<PAGE>
SECURITIES AND EXCHANGE COMMISSION PRIVATE
WASHINGTON, D.C. 20549
- -----------------------
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended July 31, 1998 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 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) 889-3690
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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
The voting stock of Dynamark Corporation (consisting of Common
Stock, $.0001 par value) is traded in the over-the-counter market. However,
no trades have been reported by the National Quotation Bureau, Inc. and any
limited trading may not be reflective of the market value for the Company's
voting stock held by non-affiliates. There were 18,000,000 shares of Common
Stock of the Registrant outstanding on October 29, 1998, of which
approximately 3,500,000 were held by non-affiliates.
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
<PAGE>
Certain exhibits listed in Item 14 of Part IV have been
incorporated by reference. The index to exhibits appears on page 14.
PART I
Item 1. Business
General
Dynamark Corporation (hereinafter referred to as "the Company") was
organized under the laws of the State of Delaware on August 1, 1986, under
the name of Crack Rehabilitation, Inc. for the purpose of owning and
operating drug rehabilitation centers. In August 1987 the Company changed
its name to Dynamark Corporation after management elected to shift its
business purpose to that of offering product, marketing, business and real
estate development, and financial consulting services, as well as to that of
acquiring an operating business or businesses.
The Company completed a public offering of its securities in August
1988, receiving net proceeds of approximately $557,000. Since that time, the
business purpose of the Company has evolved to that of developing or
acquiring an operating business. To date, the Company has not succeeded in
accomplishing any of its goals. In fact, during this period, only two
incidental business transactions have taken place, both related to
participating in other companies' private placements for bridge loans. In
both cases the Company received some stock from those companies as well as
notes evidencing the loans, and in both cases the participation was not in
excess of 10% of the total private placement. Both of these loans have been
repaid.
Competition
Management is of the opinion that it will be very difficult, but
not impossible, to accomplish its present goal of acquiring an operating
business. The Company's resources are extremely limited. The funds resulting
from its public offering have been depleted by operating expenses and by
business commitments. The time management can devote to the Company's
operations has been drastically reduced. Additionally, there are numerous
persons and firms, who have greater financial resources, more experienced
personnel and a lot more available time that they can devote to a project,
then the Company has or can.
Employees
The Company presently employs one person who is the Company
President and who can devote only a minimum amount of time to the Company's
activities.
Item 2. Properties
The Company currently maintains its principal offices at 56 Dune
Road, Atlantic Beach, New York, New York 11509, on a month to month basis
with a monthly rent of $500. The premises are owned by Allan P. Rothstein,
President of the Company. (See "Certain Transactions"). The Company may
consider establishing other permanent offices. However, the present
facilities are adequate for the Company's present operation.
Item 3. Legal Proceedings
There are no material legal proceedings pending to which the
Company is a party or by which any of its property may be subject.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
The Company's Common Stock is traded in the "pink sheet"
over-the-counter market. The Company's Warrants Series A and Series B
Warrants expired on March 10, 1992 and are void. The Company's Common Stock
is not actively trading and there are no available bid prices. There is no
assurance that any trading market for the Company's securities will develop.
Dividends
The Company has never paid a dividend on its Common Stock, and it
presently intends to retain any earnings for use in its business.
Accordingly, it is anticipated that dividends will not be paid to the
holders of Common Stock in the foreseeable future.
Approximate Number of Equity Security Holders
As of October 29, 1998, there were 24 holders of record of the
Company's Common Stock. Such number of record owners was determined from the
Company's stockholders' records and does not include beneficial owners of
the Company's Common Stock, which shares are held in the names of various
security holders, dealers and clearing agencies.
Item 6. Selected Financial Data.
The following selected data for the period indicated has been
derived from the financial statements of the Company, a development stage
entity. This information should be read in conjunction with the related
financial statements and notes thereto included elsewhere in this report.
AS OF JULY 31, AND FOR THE PERIODS THEN ENDED
Cumulative
<TABLE>
<CAPTION>
August 1, 1986
(Date of Inception)
1998 1997 1996 1995 1994 to July 31, 1998
---- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues (loss) $ 9,584 $ 163,495 $ 3,156 $ 3,787 $ (47,741) $ 209,981
Net Income(loss) 8,803 140,573 (16,299) (32,636) (120,954) (537,525)
Income (loss) Per Common Share -- .01 -- -- .01 (.03)
Total Assets 201,865 205,222 61,744 73,510 99,374 201,865
Long-term debt 168,961 159,961 153,961 147,961 141,961 201,865
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Income reflected in revenues for the fiscal year ended July 31,
1998 decreased from that reported for the year ended July 31, 1997 by
$153,911. Income reported during the years ended July 31, 1994 through 1998
consisted primarily of interest received on Company cash balances and the
subsequent recovery of a promissory note, and related accrued interest,
which is reflected in income for the fiscal year ended July 31, 1997. The
note and accrued interest had been written off prior to 1995.
Revenues for fiscal years ended July 31, 1994 and 1993 reflect
amortization of goodwill and equity in losses of an investment aggregating
$11,062 and $9,467, respectively. In addition, $39,760 was reflected during
the year ended July 31, 1994 for a write-down of an impaired loan in
default. There were no additional write-downs for loan impairment subsequent
to the year ended July 31, 1994 since the loan had been fully written-down
as of July 31, 1994.
During the year ended July 31, 1997, revenue includes recognition
of the recovery of the principal amount of a note previously written off,
together with accrued interest thereon. Shareholders' equity during the year
ended July 31, 1997 increased by $140,573, resulting primarily from the
recovery of principal and accrued and unpaid interest on a note previously
written off.
Management expects losses to continue however, unless the Company
is successful in acquiring or merging with a profitable business operation.
In an attempt to reduce losses, the president has agreed to render his
services to the Company without further compensation until there has been a
turnaround. The amount of future losses will depend upon administrative
expenses, which management believes should not exceed $30,000 per year.
Cash and cash equivalents utilized declined from $19,840 in fiscal
year ended July 31, 1993 to $18,747 in fiscal year ended July 31, 1994, but
increased in fiscal year ended July 31, 1995 to $28,794, declined to $8,233
in the fiscal year ended July 31, 1996, and increased to $37,891 in the
fiscal year ended July 31, 1997. The increase in negative cash flow during
the year ended July 31, 1995 from the year ended July 31, 1994 amounted to
$10,047 and resulted from increased professional fees. The decrease in
negative cash flow during the year ended July 31, 1996 from the year ended
July 31, 1995 amounted to $20,561 and resulted principally from decreased
professional fees. The change from a negative cash flow for the year ended
July 31, 1996 of $8,233 to a positive cash flow of $37,891 for the year
ended July 31, 1997 amounted to $46,124 and resulted principally from the
recovery of a promissory note and accrued interest previously written off.
The increase in positive cash flow during the year ended July 31, 1998 from
the fiscal year ended July 31, 1997 amounted to $64,366 and resulted from
recovery of a promissory note previously written off.
Management anticipates that negative cash flows in the immediate
future will not exceed approximately $30,000. Based upon this anticipated
negative cash flow, Management is of the opinion that it has sufficient
liquidity to operate for not less than the next twelve months.
Item 8. Financial Statements.
Reference is made to the Financial Statements which are annexed
hereto immediately following the signature page to this Report.
Item 9. Changes in and Disagreement with Accountants
on Accounting and Financial Disclosure
<PAGE>
Not applicable.
Item 10. Directors and Executive Officers.
The directors and executive officers of the Company are as follows:
Name Age Position
Allan P. Rothstein 40 President, Treasurer and Director
All Directors serve for a term of one year and until their
successors are duly elected and qualified. All officers serve at the
discretion of the Board of Directors.
Allan P. Rothstein has been President and a director of the Company
since its inception in August, 1986. From December, 1985 to the present, Mr.
Rothstein has served as President and Chairman of the Board of Directors of
Brown Wharton & Co., Inc., a financial services firm. From July 1990 to
present Mr. Rothstein has been a securities trader for Fahnestock & Co. From
November 1984 to May 1985, Mr. Rothstein was employed at Nash Weiss & Co., a
registered broker-dealer. From May 1982 to December 1985, Mr. Rothstein was
a Floor Trader, Floor Broker and Member of the New York Futures Exchange.
Mr. Rothstein received a B.A. degree from the University of Pennsylvania in
May of 1980. The portion of business time of Mr. Rothstein devoted to the
affairs of the Company varies. However, as a general matter, the amount of
time is generally less than 10% of his business time.
Item 11. Executive Compensation
Allan P. Rothstein, President of the Company, was employed by the
Company under an Employment Agreement ending August 1, 1998. Mr. Rothstein
currently serves as President of the Company under an employment agreement
and receives no compensation. During the fiscal year ended July 31, 1998,
Mr. Rothstein was entitled to a salary of $50,000, which has been waived.
Mr. Rothstein is also entitled, during the term of his employment agreement,
to health insurance benefits, life insurance with premiums not to exceed
$2,500 per annum with his wife and children as beneficiaries, the use of a
Company owned or leased vehicle, and reimbursement for expenses which he may
incur on behalf of the Company. Furthermore, if Mr. Rothstein dies at any
time during the term of his employment agreement, the Company is obligated
to pay to Mr. Rothstein's estate or wife, if married, a death benefit of
$15,000. Mr. Rothstein's employment contract has been extended for another
year until August 1, 1999 and he has advised the Company orally that he will
continue to serve the Company without payment of salary.
In the past, the Company's policy was to compensate directors who
were not employees of the Company in the amount of $150 per meeting and
reimburse them for the reasonable expenses incurred by them in connection
with the Company's business. At present, there are no directors who are not
employees of the Company.
Employee Incentive Stock Option Plan
In April 1987, the Company adopted an Employee Incentive Stock
Option Plan (the "Plan") intended to qualify under the provisions of the
Internal Revenue Code of 1986. Pursuant to the Plan, the Company was
authorized to grant stock options to purchase up to 2,500,000 shares of the
Company's Common Stock to key personnel, including eligible officers,
directors, employees and independent consultants of the Company. No options
were ever granted under the Plan and, in accordance with its terms the Plan
terminated on April 7, 1997.
<PAGE>
Item 12. Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth certain information as of October
27, 1998 with respect to the ownership of the Company's Common Stock by each
person known by the Company to own beneficially more than 5% of such Common
Stock, by each officer and director of the Company and by officers and
directors as a group.
Amount and Percent-
age of Beneficial
Ownership (1)
Directors, Officers Number of
and 5% Shareholders Shares Percent
Allan P. Rothstein (2) 1,000,000 5.5%
56 Dune Road
Atlantic Beach, New York 11909
Cynthia Rothstein (2) 11,375,000 63.2
311 Links Drive West
Oceanside, New York 11572
Brown Wharton & Co., Inc. (2) 1,000,000 5.5
56 Dune Road
Atlantic Beach, New York 11909
All Directors and Officers
as a Group (1 in number) 1,000,000 5.5
(1) Each officer, director and each 5% shareholder has sole voting and sole
investment power with respect to all shares that he or she beneficially
owns.
(2) Cynthia Rothstein is the mother of Allan P. Rothstein, President of the
Company. Such beneficial ownership does not include shares of the Company's
Common Stock owned by Brown Wharton & Co., Inc., a company in which Allan P.
Rothstein is the President and a principal shareholder. Mr. Rothstein may be
deemed the beneficial owner of all but a nominal portion of the shares owned
by Brown Wharton & Co., Inc.
Item 13. Certain Relationships and Related Transactions
The Company currently maintains its principal offices at 56 Dune
Road, Atlantic Beach, New York 11509, on a month-to-month basis with rent of
$500 per month. The premises are owned by Allan P. Rothstein, President of
the Company. The Company believes that the amount of monthly rent paid to
Mr. Rothstein is comparable to the amount of rent which would be charged to
unaffiliated companies for the same or similar space.
In February 1991, the Company purchased for $100,000, $97,500
principal amount of 10% Promissory Notes of H-Power Corp., a Delaware
corporation, headquartered in Bloomfield, New Jersey, and 25,000 common
shares, par value $.001 per share of H Power. H Power is a developmental
stage enterprise engaged in the development and exploitation of certain fuel
cell and metal hydride technologies which involve alternative energy
systems. The Promissory Notes, originally payable on February 3, 1993, were
extended to be payable on the earlier of August 1, 1994 or the closing of
any public offering by H Power. However, H Power failed to make payment when
due on August 1, 1994 and consequently was in default for a second time. On
October 13, 1997 the principal was collected in full, together with accrued
and unpaid interest.
Allan P. Rothstein, director and president of the Company
beneficially owns 300,000 shares of H Power and the Company owns 25,000
shares; together with other members of his immediate family, they
beneficially own in the aggregate 1,565,625 common shares, or 29% of the
issued and outstanding shares of H Power.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant certifies that it has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on the 28th day of October, 1998.
DYNAMARK CORPORATION
By: /s/ Allan P. Rothstein
Allan P. Rothstein, President,
principal executive and financial
officer
<PAGE>
Dated: October 28, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Allan P. Rothstein President, Treasurer October 28, 1998
Allan P. Rothstein and Director (principal executive
and financial officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1* Restated Certificate of Incorporation (Exhibit 3.1 to
Registration Statement on Form S-18, Registration No.
33-18218-NY (the "Registration Statement No. 33-18218-NY")
3.2* By-laws of the Company, as amended (Exhibit 3.2 to the
Registration Statement No. 33-18218-NY)
4.1* Form of Common Stock Certificate (Exhibit 4.1 to the
Registration Statement No. 33-18218-NY)
10.1* Employment Agreement dated August 25, 1987 between Allan
P. Rothstein and the Registrant (Exhibit 10.1 to the
Registration Statement No. 33-18218-NY)
10.3 Letter Agreement extending Employment Agreement between
Allan P. Rothstein and Registrant.
28.1* 1987 Employee Incentive Stock Option Plan (Exhibit 28.1 to
the Registration Statement No. 33-18218-NY)
* Incorporated by reference (pursuant to 17CFR Secs 201.24 and 240.125-32)
to the document referenced in brackets following the description of such
exhibits previously filed with the Commission.
<PAGE>
DYNAMARK CORPORATION
FORM 10-K
For the fiscal year ended July 31, 1997
EXHIBITS
Exhibit 10.3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant certifies that it has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on the ____ day of ________, 1998.
DYNAMARK CORPORATION
By:
Allan P. Rothstein, President
and principal financial officer
Dated: __________, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
President, Treasurer October 28, 1998
Allan P. Rothstein and Director
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1998, 1997 AND 1996
AND THE PERIOD AUGUST 1, 1986 (DATE OF INCEPTION)
TO JULY 31, 1998
AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1998, 1997 AND 1996 AND THE PERIOD AUGUST 1, 1986
(DATE OF INCEPTION) TO JULY 31, 1998
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K
(a) 1. Financial Statements
The following indicated Financial Statements of the
Company are annexed hereto immediately following the
signature page to this Report:
Page
----
Independent Auditors' Report F-1
Balance Sheet - July 31, 1998 and 1997 F-2
Statement of Operations - years ended July 31, 1998, 1997
and 1996 and the period August 1, 1986
(date of inception) to July 31, 1998 F-3 - F-4
Statement of Changes in Shareholders' Equity (Deficiency)
years ended July 31, 1998, 1997 and 1996 and the
period August 1, 1986 (date of inception) to July 31, 1998 F-5
Statement of Cash Flows - years ended July 31, 1998, 1997
and 1996 and the period August 1, 1986
(date of inception) to July 31, 1998 F-6 - F-7
Notes to Financial Statements F-8 - F-14
2. Exhibits
Incorporated by reference to the Exhibit Index at the end
of this Report.
(b) Reports on Form 8-K
None
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF DYNAMARK CORPORATION
We have audited the accompanying balance sheet of DYNAMARK
CORPORATION (a development stage company) as of July 31, 1998 and 1997, and
the related statements of operations, changes in shareholders' equity
(deficiency) and cash flows for the years ended July 31, 1998, 1997 and 1996
and for the period August 1, 1986 (date of inception) to July 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of DYNAMARK
CORPORATION (a development stage company) as of July 31, 1998 and 1997, and
the results of its operations and its cash flows for the years ended July
31, 1998, 1997 and 1996, and for the period August 1, 1986 (date of
inception) to July 31, 1998, in conformity with generally accepted
accounting principles.
October 6, 1998
F-1
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JULY 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current assets
Cash - Note 3 $ 201,850 $ 99,593
Note receivable - Note 10 -- 97,500
Accrued interest receivable -- 7,734
Prepaid income taxes - Notes 2 and 11 15 395
--------- ---------
Total current assets 201,865 205,222
========= =========
Computer equipment - at cost, less accumulated
depreciation of $13,556 in 1998 and 1997 - Note 2 -- --
--------- ---------
$ 201,865 $ 205,222
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accrued expenses $ 14,878 $ 15,432
--------- ---------
Due to officer - Note 7 165,961 159,961
--------- ---------
Commitments - Notes 6 and 8 -- --
Shareholders' equity - Note 9
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 (537,525) (528,722)
--------- ---------
21,026 29,829
--------- ---------
$ 201,865 $ 205,222
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
August 1,
1986
(Date of
Inception)
Year Ended July 31, To
-------------------------------------- July 31,
1998 1997 1996 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Interest income $ 9,584 $ 65,995 $ 3,169 $ 209,986
Licensing revenue -- -- -- 1,469
Equity in operating losses of investee -
Note 2 -- -- -- (14,894)
Amortization of excess of investment over
net assets acquired - Note 2 -- -- -- (17,500)
Write-downs of investments - Note 2 -- -- (13) (91,994)
Recovery of note receivable written off - --
Note 10 -- 97,500 -- 97,500
--------- --------- --------- ---------
Total revenues 9,584 163,495 3,156 184,567
--------- --------- --------- ---------
Expenses
Salaries
Officer -- -- -- 282,980
Other -- -- -- 29,820
Automobile rental and expenses -- -- -- 28,618
Professional fees 6,599 12,244 9,749 178,994
Other, including rent expense incurred
to officer of $6,000 in 1998, 1997 and
1996 and $72,000 for the period from
inception to July 31, 1998 11,788 10,678 9,706 188,973
Licensing agreement
Costs -- -- -- 11,238
Loss on termination -- -- -- 1,469
--------- --------- --------- ---------
Total expenses 18,387 22,922 19,455 722,092
--------- --------- --------- ---------
Net income (loss) $ (8,803) $ 140,573 $ (16,299) $(537,525)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
August 1,
1986
(Date of
Inception)
Year Ended July 31, To
-------------------------------------- July 31,
1998 1997 1996 1998
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Basic income (loss) per common share -
Note 2 $ -- $ .01 $ -- $ (.03)
========== ============ ========== ===========
Weighted average number of shares
outstanding - Note 2 18,000,000 18,000,000 18,000,000 17,710,838
========== ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JULY 31, 1998, 1997 AND 1996 AND THE PERIOD
AUGUST 1, 1986 (DATE OF INCEPTION) TO JULY 31, 1998
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated Unrealized
$.0001 Par Value Additional During the Gain on
----------------------- Paid-In Development Marketable
Shares Amount Capital Stage Securities Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock 15,000,000 $ 1,500 $ -- $ -- $ -- $ 1,500
Issuance of common stock pursuant to a
public offering - Note 9 3,000,000 300 556,751 -- -- 557,051
Net loss for the period August 1, 1986 (date of
inception) to July 31, 1995 -- -- -- (652,996) -- (652,996)
Cumulative unrealized gain on marketable securities -- -- -- -- 3,112 3,112
---------- ---------- ---------- ---------- ---------- ----------
Balance, July 31, 1995 18,000,000 1,800 556,751 (652,996) 3,112 (91,333)
Decrease in unrealized gain on marketable securities -- -- -- -- (3,112) (3,112)
Net loss for year ended July 31, 1996 -- -- -- (16,299) -- (16,299)
---------- ---------- ---------- ---------- ---------- ----------
Balance, July 31, 1996 18,000,000 1,800 556,751 (669,295) -- (110,744)
Net income for year ended July 31, 1997 -- -- -- 140,573 -- 140,573
---------- ---------- ---------- ---------- ---------- ----------
Balance, July 31, 1997 18,000,000 1,800 556,751 (528,722) -- 29,829
Net loss for year ended July 31, 1998 -- -- -- (8,803) -- (8,803)
---------- ---------- ---------- ---------- ---------- ----------
Balance, July 31, 1998 18,000,000 $ 1,800 $ 556,751 $ (537,525) $ -0- $ 21,026
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
August 1,
1986
(Date of
Inception)
Year Ended July 31, To
-------------------------------------- July 31,
1998 1997 1996 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (8,803) $ 140,573 $ (16,299) $(537,525)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Equity in operating losses of investee -- -- -- 14,894
Amortization of excess of investment
over net assets acquired -- -- -- 17,500
Write-down of investments -- -- 13 91,994
Recovery of note receivable written off -- (97,500) -- (97,500)
Depreciation and amortization -- -- -- 22,155
Changes in assets and liabilities
Accrued interest receivable 7,734 (7,734) -- (24,375)
Prepaid income taxes 380 (353) 408 (15)
Deferred lease costs -- -- -- (7,200)
Deposits -- -- -- (797)
Deposits repaid -- -- -- 797
Accrued expenses (554) (3,095) 1,645 14,878
Due to officer 6,000 6,000 6,000 165,961
Other -- -- -- 549
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities 4,757 37,891 (8,233) (338,684)
--------- --------- --------- ---------
(Continued)
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
Cumulative
August 1,
1986
(Date of
Inception)
Year Ended July 31, To
-------------------------------------- July 31,
1998 1997 1996 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from investing activities
Investments and related advances $ -- $ -- $ -- $(225,013)
Proceeds from repayment of advances -- -- -- 125,000
Collection of note receivable 97,500 -- -- 97,500
Acquisition of computer equipment -- -- -- (13,556)
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities 97,500 -- -- (16,069)
--------- --------- --------- ---------
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 and
cash equivalents 102,257 37,891 (8,233) 201,850
Cash and cash equivalents, beginning
of period 99,593 61,702 69,935 --
--------- --------- --------- ---------
Cash, end of period $ 201,850 $ 99,593 $ 61,702 $ 201,850
========= ========= ========= =========
Supplemental cash flow disclosures
Income taxes paid $ 380 $ 453 $ 384 $ 6,726
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
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 July 31, 1998, and no assurance can be given
that it will generate operating revenues and earnings in the future.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Stock Registration Costs
Stock registration costs of $42,949 incurred by the Company in
connection with its initial public offering were charged to additional
paid-in capital.
Amortization of Excess of Investment in H Power Corp. over Net Assets
Acquired and Related Matters
The $100,000 excess of the cost of the investment in H Power
Corp., which consisted of common stock acquired and interest-bearing
loans made by the Company, over net assets acquired, was amortized over
an estimated life of 20 years under the straight-line method until July
31, 1995.
The Company accounted for its investment in H Power Corp. under
the equity method, pursuant to Accounting Principles Board Opinion No.
18, until the year ended July 31, 1995, when the remaining balance of
the investment was written off as an impairment loss. From the
acquisition date of the investment until the balance was written off,
the following amounts relating to the investment were included as
reductions of revenues:
Amortization of excess of investment over
net assets acquired $ 17,500
Equity in operating losses 14,894
Write-down, including accrued interest receivable,
of $24,375 91,981
--------
$124,375
========
F-8
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income or Loss Per Share of Common Stock
The weighted average number of shares for purposes of computing
basic loss per share of common stock on the cumulative net loss is
computed as if all shares had been outstanding as of the beginning of
the respective years.
Depreciation
Depreciation on computer equipment was computed over its estimated
useful life of five years using the straight-line method.
Deferred Income Taxes
At July 31, 1998 and 1997, deferred tax assets include the future
benefits of net operating loss carryforwards and temporary differences
resulting from write-downs on an investment, which are nondeductible
for tax purposes. Deferred tax assets at each date have been reduced by
a valuation allowance equal to the total of such assets, until
realization is assured.
Marketable Equity Securities
At July 31, 1995, marketable equity securities, which were
classified as available-for-sale, were valued at fair value and the
unrealized gain was reflected in shareholders' deficiency.
A summary of changes in the unrealized gains on available-for-sale
securities is as follows:
1996 1995
-------- --------
Balance, beginning of year $ 3,112 $ --
Cumulative effect of change in
accounting principle -- 10,925
Decrease in unrealized gain (3,112) (7,813)
-------- --------
Balance, end of year $-0- $ 3,112
======== ========
F-9
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
3 - CONCENTRATION OF CREDIT RISK
The Company maintains a money market fund with a stock brokerage
firm. The balance is insured for up to $500,000 by the Securities
Investor Protection Corporation.
4 - MARKETABLE EQUITY SECURITIES
The Company held 125,000 publicly traded shares of Phoenix Laser
Systems, Inc., in which the Company had less than a controlling
interest, of original $.0001 par value common stock valued at the lower
of cost or market. At July 31, 1997 and 1996, the Company was holding
12,500 shares of this entity's $.000001 par value common stock, as a
result of a 10 for 1 reverse stock split. The shares had a market value
of $1 per share on August 17, 1989, when they were sold to the public.
At July 31, 1994, the securities were recorded at a cost of $13. At
August 1, 1994 and July 31, 1995, the securities were recorded at their
fair values of $10,938 and $3,112, respectively, under the provisions
of Statement of Financial Accounting Standards No. 115, resulting in a
decrease in the unrealized gain of $7,813 for the year ended July 31,
1995. During the year ended July 31, 1996, Phoenix Laser Systems, Inc.
ceased operations and the Company recognized a realized loss of $13 on
the permanent decline in value of this investment. Accordingly, there
was no remaining unrealized gain at July 31, 1996.
5 - LICENSING AGREEMENT
During the year ended July 31, 1991, the Company entered into a
licensing agreement to distribute a video cassette. For the period in
which the agreement was operative, the Company incurred licensing costs
of approximately $11,200. During the year ended July 31, 1992, the
agreement was terminated, resulting in a loss of $1,469.
F-10
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
6 - CONSULTING AGREEMENT
During the year ended July 31, 1992, the Company entered into an
agreement with an entity to render consulting services to the Company
in identifying equity or debt financing and/or potential merger
candidates. Under the agreement, the Company paid a $5,000
nonrefundable fee to that entity, which was included in professional
fees for the year ended July 31, 1992. Pursuant to the agreement, the
Company will be obligated to pay an additional $5,000 upon
identification of a potential source of financing or a
merger/acquisition candidate. The Company is also obligated to make an
additional $15,000 payment upon the successful closing (signed letter
of intent) of either a financing agreement or merger/acquisition. In
addition, the agreement provides that the consulting entity will
receive shares of Dynamark Corporation, which will be restricted
pursuant to Rule 144 of the Securities and Exchange Commission. The
agreement will terminate upon successful identification of financing or
a merger/acquisition, or when it is terminated by one of the parties.
During the year ended July 31, 1992, the Company entered into a
transaction covered by the consulting agreement, which resulted in a
letter of intent qualifying for compensation under the agreement.
During that year, the transaction was aborted. The Company incurred
consulting fees of $2,500 to this consultant in settlement of its
obligation concerning the letter of intent.
As of July 31, 1998, there are no pending financings or
merger/acquisitions subject to this agreement, which remains in effect.
7 - RELATED PARTY TRANSACTIONS
Rent
The Company rents its principal office space from its president.
Rentals began August 1, 1988 on a month-to-month basis at $500 per
month. Rent expense incurred was $6,000 for each of the years ended
July 31, 1998, 1997 and 1996. As of July 31, 1998 and 1997, $40,000 and
$34,000, respectively, of unpaid rent expense is included in the
balance due to officer.
F-11
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7 - RELATED PARTY TRANSACTIONS (Continued)
Due to Officer
At July 31, 1998 and 1997, the balance due to officer consists of
noninterest-bearing amounts payable to the president of the Company as
follows:
1998 1997
------------ ------------
Officer's salary (see Note 8) $ 125,961 $ 125,961
Rent 40,000 34,000
------------ ------------
$ 165,961 $ 159,961
============ ============
8 - COMMITMENT
In August 1998, the Company renewed the contract with its
president for a period of one year, beginning August 1, 1998, at a
minimum annual salary of $50,000 a year, plus certain guaranteed fringe
benefits. These benefits include medical and life insurance coverage,
use of a Company-owned vehicle and reimbursement of related expenses,
and a death benefit of $15,000 payable to the employee's estate or
spouse if the employee dies during the term of the agreement. The
Company will recognize the cost of providing the life insurance benefit
by charging expense at the time the death benefit is paid. Beginning
April 30, 1994 and continuing until the Company makes a financial
turnaround, the president has agreed to provide his services without
compensation. At July 31, 1998 and 1997, approximately $126,000 of the
president's salary for the period prior to April 30, 1994 is unpaid and
is included in due to officer.
F-12
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
9 - COMMON AND PREFERRED STOCK
Public Offering of Common Stock and Related Warrants
Pursuant to a proposed public offering of 100,000 units, the
Company, on July 22, 1988, sold 84,335 units (under a minimum offering)
at $6.00 per unit, consisting of 2,530,050 shares of the Company's
$.0001 par value common stock and warrants to purchase an additional
10,120,200 shares of the authorized but unissued stock. Each unit
consisted of 30 shares of common stock, 60 Series A warrants to
purchase 5,060,100 shares of common stock at $.25 per share, until
March 10, 1992, and 60 Series B warrants to purchase 5,060,100 shares
of common stock at $.40 per share, until March 10, 1992. The Company
had the right to redeem the warrants at $.005 each during the exercise
period on 30 days' written notice.
On August 8, 1988, the remaining 15,665 units were sold,
representing 469,950 shares of $.0001 common stock and the related
Series A and Series B warrants.
None of the Series A or Series B warrants were exercised or
redeemed through March 10, 1992, when they expired.
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock,
$.0001 par value, which may be issued in one or more series at the
discretion of the board of directors, and which will be entitled to a
preference over common stock as to dividends and liquidation values. At
July 31, 1998 and 1997, none of the preferred stock has been issued.
Incentive Stock Options Plan
In April 1987, the Company adopted an Employee Incentive Stock
Option Plan under which 2,500,000 shares of the common stock of the
Company were authorized for issuance to key personnel, including
eligible officers, directors, employees and independent consultants.
The Plan terminated on April 7, 1997. No options were granted under the
Plan.
F-13
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10 - RECOVERY OF NOTE RECEIVABLE WRITTEN OFF
During the year ended July 31, 1997, the Company collected
approximately $24,000 of interest on a note receivable of $97,500
previously written off. On October 13, 1997, the principal was
collected in full. The recovery is reflected as of July 31, 1997 in the
accompanying financial statements.
11 - INCOME TAXES
The Company has net operating loss carryforwards of approximately
$403,000 available to reduce future Federal taxable income expiring
during the years 2004 to 2012.
Valuation allowances of $161,000 and $149,000 were reflected at
July 31, 1998 and 1997, respectively, representing the full amount of
the related deferred tax assets.
12 - SUPPLEMENTARY NONCASH INVESTING AND FINANCING ACTIVITIES
During the period from August 1, 1986 (date of inception) to July
31, 1987, the Company incurred deferred registration costs of $10,000
in connection with its initial public offering. These costs plus $90
were paid by the Company's affiliate on behalf of the Company. The
Company issued its noninterest-bearing note payable of $9,990 to this
affiliate plus 1,000,000 shares of its $.0001 par value common stock,
having a total par value of $100.
During the year ended July 31, 1988, the Company's affiliate paid
an additional $9,437 on behalf of the Company, for which the Company
issued an interest-bearing note payable.
During the period from August 1, 1986 (date of inception) to July
31, 1987, the Company issued 14,000,000 shares of its $.0001 common
stock as payment for $1,400 of organization costs.
During the year ended July 31, 1995, liabilities of $141,961 for
salary and rent incurred to the president of the Company were
reclassified as a long-term liability based on the officer's intent not
to demand payment of these obligations for a period of at least one
year from the balance sheet date.
F-14
<PAGE>
DYNAMARK CORPORATION
56 Dune Road
Atlantic Beach, New York 11909
Mr. Allan P. Rothstein
56 Dune Road
Atlantic Beach, New York 11905
Dear Mr. Rothstein:
This shall confirm our agreement to extend your Employment
Agreement dated August 1, 1998 to August 1, 1999 upon the same terms and
conditions as presently in effect. Kindly confirm your agreement by signing
below where indicated.
DYNAMARK CORPORATION
By:/s/Allan P. Rothstein
Allan P. Rothstein, Secretary
Agreed to as of the 29th day
of October, 1998
/s/ALLAN P. ROTHSTEIN
Allan P. Rothstein
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 201,850
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 201,850
<PP&E> 13,556
<DEPRECIATION> 13,556
<TOTAL-ASSETS> 201,850
<CURRENT-LIABILITIES> 14,878
<BONDS> 0
<COMMON> 1,800
0
0
<OTHER-SE> 19,226
<TOTAL-LIABILITY-AND-EQUITY> 201,850
<SALES> 0
<TOTAL-REVENUES> 9,584
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,803)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,803)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
