SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from __________ to ________
Commission file number: 0-15807
MarketShare Recovery, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 31-1190725
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
95 Broadhollow Road, Suite 101
Melville, NY 11747
---------------------------------------
(Address of principal executive offices)
(631) 385-0007
----------------------------
(Issuer's Telephone Number)
Health & Leisure, Inc.
------------------------------------------------------------------
(Former name)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the Issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock, par value $0.1 45,702,256
----------------------------- ---------------------------------
(Class) (Outstanding at August 23, 2004)
The accompanying unaudited condensed consolidated financial statements have
not prior to their filing been reviewed by an independent public accountant
using professional standards and procedures for conducting such reviews,
as established by generally accepted auditing standards, as may be modified
or supplemented by the Securities and Exchange Commission.
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 3. CONTROLS AND PROCEDURES
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION:
Item 1 - FINANCIAL STATEMENTS (Unaudited)
MARKETSHARE RECOVERY, INC AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents $16,078
Accounts Receivable $3,727
Marketable securities 23,106
Prepaid expense and other current assets 6,831
TOTAL CURRENT ASSETS 49,742
PROPERTY AND EQUIPMENT, Net 1,844
SECURITY DEPOSITS 4,667
TOTAL ASSETS $56,253
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Note payable - stockholders $112,940
Accrued expenses and other current liabilities 90,503
Deferred revenue 37,973
Due to stockholders 12,300
Accrued interest - stockholders 16,935
TOTAL CURRENT LIABILITIES 270,651
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock - $0.10 par value; 10,000,000 shares
authorized; no shares issues or outstanding --
Common stock - $0.10 par value; 50,000,000 shares
authorized; 45,702,256 shares issues and outstanding 1,868,615
Additional paid-in capital 11,495
Accumulated deficit (2,094,508)
TOTAL STOCKHOLDERS' DEFICIENCY (214,398)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $56,253
See notes to unaudited condensed consolidated financial statements.
MARKETSHARE RECOVERY, INC AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six Months Ended
June 30,
2004 2003
NET REVENUES (including revenue from related party $228,224 $286,404
of $3,797 and -0-, respectively)
COST OF REVENUES (including compensatory element
of stock issuances of $42,271 and -0-, respectively) 142,014 180,947
GROSS PROFIT 86,210 105,457
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 119,549 77,982
OPERATING (LOSS) INCOME (33,339) 27,475
OTHER INCOME (EXPENSES)
Interest expense - stockholders (6,935) --
Gain (loss) on sale of marketable securities 764 (6,871)
Unrealized (loss)gain on marketable securities (41,705) 23,715
TOTAL OTHER EXPENSES (47,876) 16,844
(LOSS) INCOME BEFORE INCOME TAXES (81,215) 44,319
PROVISION FOR INCOME TAXES 455 9,000
NET (LOSS) INCOME $(81,670) $35,319
Basic Net (Loss) Income Per Common Share $(0.00) $(0.00)
Diluted Net (Loss) Income Per Common Share $(0.00) $(0.00)
Weighted Average Number of Common Shares
Outstanding - Basic (1) 45,543,335 11,172,031
Weighted Average Number of Common
Shares Outstanding - Diluted (1) 45,543,335 353,672,031
(1) Restated to reflect 1-for-10 reverse stock-split completed in August 2003.
See notes to unaudited condensed consolidated financial statements.
MARKETSHARE RECOVERY, INC AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
June 30,
2004 2003
NET REVENUES (including revenue from related party $123,261 $125,494
of $3,797 and -0-, respectively)
COST OF REVENUES (including compensatory element
of stock issuances of $42,271 and -0-, respectively) 54,783 63,837
GROSS PROFIT 68,478 61,657
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 52,132 51,371
OPERATING (LOSS) INCOME 16,346 10,286
OTHER INCOME (EXPENSES)
Interest expense - stockholders (1,935) --
Gain (loss) on sale of marketable securities (4,514)
Unrealized loss on marketable securities (16,128) 27,523
TOTAL OTHER EXPENSES (18,063) 23,009
(LOSS) INCOME BEFORE INCOME TAXES (1,717) 33,295
PROVISION FOR INCOME TAXES 7,000
NET (LOSS) INCOME $(1,717) $26,295
Basic Net (Loss) Income Per Common Share $(0.00) $(0.00)
Diluted Net (Loss) Income Per Common Share $(0.00) $(0.00)
Weighted Average Number of Common Shares
Outstanding - Basic (1) 45,543,335 12,135,686
Weighted Average Number of Common
Shares Outstanding - Diluted (1) 45,543,335 354,635,686
(1) Restated to reflect 1-for-10 reverse stock-split completed in August 2003.
See notes to unaudited condensed consolidated financial statements.
MARKETSHARE RECOVERY, INC AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(81,670) $35,319
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Compensatory element of stock issuances 40,271 --
Depreciation 264 --
Changes in operating assets and liabilities:
Accounts receivable (3,727) 5,432
Employee Loan (400) 0
Due to affiliate (50,498) --
Prepaid and other current assets 101
Security deposits -- (4,667)
Accrued expenses and other current liabilities 63,236 53,005
Marketable securities 14,819 (98,960)
Deferred revenue 37,973 24,500
TOTAL ADJUSTMENTS 102,039 (20,690)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 20,369 14,629
CASH USED IN INVESTING ACTIVITIES
Purchase of property and equipment (2,108) --
CASH USED BY FINANCING ACTIVITIES
Repayment of Note to Shareholders (112,060) $ --
Loan From Investor 100,000 $ --
NET INCREASE IN CASH AND
CASH EQUIVALENTS 6,201 14,629
CASH AND CASH EQUIVALENTS - Beginning 9,877 4,697
CASH AND CASH EQUIVALENTS - Ending $16,078 $19,326
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Income taxes $455 $978
Interest $-- $--
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
Issuance of notes payable related to reverse merger $137,700
See notes to unaudited condensed consolidated financial statements.
MARKETSHARE RECOVERY, INC AND SUBSIDIARY
CASH FLOWS WORKSHEET
June 30, 2004
oper. invest. financ.
31-Dec June 30, change non cash inflow inflow inflow
2003 2004 in cash change Dr Cr (outflow) (outflow) (outflow)
Cash and cash equivalents 9,877 16,078 6,201 [A] 6,201
Investments 37,925 23,106 (14,819) (1,308) -
Realized gain -
Unrealized loss -
Proceeds from sale - -
Change in sales/commission - -
-
Accounts receivable, net 0 0 - -
Inventory 0 0 -
Deferred Costs 0 0 - -
Prepaid expenses and other
current assets 1,601 1,652 (51) (51)
Notes receivable 0 0 -
Advances to employees 0 0 - -
Other current assets 0 0 - - -
-
Property and equipment, net 0 967 (967) (1,055)
Property and equipment, additions 1055
Accumulated depreciation, depreciation - -88 88
Proceeds received from sale -
(Gain)/Loss on disposal -
Compensatory element of stock issuance - -
Notes receivable, shareholder 0 0 -
Notes receivable, net of current portion 0 0 -
Advance to affiliate 0 0 -
Deferred income taxes 0 0 -
Security deposits 4,667 4,667 - -
Intangible assets, net 0 0 -
54,070 70,028
Accounts payable 0 0 - -
Accrued expenses and oth current liabilities 44,202 88,653 44,451 44,451
Note payable, RELATED PARTY 125000 125,000 - -
Current Maturities of long-term debt 0 0 - -
Deferred Income Taxes 0 0 - -
Deferred Revenue 0 60,956 60,956 60,956
Loan payable, Bank 0 0 -
Long-term debt 0 0 -
Due to stockholders 12300 12,300 - -
Due to affiliate 45567 0 (45,567) (45,567)
Other long term liabilities 0 0 -
Deferred Income Taxes 0 0 -
Preferred Stock 0 0 -
Common stock 4537861 4,570,226 32,365 1 28765 -
- 0
- 0
- 0
- 0
- 0
Treasury stock 0 0 -
Additional Paid In Capital -2698022(2,690,116) 7,906 1 11,506 -
- -
- 0
- -
- -
- -
Accumulated other comprehensive loss ` -
Retained earnings (2,012,838)(2,012,838) -
Distributions to shareholders - -
Net Income - (84,153) (84,153) (40,271) (43,882)
54,070 70,028 - 40,271.0 (40,271.0) 60,254.0 (1,055.0) (45,567.0) 13,632.0
Check - - [A] 13,632.0
diff -
1 - to record compensatory element
See notes to unaudited condensed consolidated financial statements.
NOTE 1 - Basis of Financial Statement Presentation
The unaudited condensed consolidated financial statements presented are
those of MarketShare Recovery, Inc. - Delaware (formerly Health &
Leisure, Inc.) and its wholly-owned subsidiary, MarketShare Recovery,
Inc.- N.Y.("MKSR"). Collectively, they are referred to herein as the
("Company").
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial statements and with
the instructions to Form 10-QSB. Accordingly, they do not include all
of the information and disclosures required for annual financial statements.
These financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in Market-
Share Recovery, Inc. and Subsidiaries (the "Company") annual report on Form
10-KSB for the year ended December 31, 2003.
In the opinion of the Company's management, all adjustments (consisting of
normalrecurring accruals) necessary to make the presentation of the
Company's financial position as of June 30, 2004 and the results of
operations and cash flows for the six month periods ended June 30, 2004
and June 30, 2003 have been included.
The results of operations for the six-month period ended June 30, 2004 are
not necessarily indicative of the results to be expected for the full year
ended December 31, 2004.
NOTE 2 - Business and Reverse Merger
Effective on June 13, 2003, Health & Leisure, Inc. ("HLLS"), a publicly-
traded Delaware corporation, and its wholly-owned subsidiary, Venture
Sum, Inc., a Delaware corporation ("Mergerco"), entered into a Merger and
Acquisition agreement with MKSR, a privately-held New York corporation,
in the business of providing on-line direct marketing solutions for
enterprises to customers through the United States. Pursuant to the
agreement, Mergerco merged with and into MKSR and MKSR became the
surviving corporation. As consideration for the merger, the shareholders
of MKSR received from HLLS 1,019,767 common shares of HLLS and 3,425,000
shares of its voting convertible non-cumulative preferred stock ("HLLS
Preferred Stock"). 267,000 shares of the HLLS common stock issued to the
MKSR shareholders were from HLLS authorized but unissued shares and
752,767 shares of the HLLS common stock were returned to HLLS
by the HLLS' former chief executive officer (Mr. Feldman) and then
reissued by HLLS in the merger.
NOTE 2 - Business and Reverse Merger, continued
The 3,425,000 shares of HLLS Preferred Stock are convertible into
34,250,000 post reverse stock-split shares of HLLS common stock upon
approval of an increase in the shares the Company is authorized to issue.
After the issuance of common stock as described above and the conversion
of HLLS Preferred Stock, the shareholders of MKSR own approximately 94%
of HLLS. Accordingly, this transaction has been accounted for as a
reverse merger with MKSR as the acquirer of HLLS. The reverse merger was
accounted for as a recapitalization and the stockholders' equity was
retroactively restated to January 1, 2002. The historical financial
statements prior to the reverse merger are those of MarketShare Recovery,
Inc. - N.Y.
Pursuant to the merger, the Company's former Chief Executive Officer
cancelled all indebtedness owed by HLLS to him, except for $12,700,
and cancelled all guarantees of debt by HLLS.
In addition, as part of the merger transaction, MKSR and HLLS agreed to
pay $125,000 to H&L Concepts, Inc., a wholly-owned subsidiary of HLLS.
After the execution of the promissory note, the former Chief Executive
Officer purchased all of the outstanding shares of stock of H&L Concepts,
Inc. for nominal consideration. The parties acknowledged that most of
the trade payables and other consolidated liabilities of HLLS were
liabilities of H&L Concepts, Inc., the subsidiary of HLLS, and by
selling the stock of H&L Concepts, Inc. to Mr. Feldman it had the
effect of removing substantially all of the trade payables and
liabilities from the HLLS balance sheet and fixing the post closing
liabilities of HLLS to that set forth in the promissory note, see Note 5.
NOTE 3 - Going Concern and Management's Plans
The accompanying unaudited condensed consolidated financial statements
have been prepared in conformity with accounting principles generally
accepted in the United States of America, assuming that the Company
will continue as a going concern. For the six months ended June 30,
2004, the Company has incurred a loss of approximately $81,670 and has
a working capital and stockholders' deficiency of approximately
$194,000 and $214,900 respectively. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The
Company's ability to continue as a going-concern is dependent upon
obtaining additional financing, restructuring its existing liabilities,
and the successful completion of its business plan. The consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. No assurance can be provided
that the Company will be successful in locating additional financing
or completing its business plan.
NOTE 4 - Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements include the
accounts of MarketShare Recovery, Inc. - Delaware (formerly Health &
Leisure, Inc.) and its wholly-owned subsidiary, MarketShare Recovery,
Inc. - N.Y. All significant intercompany balances and transactions
have been eliminated in consolidation.
Revenue Recognition and Related Commission Expenses
Revenues include the sale of and/or electronic delivery of email
distribution lists. Revenues from the sale of email distribution
lists are recognized when the seller has delivered a list
to the customer and the customer has accepted the list after an
up to 30-day address replacement period. Revenues from consulting
services are recognized ratably over the period of the contract.
Commissions due to sales consultants are initially deferred and
recognized ratably over the period revenue is recognized. Deferred
commission expense is netted against deferred revenue for financial
reporting purposes.
Use of Estimates
The preparation of financial statements, in conformity with
accounting principles generally accepted in the United States of
America, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Website Development Costs
The Company recognizes the costs associated with developing a website
in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use". Relating to website development costs the Company
follows the guidance pursuant to the Emerging Issues Task Force (EITF)
No. 00-2, "Accounting for Website Development Costs". Internal costs
related to the development of website content are expensed as incurred.
As of June 30, 2004, there are no capitalized website development costs.
Advertising Costs
Advertisement costs are expensed as incurred. For the six months ended
June 30, 2004 and 2003, advertising expenses were $2,500 and $0,
respectively.
NOTE 4 - Summary of Significant Accounting Policies, continued
Income Taxes
The Company was not required to provide for a provision for income
taxes for the year ended December 31, 2003, as a result of a net
operating loss incurred during the year then ended.
Marketable Securities
On certain engagements, the Company receives shares of common stocks
of publicly-traded corporations from its customers in lieu of cash
payments for services rendered. The fair value of the common
stocks received is reflected as revenue. Subsequently, these
marketable securities are classified as trading securities and
reported at fair value with unrealized gains or losses reported as
other income (expenses) in the statements of operations except for
securities related to commissions amounting to $0 during 2004.
Unrealized gains or losses related to marketable securities to be
transferred to sales consultants as commissions are reflected as an
increase or decrease in the accrued commission liability.
Loss or Earnings per Common Share
The Company displays earnings per share in accordance with Statement
of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS
No. 128 requires dual presentation of basic and diluted earnings per
share. Basic earnings per share includes no dilution and is computed
by dividing the net income (loss) by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
include the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock. For the six months ended June 30, 2004, the
diluted number of weighted average shares outstanding was 35,269,767,
which includes the dilutive effect of the convertible preferred stock.
Stock-Based Compensation
The Company follows SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes accounting and reporting
standards for stock-based employee compensation plans. This
statement allows companies to choose between the fair value-based
method of accounting as defined in this statement and the intrinsic
value-based method of accounting as prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees."
The Company has elected to continue to follow the accounting guidance
provided by APB 25, as permitted for stock-based compensation relative
to the Company's employees. Stock and options granted to other parties
in connection with providing goods and services to the Company are
accounted for under the fair value method as prescribed by SFAS No. 123.
NOTE 4 - Summary of Significant Accounting Policies, continued
Stock-Based Compensation, continued
In December 2002, the Financial Accounting Standard Board ("FASB")
issued SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure - an Amendment of SFAS Statement No. 123".
This statement amends SFAS No. 123 to provide alternative methods of
transition for a voluntary change to the fair value-based method of
accounting for stock-based employee compensation. In addition, SFAS
No.148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS No. 148
also requires that those effects be disclosed more prominently by
specifying the form, content, and location of those disclosures. The
Company adopted the increased disclosure requirements of SFAS No.
148 during the year ended December 31, 2003. The Company has no
stock-based employee compensation.
NOTE 5 - Note Payable - Stockholders
At the closing of the merger, HLLS and MKSR entered into a $125,000
secured promissory note with H&L Concepts, Inc., a then wholly-owned
subsidiary of HLLS. The loan is payable in twelve equal installments
of $11,341, commencing July 2003. Interest is included in the monthly
payment at a rate of 16% per annum. In October 2003, Mr. Ray Barton
and Mr. Tim Schmidt, the Company's current executive officers and
directors purchased the promissory note from H&L Concepts, Inc. for
the full value of the note, in accordance with the terms of the note.
The terms of repayment, including the interest rate and payment
schedule are the same. The Company is currently in default under the
terms of the note. Accrued interest at June 30, 2004 amounted to
$16,935.
NOTE 6 - Stockholders' Deficiency
Preferred Stock
In June of 2003, HLLS amended its designation of preferred stock and
designated 3,425,000 shares of HLLS Preferred Stock. Each share of
HLLS Preferred Stock is automatically convertible into 10 shares of
common stock upon filing of an amendment to HLLS certificate of
incorporation authorizing a sufficient number of shares of common
stock to effect such a conversion. The HLLS Preferred Stock shall
be entitled to receive when, if and as declared by the Board of
Directors dividends at 6% of its par value per annum, payable in
cash. Dividends on each share of the HLLS Preferred Stock shall
be non-cumulative and shall not accrue if not declared. Each
share of the HLLS Preferred Stock shall entitle its holders to
vote in all matters submitted to a vote of the stockholders of the
Company with the number of votes per Preferred share equal to the
number of votes available on a converted basis.
NOTE 6 - Stockholders' Deficiency, continued
Preferred Stock, continued
As discussed in Note 2, in connection with the June 2003 merger
transaction with MKSR, 3,425,000 shares of the HLLS Preferred
Stock were issued to the stockholders of MKSR. In September 2003,
these preferred shares were converted into 34,250,000 shares of
common stock.
Changes in Capital Structure
On August 5, 2003, HLLS filed with the Securities and Exchange
Commission a definitive information statement notifying the
stockholders of the Company that written consents from principal
stockholders who collectively hold in excess of 50% of the
Company's common stock were obtained and approved a 1 for 10
reverse split of the HLLS common stock, to authorize up to
50,000,000 shares of HLLS common stock and to change the name
of HLLS to MarketShare Recovery, Inc.
The 1-for-10 reverse stock split became effective on August 29,
2003 and the $12,700 of debt owed to the former Chief Executive
Officer was converted into 1,270,000 shares of common stock and
the 3,425,000 shares of HLLS Preferred Stock was converted into
34,250,000 shares of common stock. All share and per share
amounts in the consolidated financial statements and notes
thereto, were retroactively adjusted to reflect the reverse
stock split.
Stock Options
In September 2003, the Company adopted a 2003 Stock Option
Plan (the "2003 Plan"). Under the 2003 Plan, up to 15,000,000
incentive stock options, or non-qualified stock options, could
be granted to employees and consultants. As of June 30, 2004,
no options have been granted.
Common Stock Issuances
During the six months ended June 30, 2004, the Company issued
287,650 shares of its common stock to two officers of the
Company as additional compensation valued at $42,271 charged
to operations for the six months ended June 30, 2004. The
Company also issued 36,000 shares of its common stock to HLLS
in connection with the merger recorded at par value in the
statement of stockholders' deficiency.
NOTE 7 - Concentrations of Credit Risk
Revenue from 4 customers accounted for approximately 52% and 17%,
respectively for the six months ended June 30, 2004 and 2003.
NOTE 8 - Commitments and Contingencies
Lease Obligations
Beginning January 1, 2004, the Company entered into a sub lease
agreement with Dominix Inc. and Subsidiaries ("Dominix") to share
the expense of office facilities occupied by them jointly under a
lease held by the Company. The agreement includes future minimum
rental payments to be received amounting to approximately $16,000
per annum through March 2008.
Rent expense charged to operations for the six months ended June
30, 2004 and 2003 amounted to $9,376 and $13,469, net of sub
rental income from Dominix amounting to $5,149 and $-0-,
respectively.
NOTE 9 - Related Party Transactions
Deferred Revenue
The Company entered into a database license agreement with Dominix
to use and to sublicense the use of its database for a term of ten
years. For financial reporting, revenue is recognized using the
straight-line method, based upon the economic useful life of
three years. At June 30, 2004, deferred revenue was $0.
NOTE 10 - Terminated Proposed Merger
Dominix, Inc.
On November 25, 2003 Dominix, Inc. a Delaware corporation traded on
NASDAQ electronic bulletin board (DMNX) and the Company entered into
a Stock Purchase Agreement (the "Stock Purchase Agreement") under
which Dominix, subject to certain conditions, would acquire all
of the outstanding capital stock of MKSR. The parties have
determined that it is in their mutual best interest to terminate the
Stock Purchase Agreement. In March 2004, the Company entered into a
database license with Jade Entertainment Group, Inc. ("Jade"), a
wholly owned subsidiary of Dominix (see Note 9).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING STATEMENTS; MARKET DATA
The discussion in this report on Form 10-QSB contains forward - looking
statements- that involve risks and uncertainties. The statements contained
in this Report that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding our expectations, beliefs, intentions or strategies
regarding the future. Allforward-looking statements included in this
document are based on information available to us on the date hereof, and
we assume no obligation to update any such forward-looking statements. Our
actual results could differ materially from those described in our forward-
looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, our unproven business model
and a limited operating history in a new and rapidly evolving industry;
our ability to implement our business plan; and our ability to manage our
growth, retain and grow our customer base and expand our service offerings.
We make forward-looking statements in the "Management's Discussion and Analysis
of Financial Condition and, Results of Operations" below. These forward-looking
statements include, but are not limited to, statements about our plans,
objectives, expectations, intentions and assumptions and other statements that
are not historical facts. We generally intend the, words "expect", "anticipate",
"intend", "plan", "believe", "seek", "estimate" and similar expressions to
identify forward-looking statements.
This Quarterly Report contains certain estimates and plans related to us and the
industry in which we operate, which assumes certain events, trends and
activities will occur and the projected information based on those assumptions.
We do not know that all of our assumptions are accurate. In particular, we do
not know what level of growth will exist in our industry, if any, and
particularly in the foreign markets in which we operate, have devoted resources
and in which we shall seek to expand. If our assumptions are wrong about any
events, trends and activities, then our estimates for future growth for our
business may also be wrong. There can be no assurances that any of our estimates
as to our business growth will be achieved.
The following discussion and analysis should be read in conjunction with our
financial statements and the notes associated with them contained elsewhere in
this quarterly report. This discussion should not be construed to imply that the
results discussed in this quarterly report will necessarily continue into the
future or that any conclusion reached in this quarterly report will necessarily
be indicative of actual operating results in the future. The discussion
represents only the best present assessment of management.
Pursuant to an Acquisition Agreement and Plan of Merger dated June 13, 2003 (the
"Merger Agreement"), by and among Health & Leisure, Inc (the "Registrant");
Venture Sum, Inc., a Delaware corporation and a wholly owned subsidiary of
Registrant ("Mergerco"); and MarketShare Recovery, Inc., a New York corporation,
("MKSR"), Mergerco merged with and into MKSR, and MKSR became a wholly-owned
subsidiary of the Registrant. The merger became effective June 13, 2003, (the
"Effective Date,") however closing of the Agreement occurred on July 15, 2003.
Subsequently, Health & Leisure, Inc. filed an amendment to its certificate of
incorporation and thereby changed its name to MarketShare Recovery, Inc.
MarketShare Recovery the parent company's operating subsidiary similarly named
MarketShare Recovery, Inc. was incorporated in New York in November 2000. The
subsidiary, MarketShare Recovery, Inc. is a provider of online direct marketing
solutions for enterprises. Our solutions enable corporations to create and
deliver online direct marketing programs that drive revenue, influence behavior
and deepen customer relationships. Our solutions provide customer insight and
powerful program execution through a combination of hosted applications and
technology infrastructure.
We derive our revenues from the sale of solutions that enable businesses to
proactively communicate with their customers online. Primarily, these services
have consisted of the design and execution of online direct marketing campaigns
and additional services provided by our Professional Services organization,
including the development and execution of Customer Acquisition programs.
Revenue for direct marketing and acquisition campaigns are recognized when
persuasive evidence of an arrangement exists, the campaign has been sent, the
fee is fixed or determinable and collection of the resulting receivables is
reasonably assured. Revenue generated by our professional service organization
is typically recognized as the service is provided.
Currently our ability to grow is constrained by our inability to service our
existing customer base and their present demands, this is due to limitations of
our existing technology infrastructure. We have recently upgraded our systems
and plan to continue expanding our technology infrastructure to meet our current
and projected future needs. Upon said expansion We anticipate being able to
execute campaigns more efficiently and expeditiously. This will enable our sales
associates to sell more campaigns and generate additional revenues. We also plan
to launch additional product offerings which will allow our sales associates to
up-sell and cross promote/sell the services we offer to our existing customers
as well as to prospective customers.
Our principal customers and target market are e-commerce, consumer oriented
product and service companies. We work with these customers, who are typically
engaged is selling products via the internet, by driving traffic to their
respective websites. This is accomplished through CPA and CPM campaigns, CPM
campaigns or cost per thousand campaigns are programs which generate revenues
based on service fees collected for delivering a specific pre-established number
of e-mails to prospective customers, these fees vary based on the specificity of
the demographic of the intended recipients. CPA campaigns are performance based
campaigns, the earning potential of these type of campaigns is significant and
as we expand our infrastructure we intend to allocate a certain portion of our
resources to executing these performance based campaigns.
The financial information included in this 10QSB consists of MarketShare
Recovery, Inc.'s (New York) results of operations for the six months ended
June 30, 2004.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and the related disclosures. A summary of those accounting
policies can be found in the footnotes to the consolidated financial statements
included elsewhere in this report. Certain of our accounting policies are
considered critical as they are both important to the portrayal of our financial
condition and results of operations and require judgments on the part of
management about matters that are uncertain. We have identified the following
accounting policies that are important to the presentation of our financial
condition and results of operations.
Revenue Recognition
Revenue recognition. We generate revenue from the sale of solutions that enable
businesses to proactively communicate with their customers online.
MarketShare Recovery applies the provisions of Staff Accounting Bulletin 104
"Revenue Recognition" and recognizes revenue when persuasive evidence of an
arrangement exists, the service has been delivered, the fee is fixed or
determinable and collection of the resulting receivables is reasonably assured.
Customer Marketing revenues are recognized upon sending of the campaigns.
Revenues attributable to one-time set-up fees for service initiation are
deferred and recognized ratably over the term of the client's service agreement.
Customer Acquisition revenues are derived primarily from programs that assist
clients in marketing their respective products or services. Customer Acquisition
programs fall into two general categories: CPM mailing programs and CPA campaign
programs. CPM mailing programs involve the execution and delivery of email
campaigns to a defined number of individuals based on a fixed fee per number of
e-mails delivered. The CPM, which stands for cost per thousand will vary based
on the specificity of the demographic to whom the campaign is delivered to. CPA
campaign programs are performance based campaigns which involve the execution
and delivery of email campaigns wherein we are paid either a flat fee of a
percentage of a successful sale or acquisition of a customer by one of our
clients.
We assess probability of collection based on a number of factors, including our
past transaction history with the customer and the credit-worthiness of the
customer. New customers and certain existing customers may be subject to a
credit review process which evaluates the customers' financial position and
ultimately their ability to pay according to the original terms of the
arrangement. Based on our review process, if it is determined from the outset or
during the term of an arrangement that collection of the resulting receivable is
not reasonably assured, then revenue is recognized on a cash-collected basis.
Results of Operations
The following table includes consolidated statements of operations data for the
three months ended March 31, 2004 and 2003 expressed as dollar amounts and as a
percentage of revenues.
Six Months Six Months
Ended June 30 Ended June 30
2004 2003 2004 2003
% %
Revenues
Net Revenue $228,224 $286,404 100.00 100.00
Total Net Revenue 228,224 286,404 100.00 100.00
Cost of Revenue
Officer Compensation 42,271 0 19.00 0
Salesmen Commissions 99,743 180,947 44.00 63.00
Total cost of revenues 142,014 180,947 63.00 63.00
Operating Expenses
Selling, general and
administrative 119,285 77,982 52.00 27.00
Depreciation 264 0 0.00 0.00
Total operating expenses 119,549 77,982 52.00 27.00
Operating Loss (33,339) 27,475
Other Income (Expense)
Interest (6,935) 0 (3.00) 00.00
Gain on sale of marketable
securities 764 (6,871) 0.00 (2.00)
Unrealized Loss/gain on
marketable sec (41,705) 23,715 (18.00) (8.00)
Total Other Expenses (47,876) 16,844 (21.00) 6.00
(Loss Income Before Taxes) (81,215) 44,319 (36.00) 15.00
Provision For Income Taxes 455 9,000 0.00 3.00
Net (Loss) Income $(81,670) $35,319
======== ========
Comparison of Quarters Ended June 30,2004 and 2003
Our net revenues decreased by 20% from $286,404 for the six months ended June
30, 2003 to $228,224 for the six months ended June 30, 2004. The decrease in
revenues is due to our reduced outside sales force consisting of experienced
salesmen with proven sales experience. Cost of revenues as a percent of net
revenues decreased from 63% of net revenues for the six months ended June 30,
2003 to 62% of net revenues for the six months ended June 30, 2004. The
decrease in cost of revenues is due to lower commission rates paid to the
outside sales force.
Selling, general and administrative expenses increased by 153% from $77,982 for
the six months ended June 30, 2003 to $119,549 for the six months ended
June 30,2004 this increase is due to professional fees incurred in connection
with Marketshare Recovery being a publicly held company.
Other (expenses) income increased by 384% from $16,844 for the six months
ended June 30, 2003 to $(47,876) for the six months ended June 30, 2004. This
increase is attributed to interest accrued on amounts due to shareholders in
connection with the acquisition as well as unrealized losses on marketable
securities held for trading purposes.
Liquidity and Capital Resources
Cash provided by operating activities during the six months ended June 30,
2004 amounted to $20,369 compared to $14,629 during the six months ended
June 30,2004.The increase in cash is due to more services being
performed.
Cash used in operating activities increased due to professional fees incurred in
connection with Marketshare Recovery becoming a publicly traded company and for
commissions paid to outside sales consultants; for bringing new clientele to the
company for promotion and marketing services.
Cash used in investing activities during the six months ended June 30,2004
amounted to $2,108 compared to $0 during the six months ended June 30,2003.
The company purchased computer equipment necessary for expanding our direct
marketing capabilities in order to meet customer demands.
Beginning in 2004 the Company has expanded the manner in which the Company can
accept payment from customers, previously we only accepted cash, like cash
instruments and company check however, We can now accept payment by all major
credit cards, by phone and have implemented an auto-draft system which is a
billing system which allows us to directly debit funds from customers bank
accounts. We anticipate that these additional payment options will allow us to
sell our customers additional services and up-sell and cross-promote our
different product offerings by allowing our customers the ability to extend
their payment options, establish recurring billing. Although there can be no
assurance, we feel that these additional payment options should positively
impact revenues and cash flow.
Throughout 2003 and for the six months ended June 30, 2004 the company has
made significant upgrades to its database and emailing technology. We have
greatly increased capacity and can process and execute campaigns faster and more
efficiently. In addition We now have the ability to evaluate the overall success
of our campaigns by tracking how many people viewed the campaign. We can also
generate detailed reports to show the customer how successful the campaign was,
how many ads and emails were sent and received by the intended recipients and
whether the campaign generated leads, sales or impressions. Our upgrades have
also improved our ability to sort and analyze data to generate customized
reports for our customers.
In view of our accumulated deficit and recurring losses, our auditors have added
an explanatory paragraph to their report on our financial statements stating
that there is substantial doubt about our ability to continue as a going
concern. In this regard management is adopting a plan for the development of our
video and website product lines as well as seeking additional capital through
the private sale of our debt or equity securities. There is no assurance that we
will complete any financing or that we will achieve profitable operations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We expect to fund development expenditures and incur losses until we are able to
generate sufficient income and cash flows to meet such expenditures and other
requirements. We do not currently have adequate cash reserves to continue to
cover such anticipated expenditures and cash requirements. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern.
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to income tax and marketing related agreements with our affiliates. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
ITEM 3. CONTROLS AND PROCEDURES
Marketshare Recovery, Inc is developing a business and implementing systems of
internal and disclosure controls. Within the ninety-day period preceding the
filing of this report, our management evaluated the effectiveness of the design
and operation of its disclosure controls and procedures (the "Disclosure
Controls") as of the end of the period covered by this Form 10-QSB and (ii) any
changes in internal controls over financial reporting that occurred during the
last quarter of our fiscal year. This evaluation ("Controls Evaluation") was
done under the supervision and with the participation of management, including
the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO").
[insert]
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Chief Executive Officer's Certificate pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer's Certificate pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer's Certificate pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer's Certificate pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The following reports have been filed on Form 8-K during the quarter ended
June 30, 2004.
On April 1, 2004, MarketShare filed a current report on Form 8-K to announce
that the Compay terminated an acquisition agreement with Dominix, Inc.
Attached to the 8-k filing are: the Termination Agreement between the Company
and Dominix, Inc.; the Database License Agreement between Jade Entertainment
Group, Inc. and MarketShare Recovery, Inc. (NY); the Memorandum of
Understanding between Jade Entertainment Group, Inc. and MarketShare
Recovery, Inc. (NY) relating to Suite 101, 95 Broadhollow Road, Melville, New
York; and the Press Release announcing the termination of the Agreement to
sell the Company's operating subsidiary, MarketShare Recovery, Inc. a
New York corporation.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MARKETSHARE RECOVERY, INC.
Date: August 23, 2004
---------------------------
Raymond Barton,
Chief Executive Officer
Date: August 23, 2004
---------------------------
Timothy Schmidt,
Chief Financial Officer