UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to________________
Commission file number 0-15807
MARKETSHARE RECOVERY, INC.
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(Name of small business issuer in its charter)
DELAWARE 31-1190725
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
95 Broadhollow Road Suite 101, Melville New York 11747
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(Address of principal executive offices) (Zip Code)
(631) 385-0007
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Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act: None
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Title of each class Name of each exchange on which registered
ities registered under Section 12(g)
of the Exchange Act: Common Stock Par Value $.001
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. |X| Yes | | No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year. $287,283
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold was approximately $609,418 based upon the average bid and asked price
of $0.16 as reported by the OTC Bulletin Board as of April 11, 2005.
The Company had 3,806,221 shares of common stock outstanding, as of March
24, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check one): Yes | | No |X|
PART I
Item 1. Description of Business 4
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 5
Item 6. Management's Discussion and Analysis or Plan of Operation 10
Item 7. Financial Statements 20
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 20
Item 8A Controls and Procedures 20
PART III
Item 9. Directors and Executive Officers of the Registrant 21
Item 10. Executive Compensation 22
Item 11. Security Ownership of Certain Beneficial Owners and Management 23
Item 12. Certain Relationships and Related Transactions 23
Item 13. Exhibits and Reports on Form 8-K 24
Exhibit Index 24
Item 14. Principal Accountant Fees and Services 26
Signatures 27
PART I
INTRODUCTORY COMMENT
Throughout this Annual Report on Form 10-KSB the terms "we," "us," "our,"
"MarketShare" and "our company" refer to MarketShare Recovery, Inc., a Delaware
corporation, and, unless the context indicates otherwise, includes our wholly
owned subsidiary MarketShare Recovery, Inc. a New York corporation.
FORWARD-LOOKING STATEMENTS
The discussion in this report on Form 10-KSB 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. All forward-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 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 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.
Item 1. Description of Business.
Background
The Company was incorporated on March 13, 1985, under the laws of the
State of Utah with the name Univenture Capital Corp. The Company was organized
to engage in any lawful business and had no specific business plan except the
investigation, analysis, and possible acquisition of business opportunities.
On August 29, 1986, the Company acquired all of the outstanding stock of
Health & Leisure Inc., a Delaware corporation which subsequently changed its
name to Entre Vest, Inc. ("Entre Vest"), in a transaction in which a subsidiary
of the Company merged with and into Entre Vest and the former stockholders of
Entre Vest obtained a controlling interest in the Company. The Company
subsequently changed its own name from Univenture Capital Corp. to Health &
Leisure, Inc. and changed its state of incorporation from Utah to Delaware.
Entre Vest was incorporated on June 6, 1985, under the laws of the State of
Delaware.
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.
Our subsidiary similarly named MarketShare Recovery, Inc. was incorporated
in New York in November 2000. The subsidiary, MarketShare Recovery, Inc. was a
provider of online direct marketing solutions for enterprises. The solutions
enabled corporations to create and deliver online direct marketing programs that
drive revenue, influence behavior and deepen customer relationships. Our
solutions provided customer insight and powerful program execution through a
combination of hosted applications and technology infrastructure.
We derived our revenues from the sale of solutions that enable businesses
to proactively communicate with their customers online. Primarily, these
services 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 were recognized
when persuasive evidence of an arrangement exists, the campaign has been sent,
the fee was fixed or determinable and collection of the resulting receivables
was reasonably assured. Revenue generated by our professional service
organization was typically recognized as the service was provided.
Our ability to grow and operate our existing business was constrained by
new technologies and e-mail filtering devices installed at internet service
providers and on consumers personal computers. These programs block our emails
from reaching their final destination, which in turn affected our ability to
effectively market our services. These technological obstacles have been put in
place to combat spam however their effect has been more widespread and has
adversely affected our ability to deliver our clients messages to our opt-in
database of users. As a result, we found it harder to maintain and grow our
business as we were not able to deliver as many advertisements for our clients
and in turn had having difficulty in recruiting new sales persons as well as
retaining members of our existing sales force.
As a result of the foregoing, we decided to discontinue that business and
sought out new business opportunities. On October 7, 2004, we entered into an
Asset Purchase Agreement with Palomar Enterprises, Inc. (the "Agreement").
Pursuant to the Agreement, we agreed to purchase certain assets, including
certain automotive notes and contracts, a business plan and model for an
automotive financial services company and a data base of potential customers and
$150,000 in cash from Palomar in exchange for a controlling interest in us.
On November 2, 2004, by mutual agreement, Palomar and us terminated the
Agreement.
In 2004, we entered into a database license agreement with 110 Media Group
to use and to sublicense the use of its database for a term of ten years for a
total license fee of $45,567. For financial reporting, revenue is recognized
using the straight-line method, based upon the economic useful life of three
years. At December 31, 2004, our remaining deferred revenue of $30,378 was
recognized as revenue due to the Company completing its obligations under the
agreement and we are no longer required to perform any further services nor
incur any costs related to this agreement.
As a result of the foregoing, there will be no change of control of the
Company as reported in the Company's Form 8-K filed with the SEC on October 13,
2004. On January 13, 2005 we entered into a letter of intent, which was amended
on March 11, 2005 for a possible acquisition of a private development stage
company engaged in the development of biometrics-based products for the home
security and electronics market, including biometrically enabled residential
door locks, central station alarm keypads, thermostats and garage/gate openers.
The transaction requires that the new subsidiary would provide funds to pay all
of our outstanding debt and escrow funds to cover contingent or undisclosed
liabilities and those that have not been settled prior to closing. The general
structure of the transaction would involve the merger of the development stage
company into a subsidiary we would form and the consideration for the merger
consisting of solely of shares of our common stock, which after giving effect to
the issuance, cancellation of a substantial amount of shares held by principal
shareholders and escrow of remaining shares for the same purposes as the cash
escrow, would constitute 90% of our shares then outstanding. The letter of
intent has binding confidentiality provisions and the consummation of any
transaction is conditioned upon, among other things, the receipt of audited
financial statements of the development stage company, the consent of the
majority of the holders of the development stage company's common stock, the
absence of material claims for appraisal on the part of the development stage
companies holders, due diligence and the execution of a definitive merger
agreement. We plan to enter into a definitive merger agreement before the end of
April, 2005 and the letter of intent provides that such an agreement cannot be
signed until audited financial statements of the development stage company have
been provided to us. Both the merger agreement and financial statements will be
filed by us as part of a Form 8-K, when and if a merger agreement is signed.
Business Objectives
In the event the above transaction is not completed, the Company will seek
one or more potential businesses that Management believes warrant the Company's
involvement. As a result of its limited resources, the number of potential
businesses available will be extremely limited. The Company will not restrict
its search to any particular industry. Nevertheless, Management does not intend
to become involved with a company that is an investment company under the
Investment Company Act of 1940; with a company that is a broker or dealer of
investment securities or commodities; or with any company in which the officers,
directors or shareholders of the target company are officers or directors of the
Company. These business objectives are extremely general and are not intended to
be restrictive upon the discretion of Management. Except for the general
limitations contained above, management has not developed and does not intend to
develop specific criteria to be followed in the search for and selection of a
business acquisition. Shareholders will therefore have extremely limited
information as to Management's specific intentions and investors will be unable
to determine even the industries which management might consider.
The target company may be (i) in its preliminary or developmental stage,
(ii) a financially troubled business or (iii) a going concern. It is impossible
to determine the capital requirements of the target business or whether such
business may require additional capital. Some target companies may seek to
establish a public trading market for their securities.
The analysis of potential business endeavors will be undertaken by or
under the supervision of Management. Management will rely on its own business
judgment in evaluating businesses that the Company may acquire or participate.
See Item 9 - Directors, Executive Officers, Promoters and Control Persons.
Locating and investigating specific business proposals may take an extended
period of time. If a business is located, the negotiation, drafting, and
execution of relevant agreements, disclosure documents and other instruments
will require substantial time, effort, and expense. The time periods of these
subsequent steps cannot be determined. If a specific business endeavor cannot be
located the costs incurred in the investigation are not likely to be recovered.
The failure to consummate an attempted transaction would likely result in the
loss of the costs incurred.
Shareholders of the Company are relying totally upon the business judgment
of Management. Shareholders will not likely be consulted or provided any
disclosure documentation in connection with any acquisition engaged in by the
Company, unless required by state corporate law or the Federal securities laws.
Although Management does not anticipate a sale of their Company shares in
connection with an acquisition, in the event Management does enter into an
agreement to do so, the remaining shareholders of the Company may not be
afforded an equal opportunity to do so. As Management intends to offer a
controlling interest in the Company, it is probable that a change of control
will occur as a result of an acquisition engaged in by the Company. To the best
knowledge of the Company, there are no lock-up agreements or understandings
between the Company and its shareholders or among the shareholders that has the
effect of restricting the transferability of any shareholders stock holdings.
There are no arrangements, agreements, or understandings between non-management
shareholders and management under which non-management shareholders may directly
or indirectly participate in or influence the management of the Company's
affairs, and there are no agreements concerning the election of members of the
Board of Directors.
It is not presently anticipated that the Company will acquire or merge
with a business or company in which the Company's promoters, management or their
affiliates or associates directly or indirectly have an ownership interest,
however there is no agreement, policy, or understanding to prevent such a
transaction. In the event of such a non-arm's length transaction, Management
would seek an independent appraisal of the transaction. Notwithstanding the
foregoing, there is the potential that a conflict of interest will arise between
the Company and its management in which case Management's fiduciary duties may
be compromised. Any remedy available under state corporate law would, in such an
event, most likely be prohibitively expensive and time consuming.
A number of states have enacted statutes, rules and regulations limiting
the sale of securities of blank check companies in their respective
jurisdictions. Some states prohibit the initial offer and sale as well as any
subsequent resale of securities of shell companies to residents of their states.
In such an event, the shareholders of the Company, as well as the shareholders
of any target company, may be limited in their ability to resell shares of the
Company. To the best knowledge of the Company, the following states may have
such limitations (this list is not exhaustive and a significant number of other
states may also have such limitations): Connecticut, Georgia, Oregon,
Washington, and Florida.
Competition
Inherent difficulties exist for any new company seeking to enter an
established field. The Company will remain an insignificant participant among
the firms that engage in mergers with and acquisitions of privately financed
entities.
There are many established venture capital and financial concerns which
have significantly greater financial and personnel resources, technical
expertise and experience than the Company. The Company is also subject to
competition from numerous other recently formed public and private entities with
business objectives similar to those of the Company.
Regulation
The Investment Company Act of 1940 (Investment Act) defines an investment
company as an issuer that is or holds itself out as being engaged primarily in
the business of investing, reinvesting or trading of securities. The Company
does not intend to engage primarily in the activities of purchasing, trading or
selling securities and intends to conduct its activities so as to avoid being
classified as an investment company under the Investment Act. The Company could
be expected to incur significant registration and compliance costs if required
under the Investment Act, and the regulations promulgated thereunder. Section
3(a) of the Investment Act provides exclusions from its application for
companies that are not primarily engaged in the business of investing,
reinvesting or trading in investment securities. Management intends to implement
its business plan in a manner that will result in the availability of this
exception from the definition of investment company. Accordingly, Management
will continue to review the Company's activities from time to time with a view
toward reducing the likelihood that the Company could be classified as an
investment company.
The Company's plan of business may involve changes in its capital
structure, management, control, and business, especially if it consummates its
plan to acquire or merge with another entity. Each of these areas is regulated
by the Investment Act, which regulations have the purported purpose of
protecting purchasers of investment company securities. Since the Company will
not register as an investment company, its shareholders will not be afforded
these purported protections.
Even if the Company restricts its activities as described above, it is
possible that it may be classified as an inadvertent investment company. This
would be most likely to occur if significant delays are experienced in locating
a business opportunity.
The Company intends to vigorously resist classification as an investment
company and to take advantage of any exemptions or exceptions from application
of the Investment Act, including an exception that allows an entity a one-time
option during any three (3) year period to claim an exemption as a transient
investment company. The necessity of asserting any such contention, or making
any other claim of exemption, could be time consuming, costly or even
prohibitive, given the Company's limited resources.
The Company intends to structure a merger or acquisition in such a manner
as to minimize Federal and state tax consequences to the Company and its
shareholders, and to any target company and its shareholders. Under Section 368
of the Internal Revenue Code of 1986, as amended (the Code), a statutory merger
or consolidation is an exempt transaction and may be tax free to the companies
and their shareholders if effected in accordance with state law. A tax free
reorganization may require the Company to issue a substantial portion of its
securities in exchange for the securities or assets of a target firm.
Consequently, a tax free reorganization may result in substantial dilution of
the ownership interests of the present shareholders of the Company. Even if a
merger or consolidation is undertaken in accordance with the Code, there is no
assurance that tax regulations will not change and result in the Company or its
shareholders incurring a significant tax liability.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. The Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on Nasdaq and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000, if such issuer has been in continuous operation for less
than three years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
Employees
The Company presently has no employees other than its Chief Executive
Officer, Raymond Barton, and its Chief Financial Officer, Mr. Timothy Schmidt.
Messrs. Barton and Schmidt are employed in other businesses, and therefore
allocate a minimal amount of time to the affairs of the Company.
ITEM 2. DESCRIPTION OF PROPERTY
The Company neither owns nor leases real property.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to a written consent of a majority of the Company's shareholders,
the Company approved an amendment to its Certificate of Incorporation which (a)
reverse split the outstanding shares of the Company's common stock
one-for-twelve; and (b) increased the number of shares of common stock the
Company is authorized to issue to 50,000,000.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Our common stock has been quoted on the OTCBB under the symbol MKSH since
December 20, 2004. Prior to that, the Company traded under the symbol MSRY and
prior to that the Company's common stock traded under the symbol HLLS. The
following table sets forth, for the periods indicated, the high and low sales
prices per share of common stock as reported on the OTCBB. These quotations
reflect interdealer prices, without retail markup, markdown or commission and
may not necessarily represent actual transactions:
2004
High Low
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COMMON STOCK
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First quarter $ 0.25 $ 0.10
Second quarter $ 0.20 $ 0.03
Third quarter $ 0.05 $ 0.03
Fourth quarter $ 0.15 $ 0.01
2003
High Low
---- ---
COMMON STOCK
------------
First quarter $ 0.10 $ 0.10
Second quarter $ 3.70 $ 0.00
Third quarter $ 3.25 $ 0.25
Fourth quarter $ 1.55 $ 0.10
All prices for fiscal 2004 and 2003 are split-adjusted to reflect a
reverse 1:12 stock split which occurred on December 20, 2004.
On April 11, 2005, the last sale price of our common stock reported by the
OTCBB was $ 0.16 per share.
As of March 24, 2005, the approximate number of common stockholders of
record was approximately 550.
The Company has never declared or paid any cash dividends on its capital
stock and currently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future.
Unregistered Sales of Equity Securities
During February 2004, the Company issued 23,970 shares of its common stock
to each of the two officers of the Company and 3,000 shares of its common stock
to a consultant. In April 2004 the Company issued 42 shares of its common stock
to a former shareholder.
All of the above stock transactions were restated giving effect to a 1 for
12 reverse stock split which occurred on December 20, 2004.
Item 6. Management's Discussion and Analysis or Plan of Operation.
FORWARD-LOOKING STATEMENTS; MARKET DATA
The discussion in this report on Form 10-KSB 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. All forward-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 Annual 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 annual report. This discussion should not be construed to imply that the
results discussed in this annual report will necessarily continue into the
future or that any conclusion reached in this annual 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. was a provider of online direct
marketing solutions for enterprises. The solutions enabled corporations to
create and deliver online direct marketing programs that drive revenue,
influence behavior and deepen customer relationships. Our solutions provided
customer insight and powerful program execution through a combination of hosted
applications and technology infrastructure.
We had derived 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
were recognized when persuasive evidence of an arrangement exists, the campaign
has been sent, the fee was fixed or determinable and collection of the resulting
receivables is reasonably assured. Revenue generated by our professional service
organization was typically recognized as the service is provided.
Our ability to grow and operate our existing business was constrained by
new technologies and e-mail filtering devices installed at internet service
providers and on consumers personal computers. These programs block our emails
from reaching their final destination, which in turn affected our ability to
effectively market our services. These technological obstacles have been put in
place to combat spam however their effect has been more widespread and has
adversely affected our ability to deliver our clients messages to our opt-in
database of users. As a result, we found it harder to maintain and grow our
business as we were not able to deliver as many advertisements for our clients
and in turn had having difficulty in recruiting new sales persons as well as
retaining members of our existing sales force.
In 2004, we entered into a database license agreement with 110 Media Group
to use and to sublicense the use of our database for a term of ten years for a
total license fee of $45,567. For financial reporting, revenue is recognized
using the straight-line method, based upon the economic useful life of three
years. At December 31, 2004, our remaining deferred revenue of $30,378 was
recognized as revenue due to the Company completing its obligations under the
agreement and we are no longer required to perform any further services nor
incur any costs related to this agreement.
As a result of the foregoing, we decided to discontinue that business and
sought out new business opportunities. On October 7, 2004, the Company entered
into an Asset Purchase Agreement with Palomar Enterprises, Inc. (the
"Agreement"). Pursuant to the Agreement, the Company agreed to purchase certain
assets, including certain automotive notes and contracts, a business plan and
model for an automotive financial services company and a data base of potential
customers and $150,000 in cash from Palomar in exchange for 85%, a controlling
interest.
On November 2, 2004, by mutual agreement, the Company and Palomar
terminated the Agreement.
On January 13, 2005 we entered into a letter of intent, which was amended
on March 11, 2005 for a possible acquisition of a private development stage
company engaged in the development of biometrics-based products for the home
security and electronics market, including biometrically enabled residential
door locks, central station alarm keypads, thermostats and garage/gate openers.
The transaction requires that the new subsidiary would provide funds to pay all
of our outstanding debt and escrow funds to cover contingent or undisclosed
liabilities and those that have not been settled prior to closing. The general
structure of the transaction would involve the merger of the development stage
company into a subsidiary we would form and the consideration for the merger
consisting of solely of shares of our common stock, which after giving effect to
the issuance, cancellation of a substantial amount of shares held by principal
shareholders and escrow of remaining shares for the same purposes as the cash
escrow, would constitute 90% of our shares then outstanding. The letter of
intent has binding confidentiality provisions and the consummation of any
transaction is conditioned upon, among other things, the receipt of audited
financial statements of the development stage company, the consent of the
majority of the holders of the development stage company's common stock, the
absence of material claims for appraisal on the part of the development stage
companies holders, due diligence and the execution of a definitive merger
agreement. We plan to enter into a definitive merger agreement before the end of
April, 2005 and the letter of intent provides that such an agreement cannot be
signed until audited financial statements of the development stage company have
been provided to us. Both the merger agreement and financial statements will be
filed by us as part of a Form 8-K, when and if a merger agreement is signed.
As a result of the foregoing, there will be no change of control of the
Company as reported in the Company's Form 8-K filed with the SEC on October 13,
2004.
Business Objectives
In the event the above transaction is not completed, the Company will seek
one or more potential businesses that Management believes warrant the Company's
involvement. As a result of its limited resources, the number of potential
businesses available will be extremely limited. The Company will not restrict
its search to any particular industry. Nevertheless, Management does not intend
to become involved with a company that is an investment company under the
Investment Company Act of 1940; with a
company that is a broker or dealer of investment securities or commodities; or
with any company in which the officers, directors or shareholders of the target
company are officers or directors of the Company. These business objectives are
extremely general and are not intended to be restrictive upon the discretion of
Management. Except for the general limitations contained above, management has
not developed and does not intend to develop specific criteria to be followed in
the search for and selection of a business acquisition. Shareholders will
therefore have extremely limited information as to Management's specific
intentions and investors will be unable to determine even the industries which
management might consider.
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 had generated 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
---------------------
Comparison of Years Ended December 31, 2004 and 2003
----------------------------------------------------
Our net revenues decreased by 57% from $674,146 for the twelve months
ended December 31, 2003 to $287,283 for the twelve months ended December 31,
2004. The decrease in revenues was a result of our decision to discontinue
operations Cost of revenues as a percent of net revenues improved from 70% of
net revenues for the twelve months ended December 31, 2003 to 54% of net
revenues for the twelve months ended December 31, 2004. The improvement was due
to higher margins.
Selling, general and administrative expenses decreased by $2,000,629 for
the twelve months ended December 31, 2004. This decrease is due in large part to
the discontinuance of compensatory stock issuances.
Our Loss before provision for income taxes decreased from $2,024,629 for
the twelve months ended December 31, 2003 to $144,409 for the twelve months
ended December 31, 2004. The decrease was a result of discontinued operations.
Liquidity and Capital Resources
-------------------------------
Cash provided by operating activities during the twelve months ended
December 31, 2004 amounted to $48,506. The Company had cash and marketable
securities of $0 and $21,392 respectively, at December 31, 2004, as compared to
$9,877 and $37,925 respectively, at December 31, 2003.
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. The Company discontinued its operations on November 7, 2004 and is
seeking a privately held business to complete a merger transaction with. There's
no assurance that the Company will be successful in locating a candidate and
completing a business combination. On January 13, 2005 the Company entered into
a letter of intent with a privately-held development-stage company which is
developing biometric based products for the home security and electronics
market. There is no assurance that we will complete any financing or that we
will complete a reverse merger transaction. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
We expect to incur operating expenditures and incur losses until we are
able to merge with another entity. 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 7. Financial Statements.
Reports are contained starting Page F-1
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Effective August 11, 2003, the Board of Directors of MarketShare Recovery,
Inc. formerly Health & Leisure, Inc. (the "Company") voted to dismiss HJ &
Associates, LLC ("HJ") as the Company's independent accountants for the year
ending December 31, 2003.
Our records indicate that on August 12, 2003, Health and Leisure, Inc.
sent a letter dismissing HJ & Associates, LLC of their accounting services. The
Company records reflect that this letter was mailed by the Company.
HJ & Associates, LLC advised us that they were not aware of their
dismissal as independent auditors until September 22, 2003. We understand that
upon learning of their dismissal, HJ & Associates responded to the Form 8-k,
filed by Health & Leisure Inc. in a timely manner. See Exhibit 16.1 as attached
to the amended form 8-k filed March 5, 2004.
Except as described in the following sentence, the reports of HJ &
Associates, LLC on the financial statements of the company for either of the
past two fiscal years did not contain any adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. The report of HJ & Associates, LLC on the financial
statements of the company for the fiscal year ended December 31, 2002 was
modified to express substantial doubt regarding the company's ability to
continue as a going concern.
In addition, during the Company's two most recent fiscal years and through
September 22, 2003 there was no disagreement with HJ & Associates, LLC on any
matter of accounting principals or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of HJ & Associates, LLC would have caused HJ & Associates, LLC to
make reference to the subject of that disagreement in its reports on the
Company's financial statements for those fiscal periods.
On August 12, 2003, Marcum & Kliegman LLP ("MKLLP") was engaged as the
Company's new independent accountants. During the two most recent fiscal years
and the interim period preceding the engagement of MKLLP, the Company has not
consulted with MKLLP regarding either: (1) the application of accounting
principles to a specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on the Company's financial statements,
and either a written report or oral advice was provided to the Company by MKLLP
that MKLLP concluded was an important factor considered by the Company in
reaching a decision as to the accounting, auditing, or financial reporting
issue; or (ii) any matter that was either the subject of a "disagreement" or a
reportable event, as those terms are used in Item 304(a)(1)(iv) of Regulation
S-B and the related instructions to Item 304 of Regulation S-B.
Item 8A. Controls and Procedures.
Pursuant to provisions of the Securities Exchange Act of 1934, the
Company's Chief Executive Officer and Chief Financial Officer are responsible
for establishing and maintaining disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under their supervision,
for the Company. They have designed such disclosure controls and procedures to
ensure that material information relating to the Company, is made known to them
by others within the Company, particularly during the periods when the Company's
quarterly and annual reports are being prepared.
Changes in Internal Controls. During the fourth quarter of fiscal year
2004, there were no changes in our internal control over financial reporting
that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. However, we intend to continue to
refine our internal controls on an ongoing basis. Our management and our
independent auditors have reported to our board of directors certain matters
involving internal controls that our independent auditors considered to be
material weaknesses, under standards established by the American Institute of
Certified Public Accountants. The material weakness relates to the December 31,
2004 financial closing process. Certain adjustments were identified in the
annual audit process, related to the accounting for stocks received by
customers, payment of commissions with marketable securities, as well as the
lack of segregation of duties in the process of cash receipts and disbursements.
In addition, there were instances where accounting analyses did not include
evidence of a timely review. The adjustments related to these matters were made
by the Company in connection with the preparation of the audited financial
statements for the year ended December 31, 2004.
Given these material weaknesses, management devoted additional resources
to resolving questions that arose during our year-end audit. As a result, we are
confident that our consolidated financial statements for the year ended December
31, 2004 fairly present, in all material respects, our financial condition and
results of operations.
The material weaknesses have been discussed in detail among management,
our board of directors and our independent auditors, and we are committed to
addressing and resolving these matters fully and promptly, by putting in place
the personnel, processes, technology and other resources appropriate to support
our revenue recognition and financial close processes. In that
regard we will contract a full time CPA who will serve as our CFO and will
assist in the preparation of our financial statements, 10-QSB's and 10-KSB's. We
have completed a full review of our revenue recognition policy and practices and
have implemented a number of process improvements. We intend to complete a
review of our financial disclosure process and define and implement needed
improvements in the quarter ending March 31, 2005.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
Directors and Executive Officers
The members of the Board of Directors serve until the next annual meeting
of shareholders, or until their successors have been elected. The officers serve
at the pleasure of the Board of Directors. The following are the directors and
executive officers of the Company:
Name Age Position Held Position Since
---- --- -------- -------------------
Ray Barton 35 President,
Chairman and CEO 2003
Tim Schmidt 36 Vice president,
CFO and Director 2003
Ray Barton
Ray Barton, President, Chairman and Chief Executive Officer, has been the
president, director and Chief Executive Officer since August 28, 2003.
Mr. Barton has served as president and a director for MarketShare
Recovery, Inc. an Internet Direct Marketing firm, which specializes in
acquisition and resale of user demographic data and targeted e-mail marketing
where, Mr. Barton's duties included managing the day to day operations of the
business, marketing and managing the Company's growth. Upon the registrant's
acquisition of MarketShare Recovery, Mr. Barton assumed the role of president,
CEO and chairman of the registrant. Mr. Barton also serves as Chairman of the
Board of Directors and Chief Executive Officer of 110 Media Group, Inc., a
specialty website directory and distributor of adult oriented content. 110 Media
is a public company. Prior thereto Mr. Barton was a stock broker at Meyers
Pollock Robbins, and at Continental Broker Dealers where he served as a retail
broker. Mr. Barton also served as Business Development Manager with PcQuote,
Inc. and was in charge of developing business contacts and negotiating joint
ventures. Prior to that Mr. Barton served as Executive Vice President of
Financialweb.com, where his responsibilities included managing the production of
online content. Mr. Barton served as the CEO and President of Thinkersgroup,
Inc. a mobile wireless software developer, where he developed the Company's
business plan, assembled a management team and oversaw day to day operations.
Mr. Barton attended the State University of New York at Farmingdale, and
received a Bachelor of Arts Degree in criminal justice from New York City Police
Academy in 1991.
Timothy Schmidt
Tim Schmidt, CFO, has been a director since August 28, 2003.
During the last five years; Mr. Schmidt has been a principal at
MarketShare Recovery, Inc., the wholly owned subsidiary of the registrant, an
Internet Direct Marketing firm, which specializes in acquisition and resale of
user demographic data, and targeted e-mail marketing where Mr. Schmidt's duties
include overseeing operations, accounting, human resources, and administration.
Upon the registrant's acquisition of MarketShare Recovery, Mr. Schmidt assumed
the role of vice president and CFO of the registrant. As vice president of the
parent company and subsidiary Mr. Schmidt is responsible for the Company's
accounting, human resources, and administrative needs. Mr. Schmidt also serves
as President of 110 Media Group, Inc., a specialty website directory and
distributor of adult oriented content. 110 Media is a public company. Prior to
that Mr. Schmidt served as Chief Operating Officer for thinkersgroup.com, a
developer of wireless software applications where he managed company operations,
administration and human resources. Mr. Schmidt attended the State University of
New York at Farmingdale where he studied Business Administration from 1989
through 1991.
The Company has not established an Audit Committee of the Board of
Directors, or any other committee of the Board.
The Company has adopted a code of ethics that applies to its principal
executive and financial officers.
Item 10. Executive Compensation.
The following table sets forth certain summary information concerning the
compensation paid or accrued for each of the last three fiscal years to the
Company's Chief Executive Officer and each of its other executive officers that
received compensation in excess of $100,000 during such period:
Annual Compensation Long Term Compensation
-------------------------- ----------------------------------------------
Awards Payouts
------ -------
Other Securities All
Annual Underlying Other
Name and Compen Restricted Options/ LTIP Compen
Principal Position Year Salary Bonus -sation Stock Awards SARs Payouts -sation
------------------ ---- ------ ----- ------- ------------ ---- ------- -------
Raymond Barton 2004 $ -0- $ -0- -0- -0- -0- -0-
Chief Executive Officer and 2003 $ -0- $ -0- 65,900 -0- -0- -0- -0-
Timothy Schmidt
Chief Financial Officer 2004 $ -0- $ -0- -0- -0- -0- -0-
2003 $ -0- $ -0- 39,600 -0- -0- -0- -0-
There have been no stock option grants to, or option exercises by, executive
officers.
Directors are not paid compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following table sets forth information relating to the beneficial
ownership of the Company's Common Stock as of March 24, 2005 by each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of common stock and each of the Company's directors and
executive officers. The percent ownership included in the following is based on
3,808,863 shares of Common Stock outstanding as of March 24, 2005.
Security Ownership of Certain Beneficial Owners
Amount and Nature of Percent of
Title of Class Name and Address of Beneficial Owner Beneficial Ownership Class
-------------- ------------------------------------ -------------------- -----
Common Stock Raymond Barton 1,010,417 26.6%
Common Stock Tim Schmidt 1,428,435 37.5%
Security Ownership of Management
Amount and Nature of Percent of
Title of Class Name and Address of Beneficial Owner Beneficial Ownership Class
-------------- ------------------------------------ -------------------- -----
Common Stock Raymond Barton (1) 1,010,417 (2) 26.6%
Common Stock Tim Schmidt (1) 1,428,435 (2) 37.5%
All directors and executive officers
as a group (2 persons) 2,435,852 64.1%
(1) The address of each of the executive officers and directors is c/o
MarketShare Recovery, Inc., 95 Broadhollow Road Suite 101, Melville New
York 11747.
(2) Shares of common stock are owned directly by Messrs. Barton and Schmidt.
Item 12. Certain Relationships and Related Transactions.
On June 13, 2003 the Company, formerly known as Health & Leisure entered
into an Acquisition Agreement and Plan of Merger (the "Merger Agreement"), with
MarketShare Recovery, Inc., a New York corporation. In connection with said
merger, a Promissory Note was delivered to H & L Concepts, Inc. ("H & L") by
MarketShare Recovery, the New York corporation. H & L was previously a
subsidiary of the registrant but at the time of the making
of the Note, to the best of our knowledge, was soley owned by Mr. Robert
Feldman, the Company's former president, CEO, chairman. The Promissory Note
constituted partial payment for a controlling interest in the Company,
previously owned by Mr. Feldman, Mr. Ray Barton and Mr. Tim Schmidt, the
Company's current executive officers and directors have since purchased the
Promissory Note from H & L for the full value of the Note, in accordance with
the terms of the Note. The Company and Messrs. Barton and Schmidt have since
ratified the non material parts of the Note to reflect their ownership and
address'. A release agreement was signed between the Company and the holders in
March 2005, which was retroactively effective to December 31, 2004. According to
the agreement, the holders released the Company from further obligation under
this loan, including principle balance of $5,985, accrued interest of $17,439,
and legal fees of $12,300. As a result, at December 31, 2004, the amount due to
holders was $0.
On November 25, 2003 Dominix, Inc. a Delaware corporation traded on NASDAQ
electronic bulletin board (DMNX), Jade Entertainment Group, a company controlled
by Messrs. Barton and Schmidt the executive officers, directors and controlling
shareholders of our Company and our Company entered into a series of agreements.
Upon execution of the agreements Jade and DMNX are to merge and Our Company was
to enter 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 our wholly owned New York subsidiary also named
MarketShare Recovery, Inc. (MarketShare Sub). The parties have determined that
it is in their mutual best interest to terminate the Stock Purchase Agreement
and the MarketShare Sub is not to be sold. In consideration of the dissolution
and release of any claims against the Company We have entered into an agreement
with DMNX to license certain portions of our opt-in database for a fixed term.
Sub-lease Agreement. Beginning January 1, 2004, the Company entered into a
sub lease agreement with 110 Media Group, Inc and Subsidiaries (formerly known
as Dominix) ("110 Media Group") to share the expense of office facilities
occupied by them jointly under a lease held by the Company. In August 2004, 110
Media Group assumed the lease for corporate headquarters.
On July 15, 2003 we acquired MarketShare Recovery in a merger in
accordance with the acquisition agreement and plan of merger dated June 13,
2003. In connection with this transaction, we issued an aggregate of 237,847
shares of our common stock to Raymond Barton, our Chief Executive Officer
118,924, and Timothy Schmidt, our Chief Financial Officer 118,923. The issuance
of these shares is claimed to be exempt from registration under Section 4(2) of
the Securities Act of 1933, as amended (the "Act") for transactions not
involving a public offering.
In 2004, we entered into a database license agreement with 110 Media Group
to use and to sublicense the use of its database for a term of ten years for a
total license fee of $45,567. For financial reporting, revenue is recognized
using the straight-line method, based upon the economic useful life of three
years. At December 31, 2004, our remaining deferred revenue of $30,378 was
recognized as revenue due to the Company completing its obligations under the
agreement and we are no longer required to perform any further services nor
incur any costs related to this agreement.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) LISTING OF FINANCIAL STATEMENTS
The following financial statements of the Company are incorporated
by reference in Item 7:
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheet at December 31, 2004.
Consolidated Statements of Operations for the Years Ended
December 31, 2004 and 2003.
Consolidated Statements of Stockholders' Deficiency for the
Years Ended December 31, 2004 and 2003.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2004 and 2003.
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2004 and 2003.
(a)(2) LISTING OF FINANCIAL STATEMENT SCHEDULES
None.
(a)(3) The following exhibits are included as part of this report:
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
--- ---------------------- -------------------------
3.1 Certificate of Incorporation Annual Report on Form 10-K for the year
ended December 31, 1987, filed March, 1988
(see Exhibit 1(A) therein).
3.1 Certificate of Amendment to Certificate Annual Report on Form 10-K for the year
of Incorporation filed May 2, 1988 ended December 31, 1988 filed December
28, 1989 (see Exhibit 1(B) therein).
3.1 Certificate of Amendment to Certificate Annual Report on Form 10-K for the year
of Incorporation filed September 12, 1990 ended December 31, 1990 filed April 15,
1991 (see Exhibit 1(C) therein).
3.1.1 Certificate of Amendment to Certificate Annual Report on Form 10-K for the year
of Incorporation filed August 26, 2003 ended December 31, 2003 (see Exhibit 3.1.1).
3.1.2 Certificate of Amendment to Certificate Annual Report on Form 10-K for the year ended
of Incorporation filed August 28, 2003 December 2003 (see Exhibit 3.2.2).
3.2 Bylaws Annual Report on Form 10-K for the year ended
December 2003 (see Exhibit 3.2)
4 Designation of Preference with respect Annual Report on Form 10-KSB for the
to Series A Preferred Stock, filed year ended December 31, 2000, filed
August 23, 2000 April 2, 2001 (see Exhibit 1(D) therein).
4.1 Amended Designation of Preference with Current Report on Form 8K, filed July 18, 2003
respect to Series A Preferred Stock, (See Exhibit 4 therein).
filed August 23, 2000
16 Letter on Change In Certifying Accountants Current Report on Form 8K, filed
August 20, 2003 and an amendment
thereto on Form 8K/a filed March 5, 2004.
31.1 Certification of Chief Executive Officer Contained herein.
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
31.2 Certification of Chief Financial Officer Contained herein.
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
32.1 Certifications of Chief Executive Officer Contained herein.
and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002
32.2 Certifications of Chief Executive Officer Contained herein.
and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002
99.1 Form of Promissory Note dated June 13, 2003 Current Report on Form 8K, filed
Maker, MarketShare Recovery to holder July 18,2003 (See Exhibit 2 therein).
H & L Concepts,Inc.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 2004.
(c) EXHIBITS
The exhibits in response to this portion of Item 13 are
submitted as a separate section of this report following the signatures.
Item 14. Principal Accountant Fees and Services.
Audit Fee
The aggregate fees billed for the most recent fiscal year for professional
services rendered by the principal accountant for the audit of Marketshare
Recovery, Inc. and Subsidiary's annual financial statement and review of
financial statements included in MarketShare Recovery, Inc. and Subsidiary's
10-QSB reports and services normally provided by the accountant in connection
with statutory and regulatory filings or engagements were $27,000 and $40,000
for years ended 2004 and 2003, respectively.
Audit-Related Fees
------------------
Audit related fees for the fiscal year ended 2003 were $8,000, This fee
was in connection with the Registration Statement filed on form S-8.
Tax Fees
--------
Fees for tax compliance, tax advice and tax planning for the years 2004
and 2003 was $5,000 and $-0-, respectively.
All Other Fees
--------------
There were no other aggregate fees billed in either of the last two fiscal
years for products and services provided by the principal accountant, other than
the services reported above.
We do not have an audit committee currently serving and as a result our
board of directors performs the duties of an audit committee. Our board of
directors will evaluate and approve in advance, the scope and cost of the
engagement of an auditor before the auditor renders audit and non-audit
services. We do not rely on pre-approval policies and procedures.
SIGNATURES
In accordance with Section 13 or 15(d) 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: April 15, 2005 By:/s/ Ray Barton
-------------------------------------------
Ray Barton, Chief Executive Officer
and Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: April 15, 2005 By:/s/ Ray Barton
-------------------------------------------
Ray Barton, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: April 15, 2005 By:/s/ Tim Schmidt
-------------------------------------------
Tim Schmidt, Chief Financial Officer
and Director
(Principal Accounting Officer)
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
INDEX TO FORM 10-KSB
================================================================================
Page
----
PART I - FINANCIAL INFORMATION:
Item 1 - FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm 1
Consolidated Balance Sheet 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Deficiency 4
Consolidated Statements of Cash Flows 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-11
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
MarketShare Recovery, Inc.
We have audited the accompanying consolidated balance sheet of MarketShare
Recovery, Inc. and Subsidiary (formerly Health & Leisure, Inc. and Subsidiary)
(the "Company") as of December 31, 2004 and the related consolidated statements
of operations, stockholders' deficiency, and cash flows for the years ended
December 31, 2004 and 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. Also, an audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MarketShare
Recovery, Inc. and Subsidiary (formerly Health & Leisure, Inc. and Subsidiary)
as of December 31, 2004 and the results of their operations and their cash flows
for the years ended December 31, 2004 and 2003, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. For the year ended December
31, 2004, the Company has incurred a net loss of approximately $144,000 and, as
of December 31, 2004, has a working capital and stockholders' deficiency of
approximately $250,000 and $250,000, respectively. As discussed in Note 2 to the
consolidated financial statements, these factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Marcum & Kliegman LLP
New York, New York
April 6, 2005
MARKETSHARE RECOVERY, INC AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEET
December 31, 2004
--------------------------------------------------------------------------------
ASSETS
------
CURRENT ASSETS
--------------
Marketable securities $ 21,392
-----------
TOTAL CURRENT ASSETS 21,392
TOTAL ASSETS $ 21,392
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
-------------------
Loan Payable - Stockholder $ 109,736
Accrued expenses, accounts payable and other current liabilites 162,139
-----------
TOTAL CURRENT LIABILITIES 271,875
-----------
COMMITMENTS AND CONTINGENCIES
-----------------------------
STOCKHOLDERS' DEFICIENCY
------------------------
Preferred stock - $0.10 par value; 10,000,000 shares
authorized; no shares issues or outstanding --
Common stock - $0.001 par value; 50,000,000 shares
authorized; 3,808,863 shares issued and outstanding 3,809
Additional paid-in capital 1,902,954
Accumulated deficit (2,157,246)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (250,483)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 21,392
===========
The accompanying notes are an integral part of these consolidated financial
statements.
MARKETSHARE RECOVERY, INC AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
For the Years Ended
December 31,
2004 2003
---- ----
REVENUES
--------
Net revenues - sale of distribution lists $ 240,716 $ 674,146
License fee revenue - related party 46,567 --
----------- -----------
TOTAL NET REVENUES 287,283 674,146
COST OF REVENUES
----------------
(including compensatory element
of stock issuances of $40,331 and $0 respectively) 154,175 469,658
----------- -----------
GROSS PROFIT 133,108 204,488
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
(including compensatory element
of stock issuances of $0 and $1,964,739, respectively) 215,783 2,215,248
----------- -----------
OPERATING LOSS (82,675) (2,010,760)
----------- -----------
OTHER INCOME (EXPENSES)
-----------------------
Interest expense - stockholders (12,590) (10,000)
Interest expense (1,854) --
Gain(Loss) on sale of marketable securities (45,439) 8,592
Unrealized loss on marketable securities (1,851) (12,461)
----------- -----------
TOTAL OTHER EXPENSES (61,734) (13,869)
----------- -----------
NET LOSS $ (144,409) $(2,024,629)
=========== ===========
Basic and Diluted Net Loss Per Common Share $ (0.04) $ (1.61)
=========== ===========
Weighted Average Number of Common Shares
Outstanding - Basic and Diluted (1) 3,805,526 1,258,338
=========== ===========
(1) Restated to reflect 1-for-12 reverse stock-split completed in
December 2004.
The accompanying notes are an integral part of these consolidated financials
statements.
MARKETSHARE RECOVERY, INC AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
For the Year Ended December 31, 2004 AND 2003
--------------------------------------------------------------------------------
Preferred Stock Common stock Additional Total
------------------- ------------------ Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficiency
------ ------ ------ ------ ------- ------- ----------
BALANCE - January 1, 2003 3,425,000 $ 34,250 84,981 $ 85 $ (34,235) $ 11,792 $ 11,892
Shares issued to Health
& Leisure, Inc. stockholders 144,379 144 (137,844) -- (137,700)
Shares returned to
the Company (62,731) (63) 63 -- 0
Shares issued to settle
notes payable 105,833 106 12,594 -- 12,700
Shares issued for the
conversion of preferred stock (3,425,000) (34,250) 2,854,167 2,854 31,396 -- --
Shares issued for services 654,922 655 1,964,084 1,964,739
Net loss (2,024,629) (2,024,629)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - December 31, 2003 -- -- 3,781,851 3,782 1,836,057 (2,012,837) (172,998)
------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Shares issued for services -- -- 23,970 24 40,247 -- 40,271
Shares issued to Health
& Leisure, Inc. stockholder -- -- 3,000 3 (3) -- --
Shares issued to Health
& Leisure, Inc. stockholder 42 -- 60 -- 60
Forgiveness of debt -
principal 5,985 5,985
Forgiveness of debt -
accrued interest 17,439 17,439
Forgiveness of debt -
due to affiliates 3,169 3,169
Net loss -- -- -- -- -- (144,409) (144,409)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE -December 31, 2004 -- $ -- 3,808,863 $ 3,809 $ 1,902,954 $(2,157,246) $ (250,483)
------- =========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidatated finanical
statements.
MARKETSHARE RECOVERY, INC AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
For the Years Ended
December 31,
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net loss $ (144,409) $(2,024,629)
----------- -----------
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Compensatory element of stock issuances 40,331 1,964,739
Depreciation 439 --
Changes in operating assets and liabilities:
Accounts receivable -- 8,932
Prepaid and other current assets 1,601 (34)
Unerarned revenue -- (27,625)
Accrued expenses, accounts payable and other current liabilities 134,011 1,172
Marketable securities 16,533 27,525
----------- -----------
TOTAL ADJUSTMENTS 192,915 1,974,709
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 48,506 (49,920)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Payment of security deposit -- (2,767)
Purchase of property and equipment (2,108) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,108) (2,767)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Repayment of note to stockholders (119,015) --
Advances to/from affiliate (46,996) 45,567
Advances from stockholders -- 12,300
Proceeds from loan payable - stockholder 109,736 --
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (56,275) 57,867
----------- -----------
(9,877) 5,180
CASH - Beginning 9,877 4,697
---- ----------- -----------
CASH - Ending $ (0) $ 9,877
---- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
Cash paid during the years for:
Interest $ 1,854 $ --
Income taxes $ 455 $ 978
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
------------------------------------------------------------
Issuance of notes payable related to reverse merger $ -- $ 137,700
Payment of commission with marketable securities $ -- $ 280,945
Forgiveness of debt $ 26,593 $ --
Issuance of common stock to satisfy notes payable $ -- $ 12,700
The accompanying notes are an integral part of these consolidated financials
statements
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(Formerly Health and Leisure, Inc. and subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - 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 Marketshare Recovery, Inc., a
privately-held New York corporation ("MKSR"), in the business of providing
on-line direct marketing solutions for enterprises to customers throughout
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 84,981 common
shares of HLLS and 3,425,000 shares of its voting convertible
non-cumulative preferred stock ("HLLS Preferred Stock"). 22,250 shares of
the HLLS common stock issued to the MKSR shareholders were from HLLS
authorized but unissued shares and 62,731 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.
The 3,425,000 shares of HLLS Preferred Stock were convertible into
2,854,167 post reverse stock-split shares of HLLS common stock upon the
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 owned 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 MKSR. As part of the merger, HLLS changed
its name to Marketshare Recovery, Inc. (the "Company").
Pursuant to the merger, the Company's former Chief Executive Officer (Mr.
Feldman) 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 4.
The Company discontinued its operations on November 7, 2004 and is seeking
a privately held business to complete a merger transaction with. There's
no assurance that the
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(Formerly Health and Leisure, Inc. and subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - Business and Reverse Merger - continued
---------------------------
Company will be successful in locating a candidate and completing a
business combination. On January 13, 2005 the Company entered into a
non-binding letter of intent with a privately-held development-stage
company which is developing biometric based products for the home security
and electronics market. (see Note 12)
NOTE 2 - Going Concern and Management's Plans
------------------------------------
The accompanying 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 year ended December 31, 2004, the Company has incurred a
loss of approximately $144,000 and has a working capital deficiency of
approximately $250,000. 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 a reverse merger
transaction.
NOTE 3 - Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of MarketShare
Recovery, Inc. (formerly Health & Leisure, Inc.) and its wholly-owned
subsidiary, MKSR. Collectively, they are referred to herein as the
"Company". 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. Revenues from our license agreement of
$45,567, with 110 Media Group, Inc. (formerly know as Dominix, Inc., "110
Media"), related by common executive management, was recognized during the
year ended December 31, 2004, as all of the deliverables had been met and
no further services are required.
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
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(Formerly Health and Leisure, Inc. and subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - Summary of Significant Accounting Policies, continued
-------------------------------------------
Use of Estimates - continued
----------------
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.
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 December 31, 2004,
there are no capitalized website development costs.
Advertising Costs
-----------------
Advertisement costs are expensed as incurred. For the years ended December
31, 2004 and 2003, advertising expenses were $2,500 and $3,900,
respectively.
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.
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 include no dilution and are 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
years ended December 31, 2004 and 2003, there were no potentially dilutive
securities.
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
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(Formerly Health and Leisure, Inc. and subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - Summary of Significant Accounting Policies, continued
-------------------------------------------
Stock-Based Compensation, continued
-------------------------
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.
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 during 2004 and
2003.
Income Taxes
------------
The Company was not required to provide for a provision for income taxes
for the years ended December 31, 2004 and 2003, as a result of net
operating losses incurred during these years. As of December 31, 2004, the
Company had available approximately $309,000 of net operating losses
("NOL) available for income tax purposes that may be carried forward to
offset future taxable income, if any. These carry forwards expire in
various years through 2024. At December 31, 2004, the Company has a
deferred tax asset of approximately $124,000 which substantially
represents the benefits of its net operating loss carryforwards. The
Company's deferred tax asset has been fully reserved by a valuation
allowance since realization of its benefit is uncertain. For the years
ended December 31, 2004 and 2003, the difference between the statutory tax
rate of 40% and the Company's effective tax rate (0%) is due to
non-utilization of the Company's net operating tax losses for those years.
During the year ended December 31, 2004, the deferred tax valuation
allowance decreased by $686,000 from $810,000 in 2003 to $124,000 in 2004.
The valuation allowance was increased due to the net operating loss for
2004 by $58,000 and was reduced by a permanent difference of $744,000
related to the
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(Formerly Health and Leisure, Inc. and subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - Summary of Significant Accounting Policies, continued
-------------------------------------------
Income Taxes - continued
------------
difference between the financial statement value and tax deduction for
compensatory stock issuances. The Company's ability to utilize its
carryforwards is subject to an annual limitation in future periods
pursuant to Section 382 of the Internal Revenue Code of 1986, as amended
and separate return limitation year ("SRLY") rules.
New Accounting Pronouncements
-----------------------------
In January 2003, FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," provides
guidance for identifying a controlling interest in a variable interest
entity ("VIE") established by means other than voting interest. FIN 46
also required consolidation of a VIE by an enterprise that holds such
controlling interest. In December 2003, the FASB completed its
deliberations regarding the proposed modifications to FIN 46 and issued
Interpretation Number 46R, "Consolidation of Variable Interest Entities -
an Interpretation of ARB 51" ("FIN No. 46R"). The decisions reached
included a deferral of the effective date and provisions for additional
scope exceptions for certain types of variable interests. Application by
public small business issuers' entities is required in all interim and
annual financial statements for periods ending after December 15, 2004.
The adoption of this pronouncement did not have a material effect on the
Company's financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment."
This statement is a revision of SFAS No. 123 and supersedes APB 25 and its
related implementation guidance. SFAS 123R addresses all forms of share
based payment ("SBP") awards including shares issued under employee stock
purchase plans, stock options, restricted stock and stock appreciation
rights. Under SFAS 123R, SBP awards result in a cost that will be measured
at fair value on the awards' grant date, based on the estimated number of
awards that are expected to vest. This statement is effective for public
entities that file as small business issuers - as of the beginning of the
first interim or annual reporting period that begins after December 15,
2005.
The adoption of this pronouncement is not expected to have a material
effect on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets". This Statement amends APB Opinion 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not
have commercial substance. A nonmonetary
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(Formerly Health and Leisure, Inc. and subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - Summary of Significant Accounting Policies, continued
-------------------------------------------
exchange has commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the exchange. The
provisions of this Statement are effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges occurring in
fiscal periods beginning after December 16, 2004. The provisions of this
Statement should be applied prospectively.
The adoption of this pronouncement is not expected to have a material
effect on the Company's financial statements.
EITF Issue No. 04-8, "The Effect of Contingently Convertible Instruments
on Diluted Earnings per Share." The EITF reached a consensus that
contingently convertible instruments, such as contingently convertible
debt, contingently convertible preferred stock, and other such securities,
should be included in diluted earnings per share (if dilutive) regardless
of whether the market price trigger has been met. The consensus is
effective for reporting periods ending after December 15, 2004.
The adoption of this pronouncement did not have a material effect on the
Company's financial statements.
NOTE 4 - 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 was 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 remained the
same. During the year ended December 31, 2004 the Company repaid $119,015
in principal.
A release agreement effective as of December 31, 2004 released the Company
from all of its obligations under this loan, including principle balance
of $5,985, accrued interest of $17,439, and legal fees of $12,300. As a
result, at December 31, 2004, the amount due to holders was $0.
NOTE 5 - Loan Payable - Stockholder
--------------------------
Loan payable - stockholder as of December 31, 2004, is $109,736, 8% note,
due April 2005 as amended, that is payable to a stockholder and secured by
a pledge of 3,035,085 shares of the Company's common stock held by certain
of the Company's stockholders including its
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(Formerly Health and Leisure, Inc. and subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 5 - Loan Payable - Stockholder - continued
--------------------------
executive management. This loan was increased to $112,000 during the
quarter ended March 31,2005.In the event of a default the interest rate
increases to 18% per annum. Accrued interest at December 31, 2004 amounted
to approximately $5,200.
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 .8333 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.
As discussed in Note 1, 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 2,854,167 shares of common stock. After this
conversion, there were no outstanding shares of preferred 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 $12,700 of debt owed to the former Chief Executive Officer was
converted into 105,833 shares of common stock.
On November 29, 2004 MarketShare Recovery 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 12 reverse split of the
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(Formerly Health and Leisure, Inc. and subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 6 - Stockholders' Deficiency - continued
------------------------
common stock, to authorize up to 50,000,000 shares of common stock and
reduce the par value to $0.001.
All share and per share amounts in the consolidated financial statements
and notes thereto, were retroactively adjusted to reflect the reverse
stock splits of 1 for 10 in August 2003 and 1 for 12 in December 2004.
Stock Options
-------------
In September 2003, the Company adopted a 2003 Stock Option Plan (the "2003
Plan"). Under the 2003 Plan, up to 1,250,000 incentive stock options, or
non-qualified stock options, could be granted to employees and
consultants. As of December 31, 2004, no options have been granted.
Common Stock Issuances
----------------------
During the year ended December 31, 2004, the Company issued 23,970 shares
of its common stock to two officers of the Company as additional
compensation valued at $40,271 which was charged to operations for the
year ended December 31, 2004. The Company also issued 3,000 shares of its
common stock to HLLS in connection with the merger recorded at par value
in the statement of stockholders' deficiency. In addition the Company
issued 42 shares to an individual valued at $60 charged to operations for
the year ended December 31, 2004.
NOTE 7 - Concentrations of Credit Risk
-----------------------------
Net revenue from sales of distribution lists includes three customers
which accounted for approximately 37% and 32%, respectively for the years
ended December 31, 2004 and 2003.
NOTE 8 - Commitments and Contingencies
-----------------------------
Lease Obligations
-----------------
Beginning January 1, 2004, the Company entered into a sub lease agreement
with 110 Media to share the expense of office facilities occupied by them
jointly under a lease held by the Company. In August 2004, 110 Media
assumed the lease for its corporate headquarters.
Rent expense charged to operations for the years ended December 31, 2004
and 2003 amounted to $14,153 and $36,796, net of sub rental income from
110 Media Group amounting to $15,259 and $-0-, respectively. In the year
ended December 31, 2004, 110 Media agreed to assume full amount of rental
lease, in exchange the Company transferred the rights to the security
deposit to 110 Media.
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(Formerly Health and Leisure, Inc. and subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - Related Party Transactions
--------------------------
Deferred Revenue
----------------
In March 2004, the Company entered into a database license agreement with
110 Media to use and to sublicense the use of its database for a term of
ten years for a total license fee of $45,567. For financial reporting,
revenue is recognized using the straight-line method, based upon the
economic useful life of three years. By November 7, 2004, the remaining
deferred revenue of $30,378 was recognized as revenue due to the Company
completing its obligations under the agreement and the Company was no
longer required to perform any further services nor incur any costs
related to this agreement.
NOTE 10 - Terminated Proposed Merger
--------------------------
110 Media Group, Inc.
---------------------
On November 25, 2003 110 Media Group, Inc a Delaware corporation traded on
NASDAQ electronic bulletin board (OTEN) and the Company entered into a
Stock Purchase Agreement (the "Stock Purchase Agreement") under which 110
Media Group, subject to certain conditions, would acquire all of the
outstanding capital stock of the Company. 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 110
Media Group (see Note 9).
NOTE 11 - Terminated Asset Purchase Agreement
-----------------------------------
Asset Purchase Agreement
------------------------
On October 7, 2004, the Company entered into an Asset Purchase Agreement
with Palomar Enterprises, Inc. (the "Agreement"). Pursuant to the
Agreement, the Company agreed to purchase certain assets, including
certain automotive notes and contracts, a business plan and model for an
automotive financial services company and a data base of potential
customers and $150,000 in cash from Palomar in exchange for an 85%
controlling interest in our equity securities.
On November 2, 2004, by mutual agreement, the Company and Palomar
terminated the Agreement. As such, there is no change of control of the
Company.
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(Formerly Health and Leisure, Inc. and subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 12 - Subsequent Events
-----------------
In March 2005, 2,642 shares of common stock were cancelled.
On January 13, 2005 we entered into a letter of intent, which was amended
on March 11, 2005 for a possible acquisition of a private development
stage company engaged in the development of biometrics-based products for
the home security and electronics market, including biometrically enabled
residential door locks, central station alarm keypads, thermostats and
garage/gate openers. The transaction requires that the new subsidiary
would provide funds to pay all of the Company's outstanding debt and
escrow funds to cover contingent or undisclosed liabilities and those that
have not been settled prior to closing. The general structure of the
transaction would involve the merger of the development stage company into
a subsidiary to be formed and the consideration for the merger would
consist solely of shares of the Company's common stock, which after giving
effect to the issuance, cancellation of a substantial amount of shares
held by principal stockholders and escrow of remaining shares for the same
purposes as the cash escrow, would constitute 90% of the shares then
outstanding. The letter of intent has binding confidentiality provisions
and the consummation of any transaction is conditioned upon, among other
things, the receipt of audited financial statements of the development
stage company, the consent of the majority of the holders of the
development stage company's common stock, the absence of material claims
for appraisal on the part of the development stage company's holders, due
diligence and the execution of a definitive merger agreement. It is
expected that a definitive merger agreement will be entered into before
the end of April, 2005 and the letter of intent provides that such an
agreement cannot be signed until audited financial statements of the
development stage company have been provided. Both the merger agreement
and financial statements will be filed as part of a Form 8-K, when and if
a merger agreement is signed. There can be no assurance that the merger
transaction will be completed.