10-Q 1 b317365_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 January 31, 2002 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 January 31, 2002: 18,000,000, par value $.0001 per share. DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) QUARTERLY REPORT FORM 10-Q FOR SIX MONTHS ENDED JANUARY 31, 2002 AND FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1986) THROUGH JANUARY 31, 2002 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements:

Page ~~Item~~---- ~~1. Condensed Financial Statements:~~ Balance Sheet as of ~~October~~January 31, ~~2001~~2002 and July 31, 2001 1 Statement of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended ~~October~~January 31, ~~2001~~2002 and ~~2000~~2001 and the Period August 1, 1986 (Date Of Inception) to ~~October~~January 31, ~~2001~~2002 2 Statement of Cash Flows for the ~~Three~~Six Months Ended ~~October~~January 31, ~~2001~~2002 and ~~2000~~2001 and the Period August 1, 1986 (Date Of Inception) to ~~October~~January 31, ~~2001~~2002 3 - 4 Notes to Financial Statements 5 - 8 ~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Signatures 1~~

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 JANUARY 31, 2002 (UNAUDITED) AND JULY 31, 2001 ASSETS ------ January 31, July 31, 2002 2001 ----------- -------- (Unaudited) Current assets Cash $ 3,939 $ 16,019 Investments 451,047 881,212 Prepaid income taxes 493 -- -------- -------- $455,479 $897,231 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities Accrued expenses $ 30,314 $ 15,852 -------- -------- Due to officer 186,961 183,961 Deferred income tax liability -- 127,925 -------- -------- 186,961 311,886 -------- -------- Shareholders' equity 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 (533,059) (486,533) Accumulated other comprehensive income - unrealized gain on securities available for sale, net of income taxes 212,712 497,475 -------- -------- 238,204 569,493 -------- -------- $455,479 $897,231 ======== ======== 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 (LOSS) (Unaudited)

~~October~~Cumulative August 1, 1986 (Date of Three Months Ended Six Months Ended Inception) to January 31, ~~July~~January 31, January 31, ---------------------------- ---------------------------- ------------- 2002 2001 2002 2001 2002 ------------ ------------ ~~(Unaudited)~~------------ ~~Current~~------------ ~~assets~~------------ ~~Cash~~Revenues Interest and dividend income $ 5677 $ 2,~~848~~098 $ 162,~~019~~442 ~~Investments~~$ ~~492~~6,~~912~~680 ~~881~~$ 238,~~212~~974 Licensing revenue -- -- -- -- 1,469 Other income -- -- -- -- 855 ------------ $------------ ~~498,760~~------------ $------------ ~~897,231~~------------ ~~=========~~Total ~~=========~~revenues ~~LIABILITIES~~677 ~~AND~~2,098 ~~SHAREHOLDERS'~~2,442 ~~EQUITY~~6,680 ~~(DEFICIENCY)~~241,298 ------------ ------------ ------------ ------------ ------------ ~~Current~~Expenses ~~liabilities~~Salaries ~~Accrued~~-- -- -- -- 312,800 Automobile rental and expenses $-- 19-- -- -- 28,~~746~~618 $Professional 15fees 10,~~852~~608 7,207 22,524 31,368 272,665 Licensing agreement -- -- -- -- 12,707 Other 2,918 2,917 6,632 5,906 229,217 ------------ ------------ ~~Due~~------------ to------------ ~~officer~~------------ ~~185~~Total expenses 13,~~461~~526 ~~183~~10,~~961~~124 ~~Deferred~~29,156 ~~income~~37,274 ~~tax~~856,007 ~~liability~~------------ ------------ ~~127,925~~------------ ------------ ------------ ~~185~~(12,~~461~~849) ~~311~~(8,~~886~~026) (26,714) (30,594) (614,709) ------------ ------------ ~~Shareholders'~~------------ ------------ ------------ Losses on investment accounted for under the equity method -- -- -- -- (~~deficiency~~124,388) ~~Preferred~~Recovery ~~stock,~~of ~~$.0001~~note ~~par~~receivable ~~value;~~-- ~~5,000,000~~-- ~~shares~~-- ~~authorized~~-- 97,500 ~~none~~------------ ~~issued~~------------ ------------ ------------ ~~Common~~------------ ~~stock~~-- -- -- -- (26,888) ~~$.0001~~------------ ~~par~~------------ ~~value;~~------------ 50------------ ------------ Net loss before income tax benefit (expense) (12,~~000~~849) (8,~~000~~026) ~~shares~~(26,714) ~~authorized~~(30,594) 18(641,~~000,000~~597) ~~shares~~Income ~~issued~~tax ~~and~~benefit ~~outstanding~~(expense) 1(15,~~800~~137) ~~1,800 Additional paid~~-in- ~~capital~~(19,812) ~~556~~150,~~751~~960 ~~556~~108,~~751~~538 ~~Deficit~~------------ ~~accumulated~~------------ ~~during~~------------ ~~the~~------------ ~~development~~------------ ~~stage~~Net income (~~505~~loss) (27,~~073~~986) (~~486~~8,~~533~~026) ~~Accumulated~~(46,526) ~~other~~120,366 (533,059) Other comprehensive income (loss) - unrealized gain (loss) on marketable securities, ~~available~~net of income tax expense (recovery) of $(147,737) and $(359,924) for ~~sale~~the six months ended January 31, ~~net~~2002 ofand ~~income~~2001 ~~taxes~~and ~~240~~$15,~~075~~137 ~~497~~and $545,~~475~~857 for the three months ended January 31, 2002 and 2001 (27,363) (1,059,606) (284,763) 698,676 212,712 ------------ ------------ ~~293,553~~------------ ~~569,493~~ ------------ ------------ Comprehensive income (loss) $ ~~498~~(55,~~760~~349) $ ~~897~~(1,~~231~~067,632) $ (331,289) $ 819,042 $ (320,347) ============ ============ ============ ============ ============ Basic and diluted earnings per common share $ -- $ -- $ -- $ .01 $ .03 ============ ============ ============ ============ ============ Weighted average number of shares outstanding 18,000,000 18,000,000 18,000,000 18,000,000 17,776,132 ============ ============ ============ ============ ============

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~~Six Months Ended Inception) ~~October~~January 31, To -------------------------------- ~~October~~January 31, ~~2001~~2002 ~~2000~~ 2001 2002 ---------~~-----~~ ---------~~----~~ ---------~~----~~ ~~Revenues~~Cash ~~Interest~~flows ~~and~~from ~~dividend~~operating activities Net income (loss) $ 1(46,~~765~~526) $ 4120,~~582~~366 $ ~~238~~(533,~~297~~059) ~~Licensing~~Adjustments ~~revenue~~to -reconcile -net ~~1,469 Other~~ income -(loss) -to ~~855~~net ~~--------------~~cash ~~-------------~~used ~~-------------~~in ~~Total~~operating ~~revenues~~activities ~~1,765~~Deferred ~~4,582~~income ~~240,621~~taxes ~~-------------- ------------- ------------- Expenses Salaries - - 312~~19,~~800~~812 Automobile rental and expenses - - 28,618 Professional fees 11,916 24,160 262,057 Licensing agreement - - 12,707 Other 3,714 2,988 226,299 -------------- ------------- ------------- Total expenses 15,630 27,148 842,481 -------------- ------------- ------------- (13150,~~865~~960) (22108,~~566~~538) ~~(601,860) --------------- ------------- -------------~~ Losses on investment accounted for under the equity method -- -- (124,388) Recovery of note receivable -- -- (97,500) ~~--------------~~Depreciation ~~-------------~~and amortization --~~-----------~~ - - ~~(26~~22,~~888)~~155 ~~--------------~~Changes ~~--------------~~in ~~-------------~~assets ~~Net~~and ~~loss~~liabilities ~~before~~Prepaid income ~~tax~~taxes ~~benefit~~ (~~expense~~493) -- (~~13,865~~493) Accrued interest -- (224,~~566~~408) (~~628~~24,~~748~~375) ~~Income~~Deferred ~~tax~~lease ~~benefit~~costs ~~(expense)~~-- -- (47,~~675~~200) ~~150~~Accrued expenses 14,~~960~~462 ~~123~~25,~~675~~702 30,314 Due to officer 3,000 3,000 186,961 Other -- -- 549 ----------- ---------~~----~~ ---------~~----~~ Net ~~income~~cash ~~(loss)~~used ~~(18,540)~~in ~~128,394~~operating ~~(505,073)~~activities ~~Other comprehensive income - unrealized gain~~ (~~loss) on marketable securities~~9, ~~net of income tax expense (recovery~~745) ~~of $~~(~~132~~6,~~600~~300) ~~and $905,781~~ (~~257~~406,~~400~~798) ~~1,758,282 240,075~~ ---------~~------~~ ---------~~----~~ ------------- Comprehensive income (loss) $ (275,940) $ 1,886,676 $ (264,998) ============== ============= ============= Basic and diluted earnings (loss) per common share $ - $ .01 $ (.03) ============== ============= ============= Weighted average number of shares outstanding 18,000,000 18,000,000 17,772,462 ============== ============= ==============

(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 ~~Three~~Six Months Ended Inception) ~~October~~January 31, To ----------------------~~--------~~ ~~October~~January 31, ~~2001~~2002 ~~2000~~ 2001 2002 ---------~~----~~ ---------~~----~~ ---------~~---~~ Cash flows from ~~operating~~investing activities ~~Net~~Investments ~~income~~and ~~(loss)~~related advances $ (182,~~540~~335) $ ~~128~~150,~~394~~000 $(~~505~~229,~~073~~810) ~~Adjustments~~Collection toof ~~reconcile~~note ~~net~~receivable ~~income~~-- -- 97,500 Acquisition of computer equipment -- -- (~~loss~~13,556) to--------- ~~net~~--------- --------- Net cash provided by (used in) ~~operating~~investing activities ~~Deferred income taxes 4~~(2,~~675~~335) (150,~~960)~~000 (~~123~~145,~~675~~866) ~~Losses~~--------- on--------- ~~investment~~--------- ~~accounted~~Cash ~~for~~flows ~~under~~from ~~the~~financing ~~equity~~activities ~~method~~Proceeds -of -sale ~~124,388 Recovery~~ of ~~note~~common ~~receivable~~stock -pursuant -to ~~(97,500)~~a ~~Depreciation~~public ~~and~~offering ~~amortization~~ -- -- 22576,~~155~~030 ~~Changes~~Payments inof ~~assets~~notes ~~and~~payable, ~~liabilities~~affiliate ~~Accrued~~-- ~~interest~~ -- (419,~~210~~427) ~~(24,375)~~--------- ~~Deferred lease costs~~ --------- --------- ~~(7,200)~~Net ~~Accrued~~cash ~~expenses~~provided ~~3,894~~by ~~18,493~~financing ~~19,746~~activities ~~Due to officer 1,500 1,500 185,461 Other~~ -- -- ~~549~~556,603 --------- --------- --------- Net ~~cash~~increase ~~used~~(decrease) in ~~operating~~cash ~~activities~~ (812,~~471~~080) (6143,~~783)~~700 ~~(405~~3,~~524)~~939 Cash, beginning of period 16,019 33,482 -- --------- --------- --------- Cash, end of period $ 3,939 $ 177,182 $ 3,939 ========= ========= ========= Supplemental cash flow disclosures Income taxes paid $ 717 $ 135 $ 10,338 ========= ========= =========

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 January 31, 2002, 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 January 31, 2002 and 2001, and six months ended January 31, 2002, basic and diluted loss per share was less than $.01. The Company has not issued any dilutive potential common stock since inception. Investments At January 31, 2002, 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 January 31, 2002, 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 $(432,500) and $1,058,600 for the six months ended January 31, 2002 and 2001, respectively. At January 31, 2002, the H Power Corp. shares had a quoted market price of $2.57 per share, for a total investment of $321,250. 5 - INCOME TAXES The primary components of the Company's deferred tax assets and liabilities and the related valuation allowances are as follows: Six Months Ended January 31, 2002 2001 -------- -------- Gross deferred tax assets Net operating loss carryforwards $162,860 $150,960 Valuation allowance 54,322 -- -------- -------- 108,538 150,960 Gross deferred tax liabilities Unrealized gain on investments 108,538 545,857 -------- -------- $ -0- $394,897 ======== ======== (Continued) -7- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 5 - INCOME TAXES (Continued) At January 31, 2002, 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 $321,250 at January 31, 2002. In 2002, 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 $3,000 for each of the six months ended January 31, 2002, 2001 and 2000. At January 31, 2002 and 2001, the balance due to officer consists of noninterest-bearing amounts payable to the president of the Company as follows: 2002 2001 -------- -------- Officer's salary $125,961 $125,961 Rent 61,000 55,000 -------- -------- $186,961 $180,961 ======== ======== These liabilities have been classified as noncurrent based on the president's intent not to demand payment before February 1, 2003. -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 January 31, 2002, the H Power Corp. shares had a quoted market price of $2.57 per share, for a total investment of $321,250. On this basis, the Company reported at January 31, 2002, an unrealized holding loss on the H Power shares in the amount of $42,500, less the income tax expense of $15,137. Results of Operations The Company reported a net loss of $27,986 for the three-month period ended January 31, 2002, compared to a net loss of $8,026 for the three-month period ended January 31, 2001. The loss reported for the period ended January 31, 2002 was attributable primarily to income tax expense of $15,137, which resulted from a reduction of the expected realization of its net operating loss carryforwards due to the Company's unrealized loss on the H-Power shares. DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) QUARTER ENDED JANUARY 31, 2002 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 -1-

Cumulative August 1, 1986 (Date of Inception) Three Months Ended To October 31, October 31, ------------------------------- 2001 2000 2001 ------------- ------------- --------- Cash flows from investing activities Investments and related advances $ (1,700) $ - $(229,175) Collection of note receivable - - 97,500 Acquisition of computer equipment - - (13,556) --------- --------- --------- Net cash used in investing activities (1,700) - (145,231) --------- --------- --------- Cash flows from financing activities Proceeds of sale of common stock pursuant to a public offering - - 576,030 Payments of notes payable, affiliate - - (19,427) --------- --------- --------- Net cash provided by financing activities - - 556,603 --------- --------- --------- Net increase (decrease) in cash (10,171) (6,783) 5,848 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 ========= ========= =========

Three Months Ended October 31, ------------------------------ 2001 2000 ---- ---- Gross deferred tax assets Net operating loss carryforwards $ 162,860 $ 150,960 Valuation allowance 39,185 - ------------ ------------ 123,675 150,960 Gross deferred tax liabilities Unrealized gain on investments 123,675 905,781 ------------ ------------ $ -0- $ 754,821 ============ ============

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