10-Q 1 pltq2fs.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 (Mark One) [ X ] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For the quarterly period ended June 30, 2003 OR [ ] Transition Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act Of 1934 For the transition period from ____________ to _______________ Commission file number 1-7636 DYNACORE PATENT LITIGATION TRUST (Exact name of registrant as specified in its charter) Delaware 74-6498884 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 9901 IH10 West, Suite 800 San Antonio, Texas 78230-2292 (Address of principal executive office and zip code) (210) 558-2898 (Registrant's telephone number, including area code) 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___. Applicable only to registrants involved in bankruptcy proceedings during the preceding five years: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No ___. As of June 30, 2003, 9,977,690 beneficial interests were outstanding. DYNACORE PATENT LITIGATION TRUST INDEX Page Number Part I. Financial Information Item I. Financial Statements Statements of Operations for the Quarter and six months ended June 30, 2003 and 2002 3 Balance Sheets as of June 30, 2003 and December 31, 2002 4 Statements of Cash Flows for the quarter and six months ended June 30, 2003 and 2002 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information Item 1. Legal Proceedings 9 Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 9 Signature 10 --------- Certification 11 --------- 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements STATEMENTS OF OPERATIONS Dynacore Patent Litigation Trust (Unaudited) (in whole $'s)

3 BALANCE SHEETS Dynacore Patent Litigation Trust (in whole $'s)

4 STATEMENTS OF CASH FLOWS Dynacore Patent Litigation Trust (Unaudited) (in whole $'s)

5 NOTES TO FINANCIAL STATEMENTS Dynacore Patent Litigation Trust June 30, 2003 and 2002 (in whole dollars) 1. Summary of Significant Accounting Policies Fiscal Year The Dynacore Patent Litigation Trust (the "Trust") was established on December 18, 2000 and utilizes a calendar year for financial reporting purposes. Income Taxes For Federal income tax purposes, the Trust is treated as a "grantor trust" and consequently, is not intended to be an association taxable as a corporation, joint venture, partnership or other entity. As such, all items of income, deduction, or credit are treated as belonging to the trust grantors, the holders of the Beneficial Interests, and will be reported on behalf of such holders to the extent that income is realized by the Trust. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risk Concentration/Going Concern These financial statements have been prepared assuming that the Trust will continue as a going concern. The Trust's most significant cash source has been The CattleSale Company, formerly known as Dynacore Holdings Corporation (the "Company"), to the extent of the Company's funding commitment of up to $1 million, as described in Note 2. In the event that the Company is unable to fulfill this commitment or if the commitment is fully satisfied, the Trust would require additional cash infusions from other sources in order to continue its pursuit of the Patent Litigation. While no such sources have as yet been identified, in March 2003, the Trust's lead litigation counsel agreed in principle to receive a contingency fee. If counsel and the Trust consummate their agreement, then, among other things, legal fees and expenses would be payable only from proceeds received by the Trust from settlements or favorable judgments. (These fees and expenses have been reflected in the Trust's financial statements pending formalization and consummation of such agreement.) In that event, and taking into consideration Patent Litigation settlement proceeds of $375,000 received by the Trust in February 2003, the Trust believes that its remaining commitment from the Company will be sufficient to finance the Patent Litigation for at least the remainder of 2003. There is a significant possibility, however, in light of the Company's own possible cash shortfall, as disclosed in its financial statements, and the adverse summary judgment described in Note 3, that the Trust's belief in the adequacy of its resources to continue as a going concern will prove to be incorrect. 2. Loan Payable Under the terms of the Trust Agreement, the Trustees are authorized to borrow from the Company, and the Company is obligated to loan to the Trust, on an unsecured basis, up to $1 million to enable the Trust to pay its costs and expenses, including, but not limited to professional fees, Trustees' compensation and all other reasonable and necessary administrative expenses arising out of the administration of the Trust and the prosecution of the Patent Litigation. All loans by the Company are evidenced by a promissory note bearing interest at 12% per annum. As of June 30, 2003, the aggregate outstanding principal amount of these loans was $851,531, together with accrued interest of $114,730. The Trust is obligated to repay all loans from the Company, and accrued interest thereon, from the first monies received by it from the partial and complete liquidation of the Trust property. It is not practicable to assess the current or original fair market value of the debt because the original terms arose under a court approved Plan of Reorganization and not as a result of an arm's-length transaction. 6 3. Patent Litigation The Patents relate to computer network technology. The Company believed the Patents, which it considered to be valuable proprietary assets, covered most products introduced by various suppliers to the networking industry and that the Patents dominated certain types of dual-speed technology introduced by various industry leaders. The Company sought to maximize the value of the Patents through royalty and/or licensing arrangements and sought to protect them from infringement by other parties through litigation. The Patent Litigations described below are the only actions transferred to the Trust by the Company that are still pending. They were filed in the Southern District of New York for infringement of Patent 5,077,732 (the "'732 Patent.") Dynacore Patent Litigation Trust v. U.S. Philips Corporation, STMicroelectronics, Inc., Compaq Computer Corporation, Hewlett-Packard Corporation, Epson America, Inc., Fujitsu America, Inc., Matsushita Electric Corporation of America, Texas Instruments Incorporated, Eastman Kodak Company, Dell Computer Corporation, Dell Marketing Corporation, Gateway, Inc., Motorola, Inc., Apple Computer, Inc., and NEC Computers, Inc., Civil Action No. 01-CV-5012 (LTS) (GWG), filed June 6, 2001. Dynacore Patent Litigation Trust v. Sony Electronics, Inc., Nikon, Inc., JVC Americas Corp., Adaptec, Inc., Smartdisk Corporation,Evergreen Technologies, Inc., Ads Technologies, Inc., Western Digital Corporation, Quadmation Incorporated, Lucent Technologies, Inc., and 3COM Corporation, Civil Action No. 01-CV-10978 (LTS) (GWG), filed November 30, 2001. The suits, each of which seek an injunction and unspecified damages, allege that the Institute of Electrical and Electronic Engineers' standard for the computer and electronics industry known as the 1394 standard utilizes technology that falls within the scope of the subject matter of the `732 Patent and that each defendant sells products that comply with the 1394 standard. On August 19, 2002 and February 3, 2003, the Trust settled with Motorola, Inc. and Eastman Kodak Company, respectively. On February 11, 2003, the remaining defendants' motion for summary judgment was granted. The Trust has filed a timely appeal to reverse this decision. If the summary judgment is not vacated, the Trust will be precluded from further pursuing these cases. 4. Accounts Payable/Accrued Expenses June 30, 2003 Dec. 31, 2002 ------------------- -------------------- Legal fees related to litigation $232,449 $215,299 Other costs related to the litigation 13,822 19,163 Accounting fees 3,000 -- General legal and administration 39,704 29,293 ------------------- -------------------- $288,975 $263,755 =================== ==================== 5. Certain Relationships and Related Transactions Asher B. Edelman, one of the Trustees, is Vice Chairman of the Company's Board of Directors, and Chairman of its Executive Committee. Gerald N. Agranoff, another Trustee, is the Company's Vice President and Secretary, General Counsel and a member of its Board of Directors. During fiscal year 2002, Mr. Edelman was Chairman of the Company's Board of Directors and Chief Executive Officer. During that period, Mr. Agranoff was the Company's Acting President, its Secretary and Vice Chairman of the Board of Directors. Since the formation of the Trust in December 2000, the Company retained a 56.5% ownership interest in the Trust until August 12, 2002, at which time its ownership interest was reduced to 44.5%. On December 18, 2002, the Company's Board of Directors approved a dividend of this remaining 44.5% to its shareholders of record as of December 20, 2002, which was payable on January 3, 2003. During the periods of Trust ownership by the Company, the Company maintained and prepared the Trust's financial information and statements, and furnished all of the Trust's administrative support in the course of maintaining its own financial and administrative affairs. After the Company fully disposed of its ownership interest in the Trust in December 2002, the Company continues to perform such duties on behalf of the Trust and is now billing the Trust for such services rendered. During the three and six month periods ended June 30, 2003, the amount of such services totaled $28,545 and $57,090 respectively, and includes $12,296 and $24,592 for accounting and administrative support and $16,249 and $32,498, respectively, for a pro-rata share of the Company's facility and overhead costs. These billings have been added to the principal amount of the loan outstanding to the Company. 7 6. Contingencies The Trust is not currently aware of any matter, which if decided adversely to the Trust, would result in a liability to the Trust, except that as a result of the adverse summary judgment, the defendants have filed claims against the Trust for costs and attorney's fees. While the claims for costs and attorney fees are approximately $8 million, the Trust's Counsel has vigorously opposed the claims. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (For the Three Month and Six Month Period Ended June 30, 2003 and 2002) Results of Operations For the three and six month period ended June 30, 2003, the Trust reported a net loss of $131,667 and $40,702, respectively. Included in this loss for the three and six month period ended June 30, 2003 are proceeds from litigation settlements of $0 and $375,000, legal fees related to the litigation of $52,528 and $234,296, other expenses related to the litigation of $6,117 and $26,385, and other expenses related to the administration of the Trust of $48,129 and $106,887, respectively. Also included for the same periods is interest expense of $24,893 and $48,134, respectively. For the three and six month period ended June 30, 2002, the Trust reported a net loss of $244,922 and $367,867, respectively. Included in this loss for the three and six month period ended June 30, 2002 are legal fees related to the litigation of $225,753 and $333,851 and other expenses related to the administration of the Trust of $7,500 and $15,000, respectively. Also included for the same periods is interest expense of $11,669 and $19,016, respectively. Financial Condition These financial statements have been prepared assuming that the Trust will continue as a going concern. The Trust's most significant cash source has been The CattleSale Company, formerly known as Dynacore Holdings Corporation (the "Company"), to the extent of the Company's funding commitment of up to $1 million, as described in Note 2. In the event that the Company is unable to fulfill this commitment or if the commitment is fully satisfied, the Trust would require additional cash infusions from other sources in order to continue its pursuit of the Patent Litigation. While no such sources have as yet been identified, in March 2003, the Trust's lead litigation counsel agreed in principle to receive a contingency fee. If counsel and the Trust consummate their agreement, then, among other things, legal fees and expenses would be payable only from proceeds received by the Trust from settlements or favorable judgments. In that event, and taking into consideration Patent Litigation settlement proceeds of $375,000 received by the Trust in February 2003, the Trust believes that as of June 30, 2003, its cash on hand of $78,476 and its remaining commitment from the Company will be sufficient to finance the Patent Litigation for at least the remainder of 2003. There is a significant possibility, however, in light of the Company's own possible cash shortfall, as disclosed in its financial statements, and the adverse summary judgment described in Note 3, that the Trust's belief in the adequacy of its resources to continue as a going concern will prove to be incorrect. Under the terms of the Trust Agreement, the Trustees are authorized to borrow from the Company, and the Company is obligated to loan to the Trust, on an unsecured basis, up to $1 million to enable the Trust to pay its costs and expenses, including, but not limited to professional fees, Trustees' compensation and all other reasonable and necessary administrative expenses arising out of the administration of the Trust and the prosecution of the Patent Litigation. All loans by the Company are evidenced by a promissory note bearing interest at 12% per annum. As of June 30, 2003 the aggregate outstanding principal amount of these loans was $851,531, together with accrued interest of $114,730. The Trust is obligated to repay all loans from the Company, and accrued interest thereon, from the first monies received by it from the partial and complete liquidation of the Trust property. It is not practicable to assess the current or original fair market value of the debt because the original terms arose under the Plan and not as a result of an arm's-length transaction. Item 3. Quantitative and Qualitative Disclosures About Market Risk Information concerning market risk is contained on page 8 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002 and is incorporated by reference. 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings See Item 3 of Registrant's Report on Form 10-K for the year ended December 31, 2002, for a description of certain legal proceedings heretofore reported. The Trust is a Plaintiff in a number of actions related to its patents and trademarks, which are more fully described in the Management's Discussion and Analysis overview section of this Form 10Q. Item 5. Other Information Principal Executive Asher B. Edelman and Principal Financial Officer Gerald N. Agranoff have furnished to the Securities and Exchange Commission the certification with respect to this Report that is required by Section 906 of the Sarbanes-Oxley Act of 2002. Item 6. Exhibits and Reports on Form 8-K There were no reports on Form 8-K that were filed during the quarter ended June 30, 2003. 9 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DYNACORE PATENT LITIGATION TRUST (Registrant) DATE: August 12, 2003 /s/ Gerald N. Agranoff ---------------------- Gerald N. Agranoff Trustee (Chief Accounting Officer) 10 CERTIFICATIONS I, Asher B. Edelman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Dynacore Patent Litigation Trust; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 12, 2003 /s/ Asher B. Edelman ------------------------ Name: Asher B. Edelman ---------------------------------------- Title: Trustee, Chief Executive Officer ---------------------------------------- 11 CERTIFICATIONS I, Gerald N. Agranoff, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Dynacore Patent Litigation Trust; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 12, 2003 /s/ Gerald N. Agranoff ---------------------- Name: Gerald N. Agranoff ---------------------------------------- Title: Trustee, Chief Financial Officer ---------------------------------------- 12

DYNACORE PATENT LITIGATION TRUST 10-Q