.
Revenue
Total revenue increased from 1996 to 1997 from $1,767,356 to $5,509,042,
of which $2,503,684 were sales recorded by its subsidiary, Qualtronics
Corporation, Inc. Total revenue increased for every division of the Company
excluding Network Marketing, which decreased 13% to $483,000. Total revenue
of collectible sales were also discounted by $4,986,554, representing sales of
inventory to Universal Network, Inc., now a wholly owned subsidiary of the
Company.
<PAGE> 7
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.
During fiscal year 1998, the network marketing division expanded their product
lines into the consumables market. In the first half of the year, the division
launched an aloe vera based skin care product line. In November, the Universal
launched UNItropin, an hGH formula plus dietary supplement.
Consolidated Total Revenue as of 12/31/98 decreased by 61% to $1,964,862.
Contributing factors for this decrease included the completion of the
divestiture of 2 divisions and the refocusing of the entire organization
towards the network marketing division. In this division, the Company's wholly
owned subsidiary, Universal Network Inc. recently launched "Unitropin"; an
hGH formula plus dietary supplement which it believes along with its aloe vera
based skin care line that was launched mid way through 1998, is the beginning
of the new consumables direction that the Company is presently embarked upon.
Consolidated Total Revenue decreased by 54% as of December 31, 1999.
Contributing factors of this continued downward trend in sales include the
continued re-focus of the new management team towards the healthcare product
consumable sector and, in particular, the increasing presence of the product
line and related health products and issues on the Internet.
Forward Looking Statements
In an effort to re-focus the Company's direction, there was some
discussion by the new management team at the 1999 annual stockholders meeting
in June to change the Company name. It was believed that a new name with a new
direction together with the new management team in place and a presence on the
Internet would boost sales and stockholder confidence. Since that meeting,
there has been a subsequent meeting in March 2000 to change the Company name
from D.H. Marketing & Consulting, Inc. to VersaTech, Inc.
The Company's wholly-owned subsidiary, Universal Network, Inc., in
conjunction with the Company, has been communicating with Commission Junction
in discussion about launching an affiliate revenue program. Commission
Junction is a web-based e-commerce network that manages the relationship
between merchant's products services to on-line clientele.
The new management team is also searching for alternative methods of
raising capital to meet it short term needs as well as expanding its presence
on the Internet. A private placement offering is one method being considered
to raise the necessary funds.
PART II - OTHER INFORMATION
ITEM 7 - FINANCIAL STATEMENTS
<PAGE> 8
D H Marketing & Consulting, Inc.
And Subsidiaries
Consolidated Financial Statements
December 31, 1999 and 1998
<PAGE> 9
C O N T E N T S
Accountants' Report ..................................... 3
Consolidated Balance Sheets ............................. 4
Consolidated Statements of Operations ................... 6
Consolidated Statements of Stockholders' Equity.......... 7
Consolidated Statements of Cash Flows ................... 9
Notes to the Consolidated Financial Statements .......... 11
<PAGE> 10
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of D H Marketing & Consulting, Inc.:
We have audited the accompanying consolidated balance sheets of D H Marketing
& Consulting, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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, 1999 and
1998 and the results of its operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7, the
Company's operating loss and lack of working capital raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to those matters are also described in Note 7. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ CROUCH BIERWOLF & CHISHOLM
Salt Lake City, Utah
February 11, 2000
<PAGE> 11
D H Marketing & Consulting, Inc.
Consolidated Balance Sheets
ASSETS
------
December 31 December 31
1999 1998
------------- ------------
CURRENT ASSETS
Cash and Cash Equivalents $ 24,609 $ 308,838
Accounts receivable,
Net of Allowance
1999 $54,749; 1998 $0 25,229 1,301
Other Receivables 3,886 4,634
Tax Refunds - -
Inventory 139,296 5,261,290
------------- ------------
Total Current Assets 193,020 5,576,063
------------- ------------
INVESTMENTS
Investments - Other 46,903 46,948
------------- ------------
Total Investments 46,903 46,948
------------- ------------
PROPERTY & EQUIPMENT
Office Furniture and Fixtures 20,184 20,184
Equipment 188,976 182,561
Leasehold Improvements 17,668 17,668
Building 200,000 200,000
Land 197,996 197,996
Accumulated Depreciation (175,628) (129,631)
------------- ------------
Net Property & Equipment 449,196 488,778
------------- ------------
OTHER ASSETS
Organization Costs - 71,429
Client Lists - 10,000
------------- ------------
- 81,429
Less Accumulated Amortization - (79,096)
------------- ------------
- 2,333
Software Development Costs 22,500 -
Deposits and Other Assets 6,450 6,450
Arts & Collectibles 1,422,396 -
------------- ------------
Net Other Assets 1,451,346 8,783
------------- ------------
------------- ------------
TOTAL ASSETS $ 2,140,465 $ 6,120,572
============= ============
The accompanying notes are an integral part of these financial
statements.
-4-
<PAGE> 12
D H Marketing & Consulting, Inc.
Consolidated Balance Sheets continued
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31 December 31
CURRENT LIABILITIES 1999 1998
------------- ------------
Accounts payable $ 89,384 $ 90,682
Sales Tax Payable 1,211 114,268
Accrued Wages 2,925 11,549
Accrued and Withheld
Payroll Taxes - 2,777
Accrued expenses 235 -
Deferred tax liability 1,587 5,974
Current Obligations Under
Capital Lease 3,880 3,326
Current portion of Notes
Payable & Mortgage Payable 93,674 14,689
------------- ------------
Total Current Liabilities 192,896 243,265
------------- ------------
LONG-TERM DEBT
Mortgage payable 293,332 216,496
Notes payable - related party 81,030 -
Obligation Under Capital Lease 5,914 8,802
Less: Current Portion (97,554) (18,015)
------------- ------------
Total Long-Term Debt 282,722 207,283
------------- ------------
Total Liabilities 475,618 450,548
------------- ------------
STOCKHOLDERS' EQUITY
Common stock, $.0003 Par Value,
Authorized 75,000,000 Shares;
issued and outstanding
11,850,964 and 8,419,964
shares, respectively 3,555 2,526
Additional Paid-In Capital 10,255,182 9,995,764
Treasury Stock (786,016) (814,766)
Stock Subscription receivable (240,000) (700,000)
Retained earnings (7,567,874) (2,813,530)
------------- ------------
Total Stockholders' Equity 1,664,847 5,670,024
------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,140,465 $ 6,120,572
============= ============
The accompanying notes are an integral part of these financial
statements.
-5-
<PAGE> 13
D H Marketing & Consulting, Inc.
Consolidated Statements of Operations
For the Years ended
December 31 December 31
1999 1998
------------- ------------
SALES $ 795,848 $ 1,734,300
COST OF GOODS SOLD 559,159 858,777
------------- ------------
GROSS PROFIT 236,689 875,523
------------- ------------
OPERATING EXPENSES
General And Administrative
Expenses 1,236,626 4,327,192
Amortization 2,333 16,086
Depreciation 36,500 43,405
Research & Development 14,308 -
------------- ------------
TOTAL OPERATING EXPENSES 1,289,767 4,386,683
------------- ------------
OPERATING INCOME (LOSS) (1,053,078) (3,511,160)
------------- ------------
OTHER INCOME AND (EXPENSES)
Inventory Valuation Adjustment (3,481,800) -
Other Income 3,501 48,440
Defective Inventory (215,137) -
Gain on Sale of Investments 320 108,625
Interest Income 3,311 7,978
Interest Expense (15,848) (3,598)
------------- ------------
Total Other Income and
(Expenses) (3,705,653) 161,445
------------- ------------
INCOME/(LOSS) BEFORE INCOME
TAXES (4,758,731) (3,349,715)
------------- ------------
PROVISION FOR INCOME TAXES (4,387) (4,788)
------------- ------------
NET INCOME/(LOSS) $ (4,754,344) $ (3,344,927)
============= ============
NET INCOME/(LOSS) PER SHARE $ (.55) $ (.50)
============= ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 8,705,881 6,672,687
============= ============
The accompanying notes are an integral part of these financial
statements.
-6-
<PAGE> 14
D H Marketing & Consulting, Inc.
Statements of Stockholders' Equity
From December 31, 1997 through December 31, 1999
<TABLE>
<CAPTION>
Additional Retained Stock
Common Stock Paid-In Earnings Preferred Treasury Minority Subscription
Shares Amount Capital (Deficit) Series A Stock Interest Receivable
--------- -------- ----------- ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 6,005,464 $ 1,802 $ 6,773,025 $ 531,397 $ - $ (530,000) $ 13,282 $ -
January 98-Purchase
of treasury stock
in sale of QCI
subsidiary - - - - - (506,250) (13,282) -
February 98-Loss on
sale of treasury
stock for inventory - - (446,391) - - 537,890 - -
February 98-Receipt
of Treasury stock
for payment of
receivables - - - - - (316,406) - -
Short swing sales
contributed
by officer - - 117,160 - - - - -
July 98-shares
issued to officers
and employees
valued at $1.50
per share 490,000 147 734,853 - - - - -
Aug 98-shares
issued for
services at $2.75 300,000 90 824,910 - - - - -
September 98-
shares issued
for cash at $1
per share 575,000 172 574,828 - - - - -
October 98-
shares issued for
services at $1.20
per share 100,000 30 119,970 - - - - -
November 98-Preferred
shares issued for
cash at
$20,000 per share
net of
offering costs - - - - 517,724 - - -
November 98-
conversion of
preferred stock
to common shares 949,500 285 1,297,439 - (517,724) - - (700,000)
Net loss for the
year ended
December 31, 1998 - - - (3,344,927) - - - -
--------- -------- ----------- ------------ -------- ---------- --------- ---------
Balance,
December 31, 1998 8,419,964 $ 2,526 $ 9,995,794 $ (2,813,530) $ - $ (814,766) $ - $(700,000)
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-7-
<PAGE> 15
D H Marketing & Consulting, Inc.
Statements of Stockholders' Equity
From December 31, 1996 through December 31, 1999
<TABLE>
<CAPTION>
Additional Retained Stock
Common Stock Paid-In Earnings Preferred Treasury Minority Subscription
Shares Amount Capital (Deficit) Series A Stock Interest Receivable
--------- -------- ----------- ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1998 8,419,964 $ 2,526 $ 9,995,794 $ (2,813,530) $ - $ (814,766) $ - $(700,000)
April 99 -
treasury shares
exchanged for
services - - (2,955) - - 3,750 - -
June 99 - treasury
shares exchanged for
services - - (21,900) - - 25,000 - -
December 99 -
common shares
issued for
services at $.09
per share 3,181,000 954 285,746 - - - - -
December 99 -
common shares
issued for
software development
costs at $.09 per
share 250,000 75 22,425 - - - - -
Cash received on
subscription
receivable - - - - - - - 436,072
Settlement on cash
received for
subscription
receivable - - (23,928) - - - - 23,928
Net loss for the year
ended December 31, 1999 - - - (4,754,344) - - - -
--------- -------- ----------- ------------ -------- ---------- --------- ---------
Balance,
December 31, 1999 11,850,964 $ 3,555 $10,255,182 $ (7,567,874) $ - $ (786,016) $ - $(240,000)
========== ======== =========== ============ ======== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-8-
<PAGE> 16
D H Marketing & Consulting, Inc.
Consolidated Statements of Cash Flows
December 31
1999 1998
------------- ------------
Cash Flows From Operating
Activities
Net income (loss) $ (4,754,344) $ (3,344,927)
Adjustments to Reconcile Net
Income (Loss) to
Net Cash Used in Operating
Activities:
Depreciation 36,500 43,405
Amortization 2,333 16,086
Provisions for Doubtful
Accounts 54,749 (29,859)
Stock issued for inventory - 91,499
Stock issued for services 286,700 1,680,000
Treasury shares exchanged
for services 3,895 -
Gain on Sale of Investments (320) (108,625)
Change in Assets and Liabilities
(Net of effects from
purchase/sale of subsidiaries)
(Increase) Decrease in:
Accounts Receivable (78,677) 1,297
Other Receivables 748 135,986
Inventory 3,699,598 238,817
Prepaid Expenses - 310,977
Deposits - (520)
Increase/(decrease) in:
Accounts Payable (1,298) 35,007
Accrued Expenses (111,615) (299,829)
Deferred Income Taxes (4,388) (4,838)
------------- ------------
Net Cash Provided (Used)
by Operating Activities (866,119) (1,235,524)
------------- ------------
Cash Flows from Investing
Activities
Purchase of treasury stock - (316,406)
Purchase of Property and
Equipment (6,415) (143,231)
Cash from sale of investments - 185,000
Cash acquired in/(spun off)
to subsidiaries - (174,641)
------------- ------------
Net Cash Provided (Used)
by Investing Activities (6,415) (449,278)
Cash Flows from Financing
Activities
Proceeds from debt financing 164,530 -
Net Proceeds from Issuance
of Common Stock 436,072 1,289,884
Principal payments on debt
financing (9,409) -
Principal Payments on Capital
Lease Obligations (2,888) (2,853)
------------- ------------
Net Cash Provided (Used)
by Financing Activities 588,305 1,287,031
------------- ------------
Net Increase (Decrease) in
Cash and Cash Equivalents
(Forwarded) (284,229) (397,771)
------------- ------------
(Continued)
The accompanying notes are an integral part of these financial
statements.
-9-
<PAGE> 17
D H Marketing & Consulting, Inc.
Consolidated Statements of Cash Flows
(Continued)
December 31
1999 1998
------------- ------------
Net Increase (Decrease) in
Cash and Cash Equivalents
(Forwarded) (284,229) (397,771)
------------- ------------
Cash and Cash Equivalents
Beginning 308,838 706,609
------------- ------------
Ending $ 24,609 $ 308,838
============= ============
Supplemental Disclosures of
Cash Flow Information:
Cash payments for interest $ (15,848) $ (3,598)
============= ============
Cash payments for income
taxes $ - $ (50)
============= ============
Acquisitions of Treasury
Stock from satisfaction of
Accounts Receivable $ - $ 316,406
============= ============
Purchase of Building and
Land through Debt financing $ - $ 216,496
============= ============
The accompanying notes are an integral part of these financial
statements.
-10-
<PAGE> 18
D. H. MARKETING & CONSULTING, INC.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies
a. 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, when 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, New York. The Company's operations consist of
distribution of chemical burn cleansing solutions; the purchase
and sale of valuable and rare stamps, coins, fine art, and other
tangible collectibles; network marketing; and general
consultation to and possible acquisition of small growth oriented
companies. The Company markets its products throughout the
United States, Canada and Europe.
Qualtronics Corporation, Inc.(QCI), a 97%-owned subsidiary during
1997, 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.
Effective February 5, 1998, the Company sold all its interest in
QCI to a shareholder of QCI. A gain of $108,625 was recognized
on the sale of QCI and 60,000 shares of D H Marketing were
returned to the treasury. A value of $506,250 was attributed to
the treasury stock purchased, considering the market value of the
Companies stock at the time.
On December 30, 1997 the Company completed a share exchange with
Universal Network, Inc. (UNI), wherein the Company issued
1,900,123 shares of common stock for the remaining 76% interest
in UNI, thus making UNI a wholly owned subsidiary of the Company.
UNI is engaged in the sale and distribution of fine art,
jewelry, bank notes and other collectables. In 1998 the Company
added new consumable products such as skin care, juice and an all
natural dietary supplement. UNI distributes its products to
distributors of the Company using direct selling as well as
traditional marketing methods (i.e.TV and radio media).
Also during 1998, the Company distributed its interest in ASI, an
inactive subsidiary, to the shareholder of the Company. There
was no value in the Company at the time of distribution.
b. Principles of Consolidation
The consolidated financial statements include the accounts of DH
Marketing and Consulting, its wholly-owned subsidiaries Financial
Communication Services, Inc. (FCS) and Universal Network, Inc
(UNI). All significant intercompany accounts and transactions
have been eliminated in the consolidation.
c. Cash and Cash Equivalents
The Company considers all highly liquid investments with
maturities of three months or less to be cash equivalents.
Uninsured cash balances total $0 and $1,174 at December 31, 1999
and 1998, respectively.
-11-
<PAGE> 19
D. H. MARKETING & CONSULTING, INC.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies (continued)
d. 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.
e. Organization Costs
Organization expenses are recorded at cost and are being
amortized on a straight-line basis over five years. The expenses
represent pre-incorporation cost to establish the entity and
develop various sales venues. At December 31, 1999 and 1998, the
net unamortized balance was $0 and $500, respectively.
f. Client Lists
The Company acquired a client list for $10,000. These costs are
being amortized on a straight-line basis over five years. At
December 31, 1999 and 1998, the net unamortized balance was $0
and $1,833, respectivley.
g. 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.
h. Provision for Income taxes
Deferred income taxes arise from timing differences resulting
from income and expense items reported for financial accounting
and tax purposes in different periods. Deferred taxes are
classified as current or noncurrent, depending on the
classification of the assets and liabilities to which they
relate. Deferred taxes arising from timing differences that are
not related to an asset or liability are classified as current or
noncurrent, depending on the periods in which the timing
differences are expected to reverse.
The principal sources of timing differences are different
depreciation methods used for financial accounting and tax
purposes.
-12-
<PAGE> 20
D. H. MARKETING & CONSULTING, INC.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies (continued)
h. Provision for Income taxes (continued)
The deferred tax liability and the provision for income taxes is
calculated as follows at December 31, 1999 and 1998:
December 31 December 31
1999 1998
------------- -----------
Current provision for
income taxes:
Federal $ - $ -
State - 50
Deferred (4,387) (4,838)
------------ -----------
Total provision for
income taxes $ (4,387) $ (4,788)
============ ===========
Deferred tax liability
arising from:
Acquisition of subsidiaries:
UNI-depreciation
differences 1,587 4,788
------------ -----------
Deferred tax liability 1,587 4,788
------------ -----------
Net deferred tax (asset)/
liability $ 1,587 $ 4,788
============ ===========
The Company has incurred net operating losses of approximately
$3.3 million, however because of the significant losses and its
change of focus on a new product line, there is a 50% or greater
chance the Company may not have taxable income during 2000. The
allowance account therefore equals the deferred tax asset account
for December 31, 1998 and 1999.
i. 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. In these
financial statements, assets, liabilities and earnings involve
extensive reliance on managements estimates. Actual results
could differ from those estimates.
j. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on
the weighted average number of shares outstanding at the date of
the financial statements. Fully diluted earnings per share has
not been presented because it is equal to primary earnings per
share. 1,500,000 options have been excluded from the fully
diluted earnings per share calculation because their effects are
anti-dilutive.
-13-
<PAGE> 21
D. H. MARKETING & CONSULTING, INC.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 2 - Inventory
Inventories consisted of the following at December 31, 1999 and
1998:
1999 1998
----------- -----------
Artwork and Collectible $ - $ 5,253,043
Consumable products 139,296 8,247
----------- -----------
$ 139,296 $ 5,261,290
=========== ===========
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 $2,662,000 was acquired by the issuance
of Company common stock during the period January 1, 1997, to
December 31, 1997 and $91,499 during 1998. Due to the
acquisition of UNI by the Company, UNI's inventory held at
December 30, 1997 which was purchased from the Company was valued
at the Company's cost (predecessor cost).
NOTE 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 owned 97% of the stock of Qualtronics
Corporation, Inc. at the end of December 31, 1997. The 1997 full
year results of operation of QCI have been included in these
consolidated financial statements since there is minimal
difference from January 9, 1997. On February 5, 1998, the Company
signed an agreement to transfer all of its interest in the stock
of QCI to Runes, Corporation, a shareholder. In consideration of
the transfer, the Company received $185,000 and 60,000 shares of
DH Marketing common stock. No activity of QCI is included in
these financial statements for the years ended December 31, 1998
and 1999.
NOTE 4 - Arts & Collectibles
Arts & Collectibles consist primarily of stamps, coins and
lithographs. Because the Company changed it's focus to
distributing its consumable products, there have been little
movement of it's collectibles inventory and therefore arts and
collectibles have been classified as a long term asset.
NOTE 5 - Related Party Transactions
During 1999 and 1998, the Company paid $0 and $21,651 to Runes
Corporation for management fees, respectively. Runes is owned by
a shareholder of the Company.
During 1998 the Company sold merchandise to Stimulus Ventures, a
company that is a shareholder of the Company in the amount of
$421,875. This company is in the art and collectibles industry
and invested in the Company's stock prior to the sale of
merchandise. Approximately 69% of the Company's revenue was
generated from shareholders of the Company during 1998.
-14-
<PAGE> 22
D. H. MARKETING & CONSULTING, INC.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 5 - Related Party Transactions (continued)
During 1999, Michael Daily, an officer and director, loaned the
Company $59,250. The loan is non-interest bearing and due upon
demand.
During 1999, Ron Meredith, an officer and director, loaned the
Company $21,780. The loan is non-interest bearing and due upon
demand.
NOTE 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. All per share information has been retroactively
restated for the stock split. Authorized shares have been
increased to 75,000,000 shares, and the par was changed to
$.0003.
NOTE 7 - Going Concern
The accompanying financial statements have been prepared assuming
that the company will continue as a going concern. The company
has had recurring operating losses, is lacking working capital
and is dependent upon financing to continue operations. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty. Management plans to
increase revenue through mass marketing of its dietary
supplements via Internet partnerships and affiliations. It also
expects a new revenue stream with advertising on its newly
formulated Internet health portal LongerLiving.com. Management
also plans to raise additional funds through a private placement
of its common stock.
NOTE 8 - 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 165,000 have been granted,
exercisable into an equal number of shares of common restricted
stock at an exercise price of $6 7/8 per share, the closing price
of the publicly-traded shares as of September 6, 1996.
On January 7, 1997, 1,200,000 options were granted to certain key
employees of the Company. 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.
On January 13, 1997, 750,000 options were granted to a certain
individual for a five year period from January 13, 1997. These
options are for restricted securities, are fully vested to the
individual, and are exercisable into shares of common restricted
at $9 per share.
On June 13, 1997, the Board of Directors authorized a transfer of
an employees options to purchase 45,000 shares of stock at $8.917
per share. In addition a transfer of 750,000 option to purchase
stock at $9 was authorized.
-15-
<PAGE> 23
D. H. MARKETING & CONSULTING, INC.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 8 - Stock Options (continued)
On October 6, 1997 the board authorized the transfer of the afore
mention 165,000 options and the 1,200,000 options. These options
were all canceled subsequently on January 19, 1998.
On January 20, 1998, the Board of Directors granted 750,000
options to an individual with international financial
relationships. The options are exercisable for a period of two
years into restricted common stock at a price of $5 15/16, the
market value of free trading stock at the date of grant.
December 31,
1999
---------------
Outstanding Options (after effect of
stock split)
January 13, 1997 750,000
January 20, 1998 750,000
---------------
1,500,000
===============
No options were exercised during the period January 1, 1997, to
December 31, 1998, and the 165,000 and 1,200,000 options were
canceled in 1998. The weighted-average price for the above-noted
options is $7.47 for 1998 and 1999, respectively.
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 these
plans. 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.
The fair value of the stock options granted during 1998 were
determined using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rates of 6.02%;
expected options life of 4 years; and volatility of 25% with no
dividend yield.
NOTE 9 - Commitments and Contingencies
DHMC is committed to a lease for office space through January 31,
2001, with monthly lease payments of $325.
The total future minimum rental commitment at December 31, 1999,
under this lease is $4,225, which is due as follows:
Year Ending
December 31, Amount
------------ --------------
2000 $ 3,900
--------------
2001 325
--------------
$ 4,225
==============
Rent expense for the year ended December 31, 1999 and 1998 is
$35,394 and $76,205, respectively.
-16-
<PAGE> 24
D. H. MARKETING & CONSULTING, INC.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 10 - Segment Data
For the year ended December 31, 1999 and 1998, the Company had
three to four reportable industry segments: (i) network
marketing, (ii) collectibles, (iii) chemical burn cleansing
solutions, and (iv) acquisitions and consulting.
Year Year
Ended Ended
December 31, December 31,
1999 1998
--------------- ---------------
Sales (Net of Discounts)
Multi-Level Network
Marketing $ 763,202 $ 993,578
Collectibles 32,646 612,615
Burn Cleansing Solution - 19,422
--------------- ---------------
Consolidated $ 795,848 $ 1,625,675
=============== ===============
Operating Income (Loss)
Multi-level Network
Marketing $ (993,477) $ (971,528)
Collectibles (43,752) (189,925)
Burn Cleansing Solution - (42,908)
--------------- ---------------
Consolidated (1,037,229) (1,204,361)
Other Income 7,132 165,041
General Corporate Expenses (3,708,399) (2,306,797)
Interest Expense (15,848) (3,598)
--------------- ---------------
Net Income (Loss) Before
Income Taxes $ (4,754,344) $ (3,349,715)
=============== ===============
Accounts and Other Receivables
Multi-Level Network
Marketing $ 25,229 4,634
Collectibles - 1,301
--------------- ---------------
Total Accounts and Other
Receivables $ 25,229 $ 5,935
=============== ===============
Identifiable Assets
Multi-Level Network
Marketing $ 718,069 $ 5,440,422
Collectibles 1,422,396 503,537
--------------- ---------------
Consolidated 2,140,465 5,943,959
Corporate Assets - 176,613
--------------- ---------------
Total Assets at
Period End $ 2,140,465 $ 6,120,572
=============== ===============
-17-
<PAGE> 25
D. H. MARKETING & CONSULTING, INC.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 11 - Note Payable
Long Term Liabilities are detailed in the following schedules as
of December 31, 1999 and 1998.
Note payable is detailed as follows: 1999 1998
----------- -----------
Mortgage payable to a Limited Liability
Company monthly installments due of
$3,000 through December 2003, interest
accrues at 8.75%, secured by a building $ 293,332 $ 216,496
----------- -----------
Total Notes Payable 293,332 216,496
Note Payable - related party is detailed
as follows:
Note payable to an officer and director,
non-interest bearing and due upon demand 59,250 -
Note payable to an officer and director,
non-interest bearing and due upon demand 21,780 -
----------- -----------
Total Notes Payable - Related Party 81,030 -
----------- -----------
Total Notes Payable and Notes Payable -
Related Party 374,364 216,496
----------- -----------
Less current portion (93,674) (14,689)
----------- -----------
Long Term Portion - Notes Payable $ 280,690 $ 201,807
=========== ===========
Future minimum principal payments on long term debt is as
follows:
Year Ending
December 31, Amount
------------ -------------
2000 $ 93,674
2001 11,910
2002 12,995
2003 255,783
-------------
$ 374,362
=============
-18-
<PAGE> 26
D. H. MARKETING & CONSULTING, INC.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 12 - Obligations Under Capital Lease
Capital lease obligations are detailed in the following schedule
as of December 31, 1999 and 1998:
1999 1998
----------- -----------
Capital lease obligation to a
corporation for office equipment,
lease payments due monthly of $158
through February 2001, bears interest
at 12.7%, secured by office equipment. 2,936 4,133
Capital lease obligation to a
corporation for a copier, lease
payments due monthly of $210 through
March 2001, bears interest at 17.6%,
secured by copier equipment. 2,978 4,669
----------- -----------
Total Lease Obligations 5,914 8,802
----------- -----------
Less current portion 3,880 3,326
----------- -----------
Net Long Term Lease Obligation $ 2,034 $ 5,476
=========== ===========
Future minimum lease payments are as
follows:
2000 $ 4,416
2001 1,816
-----------
6,232
Less portion representing
interest (318)
-----------
Total $ 5,914
===========
Leased assets are as follows at December 31, 1999 and 1998:
1999 1998
----------- -----------
Leased Equipment 15,723 15,723
Accumulated Depreciation (12,261) (9,032)
----------- -----------
Total Net Leased Equipment $ 3,462 $ 6,691
=========== ===========
NOTE 13 - Stockholders' Equity
During December 1999, the Company issued 3,181,000 shares of its
common stock for services valued at $286,700.
During December 1999, the Company issued 250,000 shares of its
common stock for software development costs valued at $22,500.
-19-
<PAGE> 27
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the fiscal year ended December 31, 1999, the Company had no
changes in or disagreements with the accountants on accounting and financial
disclosure issues.
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS
Director Name Principal Occupation
(Age) Since for various years
- ------------------------------------------------------------------------------
Michael J. Daily 1996 President of the Company since June of 1999, a
director of the Company since January, 1996 and
(51) Officer since April 10, 1997. 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 the Company. Mr. Daily was not on the Board
of Directors in 1995.
Steve
Krakonchuk 1997 A director of the Company since June 20, 1997.
(39) Mr. Krakonchuk began working for the Company in
January of 1995 in the Company's Investor
Relations area and as Vice President of Sales.
Ronald W.
Meredith 1998 Chairman of the Board since June of 1999, and a
director of the Company since January 21, 1998.
(57) Mr. Meredith is President of Universal Network of
America, Inc. and its subsidiary, Universal
Network, Inc. Mr. Meredith is an Air Force
veteran, having served from 1959 through 1979.
From 1979 through 1988 he owned and operated a
manufacturing company in Louisville, Kentucky.
He currently sits on the Board of Directors of
that company. From July 1988 through 1994, Mr.
Meredith was an Independent Representative and
National Marketing Director with an environmental
products company, where he sat on the Presidential
Advisory Board. During this period annual sales of
that company grew from 30 million dollars to more
<PAGE> 28
than 400 million dollars. From September 1994
through February 1995, Mr. Meredith was an
Independent Representative with a jewelry
company, and is a member of the Board of the
Jewelers Board of Trade. In may of 1995, he and
several partners founded Universal Network, Inc.
Gary E. Stafford 1999 A director of the Company since June of 1999, Mr.
(49) Stafford is currently the Chief Financial Officer
of the Company. Mr. Stafford has held the position
of Director of Operations of Universal Network,
Inc. since January of 1996.
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
No person required by Section 16(a) of the Exchange Act of 1934 to file
reports pursuant to Section 16(a) failed to file such reports in a timely
manner.
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. 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 12/31/99 Year Salary Bonus Compensation
__________________________________________________________________________
Michael J. Daily 1999 -0- -0- 90,000*
President
<PAGE> 29
*This compensation resulted from the issuance of stock after a
special board of directors meeting.
Restricted Number of
Stock Options All Other
Awards Granted (1) Compensation
------------------------------------------------
1997 0 0 0
1998 0 0 0
1999 0 0 0
(1) Number of shares indicated include the effect of a three for one
forward stock split the Company undertook February 25, 1997 and the
net effect of all options granted and transferred. 750,000 options
were issued to David D. Hagen January 7, 1997 and were transferred
to a third party on October 6, 1997. These options were then
canceled by the Company January 19, 1998.
Option Grants in the Last Fiscal Year
- -------------------------------------
Such options are fully vested to the employee. 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 165,000 have been granted, exercisable into an equal number of
shares of common restricted stock at an exercise price of $6 7/8 per share,
the closing price of the publicly traded shares as of September 6, 1998.
On January 7, 1997, 1,200,000 options were granted to certain key
employees of the Company. 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.
On January 13, 1997, 750,000 options were granted to a certain individual
for a five-year period from January 13, 1997. These options are for restricted
securities, are fully vested to the employee, and are exercisable into shares
of common restricted stock at $9 per share.
On June 13, 1997, the Board of Directors authorized a transfer of an
employee's option to purchase 45,000 shares of stock at $8.917 per share.
In addition, a transfer of 750,000 options to purchase stock at $9 was
authorized.
On October 6, 1997 the board authorized the transfer of the
aforementioned 165,000 options and the 1,200,000 options. These options were
all canceled subsequently on January 19, 1998.
On January 29, 1998, 750,000 options were granted to a non affiliate of
the Company who subsequently transferred 100,000 options indirectly to an
affiliate of the Company. The options were originally issued at $ 5.9375 per
share.
By the end of April, 1998, an additional 750,000 options were
granted to a non affiliate of the Company. These options were issued at $ 9.00
per share.
<PAGE> 30
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,
1997. No options were exercised during fiscal years 1994 through 1998.
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 -0- -0- $-0- -0-
Michael J. Daily -0- -0- $-0- -0-
<F1> Estimated Fair Value Per Option was based upon the Black-Scholes option
pricing model and the following assumptions for 1996 through 1998: Risk-Free
Interest Rate of 6.02%, 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
- -----------------------------------
The Company previously employed Runes Corporation, owned by T.
Christopher Ciesielka, a director and officer of the Company until April 10,
1997, for computer consultation and general administrative services. Total
compensation for 1997 was $10,000 until the time of his resignation April 10,
1997.
No other compensation arrangement exists.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock, its only class of
outstanding voting securities as of December 31, 1999, 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:
<PAGE> 31
Name and Address of
Beneficial Owner or Amount and Nature of
Name of Officer or Director Beneficial Ownership Percent of Class
____________________________________________________________________________
Michael J. Daily <F1><F2>
405 Prospect Street
Hawley, PA 18428 1,117,140 Shares 9.4%
Steve Krakonchuk <F1<F2>
8611 General Currie Road
Apartment 111
Richmond, B. C. V6Y 3M1, Canada 1,122,500 Shares 9.5%
Ronald W. Meredith <F2>
5647 Beneva Road
Sarasota, FL 34233-4103 1,383,301 Shares 11.7%
Gary E. Stafford <F1> <F2>
5647 Beneva Road
Sarasota, FL 34233-4103 80,045 Shares .67%
- -----------------------------
The Company undertook a three for one forward split on February 25, 1997
resulting in a total of 3,499,341 shares to be issued. The number of shares
indicated includes the effect of this stock split.
<F1>An Officer of the Company.
<F2>A Director of the Company.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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.
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
3.0 Certificate of Amendment to the Articles of Incorporation
23.0 Consent of Accountants
27.0 Financial Data Schedule
Reports on Form 8-K
- -------------------
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1999.
<PAGE> 32
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.
VERSATECH, INC.
a Nevada Corporation
By: /s/ GARY E. STAFFORD Date: April 11, 2000
Gary E. Stafford
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/ MICHAEL J. DAILY Date: April 11, 2000
Michael J. Daily
Director
By: _______________________ Date: ________________
Steve Krakonchuk
Director
By: /s/ RONALD W. MEREDITH Date: April 11, 2000
Ronald W. Meredith
Director
By: /s/ GARY E. STAFFORD Date: April 11, 2000
Gary E. Stafford
Director
<PAGE> 33
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use of our report, dated February 11, 2000, in
this annual report on Form 10-KSB for D.H. Marketing & Consulting, Inc.
/s/ CROUCH, BIERWOLF & CHISHOLM
Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
April 5, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS DATED DECEMBER 31, 1999 (AUDITED) AND DECEMBER
31, 1998 (AUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 29
<ALLOWANCES> 0
<INVENTORY> 139
<CURRENT-ASSETS> 193
<PP&E> 625
<DEPRECIATION> (175)
<TOTAL-ASSETS> 2,140
<CURRENT-LIABILITIES> 192
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,948
<TOTAL-LIABILITY-AND-EQUITY> 2,140
<SALES> 796
<TOTAL-REVENUES> 796
<CGS> (596)
<TOTAL-COSTS> (596)
<OTHER-EXPENSES> (3,705)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (16)
<INCOME-PRETAX> (4,758)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,754)
<EPS-BASIC> (.55)
<EPS-DILUTED> (.55)
</TABLE>
[FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF
NEVADA, MAR 22, 2000, NO. C13981-94, DEAN HELLER, SECRETARY OF
STATE]
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
D. H. MARKETING & CONSULTING, INC.
Pursuant to NRS 78.385 and 78.390, the undersigned President
and Secretary of D. H. Marketing & Consulting, Inc. do hereby
certify:
That on February 7, 2000, the following amendment to the
articles of incorporation were unanimously approved by the Board
of Directors of said corporation by written consent in lieu of a
special meeting of the Board of Directors and on March 15, 2000
by 7,524,339 or more shares of the 11,805,964 shares issued and
outstanding and authorized to vote at a Special Meeting of the
Shareholders.
1. Change of Name of Corporation
"Article I - Name" is hereby amended to read as follows:
ARTICLE I - NAME: The exact name of this Corporation is:
VersaTech, Inc.
This Certificate of Amendment of the Articles of
Incorporation may be executed in two or more counterparts.
D.H. MARKETING & CONSULTING, INC.
/s/ MICHAEL J. DAILY
-------------------------------
Michael J. Daily, President and
Secretary
STATE OF FLORIDA )
)ss.
COUNTY OF SARASOTA )
On the 14th day of March, 2000, personally appeared before
me, a Notary Public, Michael J. Daily, President and Secretary of
D.H. Marketing & Consulting, Inc., who acknowledged that he
executed the Certificate of Amendment of Articles of
Incorporation.
/s/ GARY E. STAFFORD
----------------------------
Signature of Notary
(Notary stamp or seal)
[stamped notary stamp]
