10-Q 1 b312159_10q.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For Quarter ended Commission file number April 30, 2001 33-18218-NY --------------------- ----------------------------- DYNAMARK CORPORATION ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3376786 -------------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 56 Dune Road, Atlantic Beach, New York 11509 ---------------------------------------- --------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (516) 889-3630 --------------------- N/A ------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 Common Stock outstanding as of April 30, 2001: 18,000,000, par value $.0001 per share. DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) QUARTERLY REPORT FORM 10-Q FOR THREE MONTHS AND NINE MONTHS ENDED APRIL 30, 2001 AND 2000 AND FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1986) TO APRIL 30, 2001 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements:

DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED BALANCE SHEET APRIL 30, 2001 (UNAUDITED) AND JULY 31, 2000

The accompanying notes are an integral part of these financial statements. -1- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

The accompanying notes are an integral part of these financial statements. -2- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. (Continued) -3- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. -4- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1 - DEVELOPMENT STAGE COMPANY The Company, a Delaware corporation, has been in the development stage since its formation on August 1, 1986. It has not generated operating revenues as of April 30, 2001, and no assurance can be given that it will generate operating revenues and earnings in the future. 2 - BASIS OF PRESENTATION The condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities and Exchange Commission. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying financial statements should be read in conjunction with the Company's audited financial statements and Form 10-k for the year ended July 31, 2000. 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Taxes The Company applies the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. (Continued) -5- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Earnings (Loss) Per Common Share The Company applies Financial Accounting Standards Board (FASB) Statement No. 128, "Earnings per Share", which requires dual presentation of basic and diluted earnings per share ("EPS") for complex capital structures on the face of the statement of operations. Basic and diluted EPS has been computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. During the three and nine months ended April 30, 2001 and 2000, basic and diluted loss per share was less than $.01. The Company has not issued any dilutive potential common stock since inception. Investments At April 30, 2001, the Company held a twelve-month U.S. Treasury bill with a face value that matures in February 2002. This investment is classified as held to maturity and is carried at amortized cost. The fair value of the investment approximates its carrying value due to its short maturity. At April 30, 2001, the Company held 125,000 common shares of H Power Corp., which are classified as available-for-sale securities. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related income tax effect, are excluded from earnings and are reported in shareholders' equity as a separate component of other comprehensive income. Dividend and interest income are recognized when earned. Effects of Recently Issued Accounting Pronouncements In September 1998, the Financial Accounting Standards Board issued FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", which requires entities to recognize all derivatives in their financial statements as either assets or liabilities measured at fair value. FASB Statement No. 133 also specifies new methods of accounting for hedging transactions, prescribes the items and transactions that may be hedged and specifies detailed criteria to be met to qualify for hedge accounting. FASB Statement No. 133, as amended by FASB Statement No. 137 and FASB Statement No. 138, is effective for fiscal quarters beginning after June 15, 2000. The Company currently does not use derivative instruments as defined by FASB Statement Nos. 133 and 138 and, accordingly, these statements have no effect on its results of operations or its financial position. (Continued) -6- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Effects of Recently Issued Accounting Pronouncements (Continued) In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides interpretive guidance on the recognition, presentation and disclosure of revenue in the financial statements. The Company does not believe that the adoption of SAB 101 will have a material effect on the Company's financial results. 4 - INVESTMENT IN H POWER CORP. Prior to August 1, 2000, the Company accounted for its investment in H Power Corp. using the equity method because it was part of a group of certain related parties and affiliates which owned approximately 18 percent of that corporation. During the year ended July 31, 1995, the Company recognized an other-than-temporary impairment of value in this investment due to H Power Corp.'s continuing losses and wrote the carrying value down to zero. On August 10, 2000, H Power Corp. consummated an initial public offering ("IPO"). In July 2000, in connection with the IPO, H Power Corp. authorized a five-for-one split. In addition, in April 2000, certain parties related to the Company agreed to resign from H Power Corp.'s Board of Directors and accept certain restrictions on voting and transferring their shares and seeking proxies. Consequently, the group of related parties and affiliates no longer exercises significant influence over H Power Corp. and, beginning in the quarter ending October 31, 2000, the Company accounted for the investment as available-for-sale marketable equity securities. Unrealized holding losses on the H Power Corp. shares, which are reflected in other comprehensive income, were $91,100 and $-0- for the three months ended April 30, 2001 and 2000, respectively. At April 30, 2001, the H Power Corp. shares had a quoted market price of $7.7400 per share, for a total investment of $967,500. (Continued) -7- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 5 - INCOME TAXES At July 31, 2000, the Company has net operating loss carryforwards of approximately $444,000, expiring during the years 2004 to 2020, available to reduce future Federal taxable income. In accordance with FASB Statement No. 109, "Accounting for Income Taxes", the Company had recorded a valuation allowance fully offsetting the deferred tax asset related to its net operating loss carryforwards. The valuation allowance was based on management's estimates and analysis that it was more likely than not that the related deferred tax assets would not be realized. At April 30, 2001, the Company recorded an accumulated unrealized gain on marketable securities of approximately $1 million, which is presented, net of taxes, in other comprehensive income. Consequently, the Company believes that the realization of deferred tax benefits was more likely than not and, accordingly, recorded a deferred tax asset of $150,960. The primary components of the Company's deferred tax assets and liabilities and the related valuation allowances are as follows: Three Months Ended April 30, -------------------------- 2001 2000 ------------ ---------- Gross deferred tax assets Net operating loss carryforwards $ 150,960 $ 150,960 Valuation allowance - (150,960) Gross deferred tax liabilities Unrealized gain on investments 328,950 - ------------ ---------- $ 177,990 $ -0- ============ ========== (Continued) -8- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 6 - RELATED PARTY TRANSACTIONS The Company rents its principal office space from its president on a month-to-month basis at $500 per month. Rent expense incurred was $1,500 for each of the three months ended April 30, 2001 and 2000. At April 30, 2001 and 2000, the balance due to officer consists of noninterest-bearing amounts payable to the president of the Company as follows: 2001 2000 ------------- ------------- Officer's salary $ 125,961 $ 125,961 Rent 56,500 50,500 ------------- ------------- $ 182,461 $ 176,461 ============= ============= These liabilities have been classified as noncurrent based on the president's intent not to demand payment before February 1, 2002. -9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition The Company is a development stage company and has had minimal revenue to date. The Company is relying on existing resources to fund its continuing operation. Additional sources of liquidity are expected to be available from the Company's investment in H Power Corp.'s common shares. During the year ended July 31, 1995, the Company wrote the carrying value of this investment to zero due to H Power Corp.'s continuing losses. On August 10, 2000, H Power Corp. consummated an initial public offering (IPO). In connection with this IPO, H Power Corp. authorized a five to one split, which increased the number of the Company's shares to 125,000. In addition, in April 2000, certain parties related to the Company agreed to resign from H Power Corp's Board of Directors and accept certain restrictions on voting and transferring their shares and seeking proxies. Consequently, the group of related parties and affiliates no longer exercises significant influence over H Power Corp. and, beginning in the quarter ending October 31, 2000, the Company accounted for the investment as available-for sale marketable equity securities. In prior periods, the investment was accounted for using the equity method. At April 30, 2001, the H Power Corp. shares had a quoted market price of $7.7400 per share, for a total investment of $967,000. On this basis, the Company reported at April 30, 2001, $638,550, as accumulated other comprehensive income from unrealized gain on securities available for sale, net of income taxes, and deferred income tax liability of $177,990, comprised of gross deferred tax liabilities from such unrealized gain ($328,950) less the income tax benefit ($150,960) available from net loss carryforwards of approximately $444,000. Results of Operations The Company reported a net loss of $1,968 for the three-month period ended April 30, 2001, compared to a net loss of $6,150 for the three-month period ended April 30, 2000. The Company reported net income of $118,399 for the nine-month period ended April 30, 2001, compared to a net loss of $21,845 for the nine-month period ended April 30, 2000. The increase is attributable primarily to an income tax benefit of $150,960, which results from the Company's belief that realization of deferred tax benefits respecting its net operating loss carryforward was more likely than not. -10- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) QUARTER ENDED APRIL 30, 2001 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. DATE: DYNAMARK CORPORATION June 15, 2001 By: /s/ Allan Rothstein ------------------------------- ------------------------------------ Allan Rothstein President and Director

DYNAMARK CORP 10-Q