10-Q 1 b315827_10q.txt QUARTERLY REPORT 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 October 31, 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 October 31, 2001: 18,000,000, par value $.0001 per share. DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) QUARTERLY REPORT FORM 10-Q FOR THREE MONTHS ENDED OCTOBER 31, 2001 AND FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1986) THROUGH OCTOBER 31, 2001 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION

Page ~~----~~Item 1. Condensed Financial Statements: Balance Sheet as of ~~April~~October 3031, 2001 and July 31, ~~2000~~2001 1 Statement of Operations and Comprehensive Income ~~(Loss)~~ for the Three Months ~~and Nine Months~~ Ended ~~April~~October 3031, 2001 and 2000 and the Period ~~from inception (~~August 1, 1986 (Date Of Inception) ~~through~~to ~~April~~October 3031, 2001 2 Statement of Cash Flows for the ~~Nine~~Three Months Ended ~~April~~October 3031, 2001 and 2000 and the Period ~~from inception (~~August 1, 1986 (Date Of Inception) ~~through~~to ~~April~~October 3031, 2001 3 - 4 Notes to Financial Statements 5 - 98 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Signatures 1

DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED BALANCE SHEET OCTOBER 31, 2001 (UNAUDITED) AND JULY 31, 2001 ASSETS ------

~~ASSETS~~October ~~April 30~~31, July 31, 2001 ~~2000~~2001 -----------~~----~~ ------------- (Unaudited) Current assets Cash $ 245,~~503~~848 $ 3316,~~482~~019 Investments 1492,~~093,363~~912 ~~145~~881,~~592~~212 ---------~~-----~~ ---------~~----~~ $ 1498,~~117,866~~760 $ ~~179~~897,~~074~~231 =========~~=====~~ =========~~====~~ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) ------------------------------------------------- Current liabilities Accrued expenses $ 2019,~~369~~746 $ 2115,~~015~~852 --------- --------- Due to officer ~~182~~185,461 ~~177~~183,961 Deferred income tax liability ~~177~~- 127,~~990~~925 - --------~~------~~ ---------~~----~~ ~~380~~185,~~820~~461 ~~198~~311,~~976~~886 ---------~~-----~~ ---------~~----~~ Shareholders' equity (deficiency) Preferred stock, $.0001 par value; 5,000,000 shares authorized, none issued - - Common stock, $.0001 par value; 50,000,000 shares authorized, 18,000,000 shares issued and outstanding 1,800 1,800 Additional paid-in capital 556,751 556,751 Deficit accumulated during the development stage (~~460~~505,~~055~~073) (~~578~~486,~~453~~533) Accumulated other comprehensive income - unrealized gain on securities available for sale, net of income taxes ~~638~~240,~~550~~075 -497,475 ---------~~-----~~ ---------~~----~~ ~~737~~293,~~046~~553 ~~(19~~569,~~902)~~493 ---------~~-----~~ ---------~~----~~ $ 1498,~~117,866~~760 $ ~~179~~897,~~074~~231 =========~~=====~~ =========~~====~~

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 (Unaudited)

~~Three~~Cumulative ~~Months~~August ~~Ended~~1, ~~Nine~~1986 (Date of Three Months Ended ~~April~~Inception) ~~30,~~October ~~April 30~~31, ~~---------------------------------~~To --------------------------------- ~~2001~~October ~~2000~~31, 2001 2000 2001 ------------ --~~----------~~ ------------- ------------- Revenues Interest and dividend income $ 21,~~167~~765 $ 24,~~475~~582 $ 8238,~~848~~297 ~~$ 6,932~~ Licensing revenue - - 1,469 Other income - - 855 ------------ --~~----------~~ ------------- ------------- Total revenues 21,~~167~~765 24,~~475~~582 8240,~~848~~621 ~~6,932~~ ------------ --~~----------~~ ------------- ------------- Expenses Salaries - - -312,800 - Automobile rental and expenses - - -28,618 - Professional fees ~~798 5~~11,~~667~~916 3224,~~166~~160 18262,~~245~~057 Licensing agreement - - -12,707 - Other 3,~~337~~714 2,~~958~~988 9226,~~243~~299 ~~10,532~~ ------------ --~~----------~~ ------------- ------------- Total expenses 415,~~135~~630 827,~~625~~148 41842,~~409~~481 ~~28,777~~ ------------ --~~----------~~ ------------- ------------- (113,~~968~~865) (622,~~150~~566) (32601,~~561~~860) ~~(21,845)~~ ------------ ---~~---------~~ ------------- ------------- Losses on investment accounted for under the equity method - - -(124,388) - Recovery onof note receivable - - -97,500 - ------------ -~~-----------~~ ------------- ------------ - - - -(26,888) ------------ -- ---------- ----~~--------~~ ------------- Net loss before income tax benefit (~~1,968~~expense) (613,~~150~~865) (3222,~~561~~566) (21628,~~845~~748) Income tax benefit -(expense) -(4,675) 150,960 -123,675 ------------ ---~~---------~~ ------------- ------------- Net income (loss) (118,~~968~~540) (6128,~~150)~~394 ~~118,399~~ (21505,~~845~~073) Other comprehensive income ~~(loss)~~ - unrealized gain (loss) on marketable securities, net of income tax ~~benefit~~expense (~~expense~~recovery) of $30(132,~~974~~600) and $~~(328~~905,~~950)~~781 (60257,~~126~~400) -1,758,282 ~~638~~240,~~550~~075 - ------------ --~~----------~~ ------------- ------------- Comprehensive income (loss) $ (62275,~~094~~940) $ (61,~~150) $ 756~~886,~~949~~676 $ (21264,~~845~~998) ============ ==~~==========~~ ============= ============= Basic and diluted earnings (loss) per common share $ -0- $ ~~-0- $~~ .01 $ ~~-0-~~(.03) ============ ==~~==========~~ ============= ============= Weighted average number of shares ~~18,000,000~~outstanding 18,000,000 18,000,000 1817,~~000~~772,~~000~~462 ============ == ========== === ========= =====~~=======~~

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

Cumulative August 1, 1986 (Date of Three Months Ended Inception) toOctober ~~April 30~~31, ~~2001~~To ------------- ~~Revenues Interest and dividend income $ 234,727 Licensing revenue 1,469~~ ----------------- ~~Total~~October ~~revenues Expenses Salaries 312~~31,~~800~~ ~~Automobile~~2001 ~~rental~~2000 ~~and~~2001 ~~expenses 28,618 Professional fees 245,156 Licensing agreement 12,707 Other 221,042~~ ------------- ~~Total expenses 820,323~~ ------------- ~~(584,127)~~ ------------ Cash flows from operating activities Net income (loss) $ (18,540) $ 128,394 $(505,073) Adjustments to reconcile net income (loss) to net cash used in operating activities Deferred income taxes 4,675 (150,960) (123,675) Losses on investment accounted for under the equity method (- - 124,388) Recovery onof note receivable ~~97,500~~- -~~-----------~~ (2697,~~888~~500) ~~------------~~Depreciation ~~Net~~and ~~loss~~amortization ~~before~~- ~~income~~- ~~tax benefit (611~~22,~~015)~~155 ~~Income~~Changes ~~tax~~in ~~benefit~~assets ~~150,960~~and ~~------------~~liabilities ~~Net~~Accrued ~~income~~interest - (~~loss~~4,210) (~~460~~24,~~055~~375) ~~Other~~Deferred ~~comprehensive~~lease ~~income~~costs ~~(loss)~~- - ~~unrealized gain~~ (~~loss~~7,200) onAccrued ~~marketable~~expenses ~~securities~~3,894 ~~net~~18,493 of19,746 ~~income~~Due ~~tax~~to ~~benefit~~officer ~~(expense)~~1,500 of1,500 ~~$30~~185,~~974~~461 ~~and~~Other ~~$(328,950)~~- ~~638,550~~- 549 --------- --------- ~~Comprehensive~~--------- ~~income~~Net ~~(loss)~~cash $used ~~178,495~~in ~~============~~operating ~~Basic~~activities ~~and~~(8,471) ~~diluted earnings~~ (~~loss~~6,783) ~~per common share $~~ (~~.03~~405,524) ~~============~~--------- ~~Weighted~~--------- ~~average number of shares 17,764,749 ============~~---------

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

Cumulative August 1, 1986 (Date of ~~Nine~~Inception) Three Months Ended ~~Inception)~~To ~~April~~October 3031, toOctober 31, ------------------------------- ~~April 30,~~ 2001 2000 2001 ----------- -- --------- ---- --------- Cash flows from ~~operating~~investing activities ~~Net~~Investments ~~income~~and ~~(loss)~~related $advances ~~118,399~~ $ (211,~~845~~700) $( ~~460,055)~~- ~~Adjustments to reconcile net income~~ $(~~loss~~229,175) toCollection ~~net~~of ~~cash~~note ~~used~~receivable ~~in operating activities Losses on investment accounted for under the equity method~~ - - ~~124~~97,~~388~~500 ~~Recovery~~Acquisition of ~~note~~computer ~~receivable~~equipment - - (9713,~~500~~556) ~~Depreciation~~--------- ~~and amortization~~ --------- --------- ~~22,155~~Net ~~Changes~~cash used in ~~assets~~investing ~~and~~activities ~~liabilities Accrued interest~~ (51,~~438~~700) - (29145,~~812~~231) ~~Deferred~~--------- ~~income~~--------- ~~taxes~~--------- ~~(150,960)~~Cash -flows ~~(150,960)~~from ~~Deferred~~financing ~~lease~~activities ~~costs~~Proceeds -of -sale ~~(7,200)~~of ~~Accrued~~common ~~expenses~~stock ~~(647)~~pursuant ~~3,244~~to ~~20,368~~a ~~Due~~public tooffering ~~officer~~- ~~4,500~~- 4576,~~500~~030 ~~182~~Payments of notes payable,~~461~~ ~~Other~~affiliate - - ~~549~~(19,427) --------- --------- --------- Net cash provided by financing activities - - 556,603 --------- --------- --------- Net ~~cash~~increase ~~used~~(decrease) in ~~operating~~cash ~~activities~~ (3410,~~146~~171) (146,~~101~~783) ~~(395~~5,~~606)~~848 Cash, beginning of period 16,019 33,482 - ---------- ----------- ----------- Cash, end of period $ 5,848 $ 26,699 $ 5,848 ========= ========= ========= Supplemental cash flow disclosures Income taxes paid $ 224 $ 135 $ 9,845 ========= ========= =========

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 October 31, 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, 2001. 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 SFAS 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 the loss by the weighted average number of common shares outstanding for the period. During the three months ended October 31, 2001, basic and diluted loss per share was less than $.01. The Company has not issued any dilutive potential common stock since inception. Investments At October 31, 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 as a separate component of shareholders' equity. Dividend and interest income are recognized when earned. At October 31, 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. 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. (Continued) -6- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 4 - INVESTMENT IN H POWER CORP. (continued) 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 ended October 31, 2000, the Company accounted for the investment as available-for-sale marketable equity securities. The unrealized holding (loss) gain on the H Power Corp. shares, which are reflected in other comprehensive income, was $(390,000) and $2,664,063 for the three months ended October 31, 2001 and 2000, respectively. At October 31, 2001, the H Power Corp. shares had a quoted market price of $2.91 per share, for a total investment of $363,750. 5 - INCOME TAXES The primary components of the Company's deferred tax assets and liabilities and the related valuation allowances are as follows:

~~Cumulative~~Three ~~August 1, 1986 (Date of Nine~~ Months Ended ~~Inception)~~October ~~April 30~~31, to ------------------------------- ~~April 30,~~ 2001 2000 ~~2001~~ ----~~-------~~ ----~~-------~~ ~~------------~~Gross ~~Cash~~deferred ~~flows~~tax ~~from~~assets ~~investing~~Net ~~activities~~operating ~~Investments~~loss ~~and~~carryforwards ~~related advances~~ $ 25162,~~167~~860 $ ~~- $( 220~~150,~~438)~~960 ~~Collection~~Valuation ofallowance ~~note receivable - - 97~~39,~~500~~185 ~~Acquisition of computer equipment~~ - - ~~( 13,556)~~ ----------- ----------- -~~----------~~ ~~Net cash provided by investing activities 25~~123,~~167~~675 ~~- ( 136~~150,~~494)~~960 ~~-----------~~Gross ~~-----------~~deferred ~~-----------~~tax ~~Cash~~liabilities ~~flows~~Unrealized ~~from~~gain ~~financing~~on ~~activities~~investments ~~Proceeds of sale of common stock pursuant to a public offering - - 576~~123,~~030~~675 ~~Payments of notes payable~~905,781 ~~affiliate~~ - - ~~( 19,427)~~ ----------- ----------- -~~----------~~ Net cash provided by financing activities - - 556,603 ----------- ----------- ----------- Net increase (decrease) in cash (8,979) (14,101) 24,503 Cash, beginning of period 33,482 202,987 - ----------- ----------- ----------- Cash, end of period $ ~~24,503 $ 188,886 $ 24,503 =========== =========== =========== Supplemental cash flow disclosures Income taxes paid $ 433 $~~ -0- $ 9754,~~621~~821 =========== =~~==========~~ ============

(Continued) -7- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 5 - INCOME TAXES (Continued) At October 31, 2001, the Company has net operating loss carryforwards of approximately $479,000, expiring during the years 2004 to 2021, available to reduce future Federal taxable income. The Company believes that realization of part of the deferred tax asset related to its net operating loss carryforward was more likely than not, based on its accumulated unrealized gain on marketable equity securities of $363,750 at October 31, 2001. In 2001, the Company recorded a valuation allowance, partially offsetting the deferred tax asset. 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. 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 October 31, 2001, 2000 and 1999. At October 31, 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 59,500 53,500 ------------ ------------ $ 185,461 $ 179,461 ============ ============ These liabilities have been classified as noncurrent based on the president's intent not to demand payment before November 1, 2002. -8- 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 October 31, 2001, the H Power Corp. shares had a quoted market price of $2.91 per share, for a total investment of $363,750. On this basis, the Company reported at October 31, 2001, an unrealized holding loss on the H Power shares in the amount of $390,000, less the income tax benefit ($132,600) available from net loss carryforwards of approximately $479,000. Results of Operations The Company reported a net loss of $18,540 for the three-month period ended October 31, 2001, compared to a net income of $128,394 for the three-month period ended October 31, 2000. The income reported for the period ended October 31, 2000 was attributable primarily to an income tax benefit of $150,960, which resulted from the Company's belief that realization of deferred tax benefits respecting its net operating loss carryforward was more likely than not. DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) QUARTER ENDED OCTOBER 31, 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 By: -------------------------------- -------------------------------- Allan Rothstein President and Director

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