<PAGE>
SECURITIES AND EXCHANGE COMMISSION
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, 1999 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
2
<PAGE>
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 25, 1999, 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]
Certain exhibits listed in Item 14 of Part IV have been
incorporated by reference. The index to exhibits appears on page 14.
3
<PAGE>
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.
4
<PAGE>
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.
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
5
<PAGE>
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 25 1999, 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.
6
<PAGE>
AS OF JULY 31, AND FOR THE PERIODS THEN ENDED
<TABLE>
<CAPTION>
Cumulative
August 1, 1986
(Date of Inception)
1999 1998 1997 1996 1995 to July 31, 1999
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues (loss) $ 8,421 $ 9,584 $163,495 $ 3,156 $ 3,787 $192,988
Net Income
(loss) $(18,457) 8,803 140,573 (16,299) (32,636) (555,982)
Income (loss)
Per Common
Share -- .01 -- -- (.03)
Total Assets $203,212 201,865 205,222 61,744 73,510 203,212
Long-term debt $171,961 168,961 159,961 153,961 147,961 171,961
</TABLE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Income, consisting of interest and dividends only, reflected in
revenues for the fiscal year ended July 31, 1999 decreased from that reported
for the year ended July 31, 1998 by $1,163. Income reported during the years
ended July 31, 1994 through 1998 consisted primarily of interest and dividends
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.
7
<PAGE>
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
8
<PAGE>
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
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 41 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.
9
<PAGE>
Item 11. Executive Compensation
Allan P. Rothstein, President of the Company, was employed by the
Company under an Employment Agreement ending August 1, 1999. Mr. Rothstein
currently serves as President of the Company under an employment agreement and
receives no compensation. During the fiscal year ended July 31, 1999, 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 has
advised the Company 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.
10
<PAGE>
Item 12. Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth certain information as of October 25,
1999 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.
11
<PAGE>
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.
12
<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 25th day of October, 1999.
DYNAMARK CORPORATION
By: /s/ Allan P. Rothstein
---------------------------------
Allan P. Rothstein, President,
principal executive and financial
officer
Dated: October 25, 1999
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 25, 1999
- ---------------------- and Director (principal executive
Allan P. Rothstein and financial officer)
13
<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)
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.
14
<PAGE>
DYNAMARK CORPORATION
FORM 10-K
For the fiscal year ended July 31, 1999
15
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1999, 1998 AND 1997
AND THE PERIOD AUGUST 1, 1986 (DATE OF INCEPTION)
TO JULY 31, 1999
AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1999, 1998 AND 1997 AND THE PERIOD AUGUST 1, 1986
(DATE OF INCEPTION) TO JULY 31, 1999
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:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Balance Sheet - July 31, 1999 and 1998 F-2
Statement of Operations - years ended July 31, 1999, 1998 and
1997 and the period August 1, 1986
(date of inception) to July 31, 1999 F-3 - F-4
Statement of Changes in Shareholders' Equity (Deficiency)-
years ended July 31, 1999, 1998 and 1997 and the
period August 1, 1986 (date of inception) to July 31, 1999 F-5
Statement of Cash Flows - years ended July 31, 1999, 1998 and
1997 and the period August 1, 1986
(date of inception) to July 31, 1999 F-6 - F-7
Notes to Financial Statements F-8 - F-14
</TABLE>
2. Exhibits
Incorporated by reference to the Exhibit Index at the end of
this Report.
(b) Reports on Form 8-K
None
<PAGE>
FRIEDMAN
ALPREN & 1700 BROADWAY
GREEN LLP NEW YORK, NY 10019
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 212-582-1600
FAX 212-265-4761
www.nyccpas.com
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, 1999 and 1998, and the
related statements of operations, changes in shareholders' equity (deficiency)
and cash flows for the years ended July 31, 1999, 1998 and 1997 and for the
period August 1, 1986 (date of inception) to July 31, 1999. 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, 1999 and 1998, and the results of
its operations and its cash flows for the years ended July 31, 1999, 1998 and
1997, and for the period August 1, 1986 (date of inception) to July 31, 1999, in
conformity with generally accepted accounting principles.
Friedman Alpren & Green LLP
October 1, 1999
F-1
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JULY 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Current assets
Cash - Note 3 $ 202,987 $ 201,850
Prepaid income taxes - Notes 2 and 10 225 15
--------- ---------
$ 203,212 $ 201,865
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accrued expenses $ 28,682 $ 14,878
--------- ---------
Due to officer - Note 7 171,961 165,961
--------- ---------
Commitment - Note 6 -- --
Shareholders' equity - Note 8
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 (555,982) (537,525)
--------- ---------
2,569 21,026
--------- ---------
$ 203,212 $ 201,865
========= =========
</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,
1999 1998 1997 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Interest and dividend income $ 8,421 $ 9,584 $ 65,995 $ 218,407
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 -- -- -- (91,994)
Recovery of note receivable written off -
Note 9 -- -- 97,500 97,500
--------- --------- --------- ---------
Total revenues 8,421 9,584 163,495 192,988
--------- --------- --------- ---------
Expenses
Salaries
Officer -- -- -- 282,980
Other -- -- -- 29,820
Automobile rental and expenses -- -- -- 28,618
Professional fees 16,960 6,599 12,244 195,954
Other, including rent expense incurred
to officer of $6,000 in 1999, 1998 and
1997 and $78,000 for the period from
inception to July 31, 1999 9,918 11,788 10,678 198,891
Licensing agreement
Costs -- -- -- 11,238
Loss on termination -- -- -- 1,469
--------- --------- --------- ---------
Total expenses 26,878 18,387 22,922 748,970
--------- --------- --------- ---------
Net income (loss) $ (18,457) $ (8,803) $ 140,573 $(555,982)
========= ========= ========= =========
</TABLE>
(Continued)
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(Continued)
<TABLE>
<CAPTION>
Cumulative
August 1,
1986
(Date of
Inception)
Year Ended July 31, To
--------------------------------------------- July 31,
1999 1998 1997 1999
---------- ---------- ------------- --------------
<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 17,733,081
========== ========== ============= ==============
</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, 1999, 1998 AND 1997 AND THE PERIOD
AUGUST 1, 1986 (DATE OF INCEPTION) TO JULY 31, 1999
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
$.0001 Par Value Additional During the
------------------------ Paid-In Development
Shares Amount Capital Stage Total
------ ------ ----------- ------------ ----------
<S> <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 8 3,000,000 300 556,751 -- 557,051
Net loss for the period August 1, 1986
(date of inception) to July 31, 1996 -- -- -- (669,295) (669,295)
---------- ---------- ---------- ---------- ----------
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
1,800
1,800
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) 21,026
Net loss for year ended July 31, 1999 -- -- -- (18,457) (18,457)
---------- ---------- ---------- ---------- ----------
Balance, July 31, 1999 18,000,000 $ 1,800 $ 556,751 $ (555,982) $ 2,569
========== ========== ========== ========== ==========
</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,
1999 1998 1997 1999
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $(18,457) $(8,803) $140,573 $(555,982)
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 - - - 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 (210) 380 (353) (225)
Deferred lease costs - - - (7,200)
Deposits - - - (797)
Deposits repaid - - - 797
Accrued expenses 13,804 (554) (3,095) 28,682
Due to officer 6,000 6,000 6,000 171,961
Other - - - 549
-------- ------- -------- ---------
Net cash provided by (used in)
operating activities 1,137 4,757 37,891 (337,547)
-------- ------- -------- ---------
</TABLE>
(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
(Continued)
<TABLE>
<CAPTION>
Cumulative
August 1,
1986
(Date of
Inception)
Year Ended July 31, To
------------------------------------------- July 31,
1999 1998 1997 1999
-------- ------- -------- ---------
<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 in cash and
cash equivalents 1,137 102,257 37,891 202,987
Cash and cash equivalents, beginning
of period 201,850 99,593 61,702 -
-------- ------- -------- ---------
Cash, end of period $202,987 $201,850 $ 99,593 $ 202,987
======== ======= ======== =========
Supplemental cash flow disclosures
Income taxes paid $ 365 $ 380 $ 453 $ 7,091
======== ======= ======== =========
</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, 1999, 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
========
(Continued)
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 for the cumulative period August 1, 1986
(date of inception) to July 31, 1999 is computed as if all shares had been
outstanding as of the beginning of the respective years.
Deferred Income Taxes
At July 31, 1999 and 1998, deferred tax assets consist of future
benefits of net operating loss carryforwards. 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, 1996, 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
======= =======
(Continued)
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.
(Continued)
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, 1999, 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, 1999,
1998 and 1997. As of July 31, 1999 and 1998, $46,000 and $40,000,
respectively, of unpaid rent expense is included in the balance due to
officer.
(Continued)
F-11
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7 - RELATED PARTY TRANSACTIONS (Continued)
Due to Officer
At July 31, 1999 and 1998, the balance due to officer consists of
noninterest-bearing amounts payable to the president of the Company as
follows:
1999 1998
-------- --------
Officer's salary $125,961 $125,961
Rent 46,000 40,000
-------- --------
$171,961 $165,961
======== ========
8 - 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.
(Continued)
F-12
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
8 - COMMON AND PREFERRED STOCK (Continued)
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, 1999 and
1998, 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.
9 - 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.
10 - INCOME TAXES
The Company has net operating loss carryforwards of approximately
$422,000 available to reduce future Federal taxable income expiring during
the years 2004 to 2019.
Valuation allowances of $169,000 and $161,000 were reflected at July
31, 1999 and 1998, respectively, representing the full amount of the
related deferred tax assets.
(Continued)
F-13
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
11 - 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.
Liabilities of $141,961 for salary and rent incurred to the president
of the Company have been shown as long-term liabilities 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.
(Continued)
F-14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> JUL-31-1998
<PERIOD-END> JUL-31-1999
<CASH> 202,987
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 203,212
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 203,212
<CURRENT-LIABILITIES> 28,682
<BONDS> 0
0
0
<COMMON> 1,800
<OTHER-SE> 769
<TOTAL-LIABILITY-AND-EQUITY> 203,212
<SALES> 0
<TOTAL-REVENUES> 8,421
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,457)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,457)
<EPS-BASIC> 0.0
<EPS-DILUTED> 0.0
</TABLE>
