10-Q 1 b318952_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, 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 April 30, 2002: 18,000,000, par value $.0001 per share. DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) QUARTERLY REPORT FORM 10-Q FOR NINE MONTHS ENDED APRIL 30, 2002 AND FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1986) THROUGH APRIL 30, 2002 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements: Page ---- Balance Sheet as of April 30, 2002 and July 31, 2001 1 Statement of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended April 30, 2002 and 2001 and the Period August 1, 1986 (Date Of Inception) to April 30, 2002 2 Statement of Cash Flows for the Nine Months Ended April 30, 2002 and 2001 and the Period August 1, 1986 (Date Of Inception) to April 30, 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

DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED BALANCE SHEET APRIL 30, 2002 (UNAUDITED) AND JULY 31, 2001 ASSETS April 30, July 31, 2002 2001 -------------- -------------- (Unaudited) Current assets Cash $ 112,140 $ 16,019 Investments 258,750 881,212 Prepaid income taxes 493 - -------------- -------------- $ 371,383 $ 897,231 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accrued expenses $ 13,007 $ 15,852 -------------- -------------- Due to officer 188,461 183,961 Deferred income tax liability - 127,925 -------------- -------------- 188,461 311,886 -------------- -------------- 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 (563,223) (486,533) Accumulated other comprehensive income - unrealized gain on securities available for sale, net of income taxes 174,587 497,475 -------------- -------------- 169,915 569,493 -------------- -------------- $ 371,383 $ 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)

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

(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)

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, 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 April 30, 2002 and 2001, and nine months ended April 30, 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 April 30, 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. In February 2002, the Company's U.S. Treasury bill matured. The Company had classified this investment as held to maturity and did not recognize any gain or loss on its disposition. 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 $(495,000) and $91,100 for the nine months ended April 30, 2002 and 2001, respectively. At April 30, 2002, the H Power Corp. shares had a quoted market price of $2.07 per share, for a total investment of $258,750. 5 - INCOME TAXES The primary components of the Company's deferred tax assets and liabilities and the related valuation allowances are as follows: April 30, July 31, 2002 2001 ------------ ------------ Gross deferred tax assets Net operating loss carryforwards $ 162,860 $ 162,830 Valuation allowance 78,697 34,480 ------------ ------------ 84,163 128,350 Gross deferred tax liabilities Unrealized gain on investments 84,163 256,275 ------------ ------------ $ -0- $ 127,925 ============ ============ (Continued) -7- DYNAMARK CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 5 - INCOME TAXES (Continued) At April 30, 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 $258,750 at April 30, 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 $4,500 for each of the nine months ended April 30, 2002 and 2001. At April 30, 2002 and July 31, 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 62,500 58,000 ------------ ------------ $ 188,461 $ 183,961 ============ ============ These liabilities have been classified as noncurrent based on the president's intent not to demand payment before May 1, 2003. 7 - SUBSEQUENT EVENT At May 23, 2002, the H Power Corp. common shares had a quoted market value of $1.29 per share. The Company owns 125,000 common shares of H Power Corp. -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 April 30, 2002, the H Power Corp. shares had a quoted market price of $2.07 per share, for a total investment of $258,750. On this basis, the Company reported at April 30, 2002, an unrealized holding loss on the H Power shares in the amount of $62,500, less the income tax benefit of $24,375, available from net loss carryforwards of approximately $479,000. Results of Operations The Company reported a net loss of $30,164 for the three-month period ended April 30, 2002, compared to a net loss of $1,968 for the three-month period ended April 30, 2001. The loss reported for the period ended April 30, 2002 was attributable primarily to income tax expense of $24,375, which resulted from a reduction of the 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 APRIL 30, 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-

DYNAMARK CORP 10-Q