<PAGE>
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
October 31, 2000 33-18218-NY
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DYNAMARK CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3376786
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
56 Dune Road, Atlantic Beach, New York 11509
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 889-3630
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N/A
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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 October 31, 2000:
18,000,000, par value $.0001 per share.
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DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
QUARTERLY REPORT FORM 10-Q FOR
THREE MONTHS ENDED OCTOBER 31, 2000 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1986)
THROUGH OCTOBER 31, 2000
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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Item 1. Condensed Financial Statements:
Page
Balance Sheet as of October 31,
2000 and July 31, 2000 1
Statement of Operations and Comprehensive Income for the Three
Months Ended October 31, 2000 and 1999 and the Period from
inception (August 1, 1986) through October 31, 2000 2
Statement of Cash Flows for the Three Months Ended October 31,
2000 and 1999 and the Period from inception (August 1, 1986)
through October 31, 2000 3 - 4
Notes to Financial Statements 5 - 9
PART II. OTHER INFORMATION
Signatures 1
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DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
OCTOBER 31, 2000 (UNAUDITED) AND JULY 31, 2000
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<CAPTION>
ASSETS
October 31, July 31,
2000 2000
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets
Cash $ 26,699 $ 33,482
Investments 2,813,865 145,592
----------- -----------
$ 2,840,564 $ 179,074
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accrued expenses $ 39,508 $ 21,015
----------- -----------
Due to officer 179,461 177,961
Deferred income tax liability 754,821 --
----------- -----------
934,282 177,961
----------- -----------
Shareholders' equity (deficiency)
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 (450,059) (578,453)
Accumulated other comprehensive income - unrealized
gain on securities available for sale, net of income taxes 1,758,282 --
----------- -----------
1,866,774 (19,902)
----------- -----------
$ 2,840,564 $ 179,074
=========== ===========
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The accompanying notes are an integral part of these financial statements.
-1-
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
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<CAPTION>
Cumulative
August 1,
1986
(Date of
Three Months Ended Inception)
October 31, To
---------------------------- October 31,
2000 1999 2000
------------ ------------ ------------
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Revenues
Interest and dividend income $ 4,582 $ 2,112 $ 230,462
Licensing revenue -- -- 1,469
------------ ------------ ------------
Total revenues 4,582 2,112 231,931
------------ ------------ ------------
Expenses
Salaries -- -- 312,800
Automobile rental and expenses -- -- 28,618
Professional fees 24,160 8,234 237,150
Licensing agreement -- -- 12,707
Other 2,988 3,982 214,787
------------ ------------ ------------
Total expenses 27,148 12,216 806,062
------------ ------------ ------------
(22,566) (10,104) (574,131)
------------ ------------ ------------
Losses on investment accounted for under
the equity method -- -- (124,388)
Recovery of note receivable -- -- 97,500
------------ ------------ ------------
-- -- (26,888)
------------ ------------ ------------
Net loss before income tax benefit (22,566) (10,104) (601,019)
Income tax benefit 150,960 -- 150,960
------------ ------------ ------------
Net income (loss) 128,394 (10,104) (450,059)
Other comprehensive income - unrealized gain on
marketable security, net of $905,781 in
income taxes 1,758,282 -- 1,758,282
------------ ------------ ------------
Comprehensive income (loss) $ 1,886,676 $ (10,104) $ 1,308,223
============ ============ ============
Basic and diluted earnings (loss) per common share $ .01 $ -- $ (.03)
============ ============ ============
Weighted average number of shares outstanding 18,000,000 18,000,000 17,756,495
============ ============ ============
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The accompanying notes are an integral part of these financial statements.
-2-
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DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Cumulative
August 1,
1986
(Date of
Three Months Ended Inception)
October 31, To
---------------------- October 31,
2000 1999 2000
--------- --------- ---------
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Cash flows from operating activities
Net income (loss) $ 128,394 $ (10,104) $(450,059)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Losses on investment accounted for under
the equity method -- -- 124,388
Recovery of note receivable -- -- (97,500)
Depreciation and amortization -- -- 22,155
Changes in assets and liabilities
Accrued interest (4,210) -- (28,585)
Deferred income taxes (150,960) -- (150,960)
Deferred lease costs -- -- (7,200)
Accrued expenses 18,493 (6,765) 39,508
Due to officer 1,500 1,500 179,461
Other -- -- 549
--------- --------- ---------
Net cash used in operating activities (6,783) (15,369) (368,243)
--------- --------- ---------
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(Continued)
The accompanying notes are an integral part of these financial statements.
-3-
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DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Cumulative
August 1,
1986
(Date of
Three Months Ended Inception)
October 31, To
---------------------- October 31,
2000 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from investing activities
Investments and related advances $ -- $ -- $(245,605)
collection of note receivable -- -- 97,500
Acquisition of computer equipment -- -- (13,556)
--------- --------- ---------
Net cash used in investing activities -- -- (161,661)
--------- --------- ---------
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 (6,783) (15,369) 26,699
Cash, beginning of period 33,482 202,987 --
--------- --------- ---------
Cash, end of period $ 26,699 $ 187,618 $ 26,699
========= ========= =========
Supplemental cash flow disclosures
Income taxes paid $ 135 $ 1,169 $ 9,323
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<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 October 31, 2000, 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, 2000.
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)
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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 October 31, 1999, basic and diluted loss per share
was less than $.01. The Company has not issued any dilutive potential
common stock since inception.
Investments
At October 31, 2000, 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.
The Company has classified a six-month U.S. Treasury bill as
held-to-maturity. This security has a face value of $150,000 and matures in
November 2000. Accrued interest on this security is included in
investments.
Effects of Recently Issued Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities",
which requires entities to recognize all derivatives in their financial
statements as either assets or liabilities measured at fair value. SFAS 133
also specifies new methods of accounting for hedging transactions,
prescribes the items and transactions that may be hedged and specifies
detailed criteria to be met to qualify for hedge accounting. SFAS 133, as
amended by SFAS 137 and SFAS 138, is effective for fiscal quarters
beginning after June 15, 2000. The Company currently does not use
derivative instruments as defined by SFAS Nos. 133 and 138 and,
accordingly, these statements have no effect on its results of operations
or its financial position.
(Continued)
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DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Effects of Recently Issued Accounting Pronouncements (Continued)
In December 1999, the Securities and Exchange Commission staff
released Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 provides interpretive guidance
on the recognition, presentation and disclosure of revenue in the financial
statements. The Company does not believe that the adoption of SAB 101 will
have a material effect on the Company's financial results.
Reclassifications
Certain reclassifications have been made to the prior period financial
statements to conform to the current year presentation.
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.
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 ending October 31, 2000, the
Company accounted for the investment as available-for-sale marketable
equity securities. At October 31, 2000, the H Power Corp. shares had a
quoted market price of $21.3125 per share, for a total investment of
$2,664,063.
(Continued)
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DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
5 - INCOME TAXES
At July 31, 2000, the Company has net operating loss carryforwards of
approximately $444,000, expiring during the years 2004 to 2020, available
to reduce future Federal taxable income. In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes", the Company had recorded a valuation allowance fully offsetting the
deferred tax asset related to its net operating loss carryforwards. 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.
During the three months ended October 31, 2000, the Company recorded
an unrealized gain on marketable securities of approximately $2 million,
net of taxes, in other comprehensive income. Based on this unrealized gain,
the Company believes that the realization of deferred tax benefits was more
likely than not and, accordingly, reduced the valuation allowance to zero.
The primary components of the Company's deferred tax assets and
liabilities and the related valuation allowances are as follows:
Three Months Ended
October 31,
---------------------
2000 1999
--------- ---------
Gross deferred tax assets
Net operating loss carryforwards $ 150,960 $ 444,000
Valuation allowance -- (444,000)
Gross deferred tax liabilities
Unrealized gain on investments 905,781 --
--------- ---------
$ 754,821 $ -0-
========= =========
(Continued)
-8-
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DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 $1,500
for each of the years ended October 31, 2000, 1999 and 1998.
At October 31, 2000 and 1999, the balance due to officer consists of
noninterest-bearing amounts payable to the president of the Company as
follows:
2000 1999
-------- --------
Officer's salary $125,961 $125,961
Rent 53,500 47,500
-------- --------
$179,461 $173,461
======== ========
These liabilities have been classified as noncurrent based on the
president's intent not to demand payment before November 1, 2001.
-9-
<PAGE>
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 October 31,
2000, the H Power Corp. shares had a quoted market price of $21.3125,
for a total investment of $2,664,063. On this basis, the Company
reported for the months ended October 31, 2000 other comprehensive
income from unrealized gain on securities of $1,758,283, net of income
taxes of $905,781. The increase in its investment in H Power Corp.
shares was partially offset by a deferred income tax liability of
$754,821, comprising of gross deferred tax liabilities from such
unrealized gain ($905,781) less the income tax benefit ($150,960)
available from net loss carryforwards of approximately $444,000.
Results of Operations
The Company reported net income of $128,394 for the
three-month period ended October 31, 2000, compared to a net loss of
$10,104 for the three-month period ended October 31, 1999. The increase
is attributable primarily to an income tax benefit of $150,960. The
Company believes that the unrealized gain on its H Power Corp shares
makes the realization of deferred tax benefits related to its net
operating loss carryforward more likely than not.
<PAGE>
DYNAMARK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
QUARTER ENDED OCTOBER 31, 2000
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: /s/ Allan Rothstein
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Allan Rothstein
President and Director
