SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from __________ to ________
Commission file number: 0-15807
MarketShare Recovery, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 31-1190725
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
95 Broadhollow Road, Suite 101
Melville, NY 11747
---------------------------------------
(Address of principal executive offices)
(631) 385-0007
----------------------------
(Issuer's Telephone Number)
Health & Leisure, Inc.
------------------------------------------------------------------
(Former name)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the Issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock, par value $0.1 45,702,256
----------------------------- ---------------------------------
(Class) (Outstanding at May 17, 2004)
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 3. CONTROLS AND PROCEDURES
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
INDEX TO FORM 10-QSB
--------------------------------------------------------------------------------
Page
PART I - FINANCIAL INFORMATION:
Item 1 - FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheet 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Stockholders' Deficiency 3
Condensed Consolidated Statements of Cash Flows 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5-11
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
MARCH 31, 2004
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 23,509
Marketable securities 39,233
Prepaid expense and other current assets 1,652
-----------
TOTAL CURRENT ASSETS 64,394
PROPERTY AND EQUIPMENT, Net 967
SECURITY DEPOSITS 4,667
-----------
TOTAL ASSETS $ 70,028
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Note payable - stockholders $ 125,000
Accrued expenses and other current liabilities 73,653
Deferred revenue 34,375
Due to stockholders 12,300
Accrued interest - stockholders 15,000
-----------
TOTAL CURRENT LIABILITIES 260,328
-----------
DEFERRED REVENUE 26,581
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock - $0.10 par value; 10,000,000 shares
authorized; no shares issues or outstanding --
Common stock - $0.10 par value; 50,000,000 shares
authorized; 45,702,256 shares issues and outstanding 4,570,226
Additional paid-in capital (2,690,116)
Accumulated deficit (2,096,991)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (216,881)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 70,028
-----------
See notes to unaudited condensed consolidated financial statements.
1
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
--------------------------------------------------------------------------------
For the Three Months Ended
March 31,
2004 2003
----------------------------
NET REVENUES (including revenue from related party $ 104,963 $ 160,910
of $3,797 and -0-, respectively)
COST OF REVENUES (including compensatory element
of stock issuances of $40,271 and -0-, respectively) 91,431 117,110
------------ ------------
GROSS PROFIT 13,532 43,800
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 67,417 26,611
------------ ------------
OPERATING (LOSS) INCOME (53,885) 17,189
------------ ------------
OTHER INCOME (EXPENSES)
Interest expense - stockholders (5,000) --
Gain (loss) on sale of marketable securities 764 (2,357)
Unrealized loss on marketable securities (25,577) (3,808)
------------ ------------
TOTAL OTHER EXPENSES (29,813) (6,165)
------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (83,698) 11,024
PROVISION FOR INCOME TAXES 455 2,000
------------ ------------
NET (LOSS) INCOME $ (84,153) $ 9,024
------------ ------------
Basic Net (Loss) Income Per Common Share $ (0.00) $ 0.01
------------ ------------
Diluted Net (Loss) Income Per Common Share $ (0.00) $ 0.00
------------ ------------
Weighted Average Number of Common Shares
Outstanding - Basic (1) 45,543,335 1,019,767
------------ ------------
Weighted Average Number of Common
Shares Outstanding - Diluted (1) 45,543,335 35,269,767
------------ ------------
(1) Restated to reflect 1-for-10 reverse stock-split completed in August 2003.
See notes to unaudited condensed consolidated financial statements.
2
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(Unaudited)
For the Three Months Ended March 31, 2004
--------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------------ ------------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
BALANCE - December 31, 2003 -- $ -- 45,378,606 $ 4,537,861 $(2,698,022) $(2,012,838) $ (172,999)
Shares issued for services -- -- 287,650 28,765 11,506 -- 40,271
Shares issued to Health & Leisure,
Inc. stockholder -- -- 36,000 3,600 (3,600) -- --
Net loss -- -- -- -- -- (84,153) (84,153)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - March 31, 2004 -- $ -- 45,702,256 $ 4,570,226 $(2,690,116) $(2,096,991) $ (216,881)
=========== =========== =========== =========== =========== =========== ===========
See notes to unaudited condensed consolidated financial statements.
3
For the Three Months Ended
March 31,
2004 2003
---------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(84,153) $ 9,024
-------- --------
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Compensatory element of stock issuances 40,271 --
Depreciation 88 --
Changes in operating assets and liabilities:
Accounts receivable -- 8,932
Due to affiliate (45,567) --
Prepaid and other current assets (51) (4,433)
Security deposits -- (4,667)
Accrued expenses and other current liabilities 44,451 (11,382)
Marketable securities (1,308) 36,416
Deferred revenue 60,956 (33,790)
-------- --------
TOTAL ADJUSTMENTS 98,840 (8,924)
-------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 14,687 100
-------- --------
CASH USED IN INVESTING ACTIVITIES
Purchase of property and equipment (1,055) --
-------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 13,632 100
CASH AND CASH EQUIVALENTS - Beginning 9,877 4,697
-------- --------
CASH AND CASH EQUIVALENTS - Ending $ 23,509 $ 4,797
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Income taxes $ 455 $ 978
Interest $ -- $ --
See notes to unaudited condensed consolidated financial statements.
4
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH AND LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
NOTE 1 - Basis of Financial Statement Presentation
The unaudited condensed consolidated financial statements presented are
those of MarketShare Recovery, Inc. - Delaware (formerly Health & Leisure,
Inc.) and its wholly-owned subsidiary, MarketShare Recovery, Inc. - N.Y
("MKSR"). Collectively, they are referred to herein as the ("Company").
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial statements
and with the instructions to Form 10-QSB. Accordingly, they do not include
all of the information and disclosures required for annual financial
statements. These financial statements should be read in conjunction with
the consolidated financial statements and related footnotes included in
MarketShare Recovery, Inc. and Subsidiaries (the "Company") annual report
on Form 10-KSB for the year ended December 31, 2003.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to make the presentation of the
Company's financial position as of March 31, 2004 and the results of
operations and cash flows for the three-month periods ended March 31, 2004
and March 31, 2003.
The results of operations for the three-month period ended March 31, 2004
are not necessarily indicative of the results to be expected for the full
year ended December 31, 2004.
NOTE 2 - Business and Reverse Merger
Effective on June 13, 2003, Health & Leisure, Inc. ("HLLS"), a
publicly-traded Delaware corporation, and its wholly-owned subsidiary,
Venture Sum, Inc., a Delaware corporation ("Mergerco"), entered into a
Merger and Acquisition agreement with MKSR, a privatelyheld New York
corporation, in the business of providing on-line direct marketing
solutions for enterprises to customers through the United States. Pursuant
to the agreement, Mergerco merged with and into MKSR and MKSR became the
surviving corporation. As consideration for the merger, the shareholders
of MKSR received from HLLS 1,019,767 common shares of HLLS and 3,425,000
shares of its voting convertible non-cumulative preferred stock ("HLLS
Preferred Stock"). 267,000 shares of the HLLS common stock issued to the
MKSR shareholders were from HLLS authorized but unissued shares and
752,767 shares of the HLLS common stock were returned to HLLS by the HLLS'
former chief executive officer (Mr. Feldman) and then reissued by HLLS in
the merger.
5
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH AND LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
NOTE 2 - Business and Reverse Merger, continued
The 3,425,000 shares of HLLS Preferred Stock are convertible into
34,250,000 post reverse stock-split shares of HLLS common stock upon
approval of an increase in the shares the Company is authorized to issue.
After the issuance of common stock as described above and the conversion
of HLLS Preferred Stock, the shareholders of MKSR own approximately 94% of
HLLS. Accordingly, this transaction has been accounted for as a reverse
merger with MKSR as the acquirer of HLLS. The reverse merger was accounted
for as a recapitalization and the stockholders' equity was retroactively
restated to January 1, 2002. The historical financial statements prior to
the reverse merger are those of MarketShare Recovery, Inc. - N.Y.
Pursuant to the merger, the Company's former Chief Executive Officer
cancelled all indebtedness owed by HLLS to him, except for $12,700, and
cancelled all guarantees of debt by HLLS.
In addition, as part of the merger transaction, MKSR and HLLS agreed to
pay $125,000 to H&L Concepts, Inc., a wholly-owned subsidiary of HLLS.
After the execution of the promissory note, the former Chief Executive
Officer purchased all of the outstanding shares of stock of H&L Concepts,
Inc. for nominal consideration. The parties acknowledged that most of the
trade payables and other consolidated liabilities of HLLS were liabilities
of H&L Concepts, Inc., the subsidiary of HLLS, and by selling the stock of
H&L Concepts, Inc. to Mr. Feldman it had the effect of removing
substantially all of the trade payables and liabilities from the HLLS
balance sheet and fixing the post closing liabilities of HLLS to that set
forth in the promissory note, see Note 5.
NOTE 3 - Going Concern and Management's Plans
The accompanying unaudited condensed consolidated financial statements
have been prepared in conformity with accounting principles generally
accepted in the United States of America, assuming that the Company will
continue as a going concern. For the three months ended March 31, 2004,
the Company has incurred a loss of approximately $84,000 and has a working
capital and stockholders' deficiency of approximately $194,000 and
217,000 respectively. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The Company's ability to
continue as a going-concern is dependent upon obtaining additional
financing, restructuring its existing liabilities, and the successful
completion of its business plan. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. No assurance can be provided that the Company will be
successful in locating additional financing or completing its business
plan.
6
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH AND LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
NOTE 4 - Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements include the
accounts of MarketShare Recovery, Inc. - Delaware (formerly Health &
Leisure, Inc.) and its wholly-owned subsidiary, MarketShare Recovery, Inc.
- N.Y All significant intercompany balances and transactions have been
eliminated in consolidation.
Revenue Recognition and Related Commission Expenses
Revenues include the sale of and/or electronic delivery of email
distribution lists. Revenues from the sale of email distribution lists are
recognized when the seller has delivered a list to the customer and the
customer has accepted the list after an up to 30-day address replacement
period. Revenues from consulting services are recognized ratably over the
period of the contract. Commissions due to sales consultants are initially
deferred and recognized ratably over the period revenue is recognized.
Deferred commission expense is netted against deferred revenue for
financial reporting purposes.
Use of Estimates
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Website Development Costs
The Company recognizes the costs associated with developing a website in
accordance with the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use".
Relating to website development costs the Company follows the guidance
pursuant to the Emerging Issues Task Force (EITF) No. 00-2, "Accounting
for Website Development Costs". Internal costs related to the development
of website content are expensed as incurred. As of March 31, 2004, there
are no capitalized website development costs.
Advertising Costs
Advertisement costs are expensed as incurred. For the three months ended
March 31, 2004 and 2003, advertising expenses were $1,500 and $0,
respectively.
7
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH AND LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
NOTE 4 - Summary of Significant Accounting Policies, continued
Income Taxes
The Company was not required to provide for a provision for income taxes
for the year ended December 31, 2003, as a result of a net operating loss
incurred during the year then ended.
Marketable Securities
On certain engagements, the Company receives shares of common stocks of
publicly-traded corporations from its customers in lieu of cash payments
for services rendered. The fair value of the common stocks received is
reflected as revenue. Subsequently, these marketable securities are
classified as trading securities and reported at fair value with
unrealized gains or losses reported as other income (expenses) in the
statements of operations except for securities related to commissions
amounting to $0 during 2004. Unrealized gains or losses related to
marketable securities to be transferred to sales consultants as
commissions are reflected as an increase or decrease in the accrued
commission liability.
Loss or Earnings per Common Share
The Company displays earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share".
SFAS No. 128 requires dual presentation of basic and diluted earnings per
share. Basic earnings per share includes no dilution and is computed by
dividing the net income (loss) by the weighted average number of common
shares outstanding for the period. Diluted earnings per share include the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. For the
three months ended March 31, 2003, the diluted number of weighted average
shares outstanding was 35,269,767, which includes the dilutive effect of
the convertible preferred stock.
Stock-Based Compensation
The Company follows SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes accounting and reporting standards
for stock-based employee compensation plans. This statement allows
companies to choose between the fair value-based method of accounting as
defined in this statement and the intrinsic value-based method of
accounting as prescribed by Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees."
The Company has elected to continue to follow the accounting guidance
provided by APB 25, as permitted for stock-based compensation relative to
the Company's employees. Stock and options granted to other parties in
connection with providing goods and services to the Company are accounted
for under the fair value method as prescribed by SFAS No. 123.
8
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH AND LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
NOTE 4 - Summary of Significant Accounting Policies, continued
Stock-Based Compensation, continued
In December 2002, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of SFAS Statement No. 123". This statement
amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value-based method of accounting for
stock-based employee compensation. In addition, SFAS No.148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures
in both annual and interim financial statements about the method of
accounting for stockbased employee compensation and the effect of the
method used on reported results. SFAS No. 148 also requires that those
effects be disclosed more prominently by specifying the form, content, and
location of those disclosures. The Company adopted the increased
disclosure requirements of SFAS No. 148 during the year ended December 31,
2003. The Company has no stock based employee compensation.
NOTE 5 - Note Payable - Stockholders
At the closing of the merger, HLLS and MKSR entered into a $125,000
secured promissory note with H&L Concepts, Inc., a then wholly-owned
subsidiary of HLLS. The loan is payable in twelve equal installments of
$11,341, commencing July 2003. Interest is included in the monthly payment
at a rate of 16% per annum. In October 2003, Mr. Ray Barton and Mr. Tim
Schmidt, the Company's current executive officers and directors purchased
the promissory note from H&L Concepts, Inc. for the full value of the
note, in accordance with the terms of the note. The terms of repayment,
including the interest rate and payment schedule are the same. The Company
is currently in default under the terms of the note. Accrued interest at
March 31, 2004 amounted to $15,000.
NOTE 6 - Stockholders' Deficiency
Preferred Stock
In June of 2003, HLLS amended its designation of preferred stock and
designated 3,425,000 shares of HLLS Preferred Stock. Each share of HLLS
Preferred Stock is automatically convertible into 10 shares of common
stock upon filing of an amendment to HLLS certificate of incorporation
authorizing a sufficient number of shares of common stock to effect such a
conversion. The HLLS Preferred Stock shall be entitled to receive when, if
and as declared by the Board of Directors dividends at 6% of its par value
per annum, payable in cash. Dividends on each share of the HLLS Preferred
Stock shall be non-cumulative and shall not accrue if not declared. Each
share of the HLLS Preferred Stock shall entitle its holders to vote in all
matters submitted to a vote of the stockholders of the Company with the
number of votes per Preferred share equal to the number of votes available
on a converted basis.
9
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH AND LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
NOTE 6 - Stockholders' Deficiency, continued
Preferred Stock, continued
As discussed in Note 2, in connection with the June 2003 merger
transaction with MKSR, 3,425,000 shares of the HLLS Preferred Stock were
issued to the stockholders of MKSR. In September 2003, these preferred
shares were converted into 34,250,000 shares of common stock.
Changes in Capital Structure
On August 5, 2003, HLLS filed with the Securities and Exchange Commission
a definitive information statement notifying the stockholders of the
Company that written consents from principal stockholders who collectively
hold in excess of 50% of the Company's common stock were obtained and
approved a 1 for 10 reverse split of the HLLS common stock, to authorize
up to 50,000,000 shares of HLLS common stock and to change the name of
HLLS to MarketShare Recovery, Inc.
The 1-for-10 reverse stock split became effective on August 29, 2003 and
the $12,700 of debt owed to the former Chief Executive Officer was
converted into 1,270,000 shares of common stock and the 3,425,000 shares
of HLLS Preferred Stock was converted into 34,250,000 shares of common
stock. All share and per share amounts in the consolidated financial
statements and notes thereto, were retroactively adjusted to reflect the
reverse stock split.
Stock Options
In September 2003, the Company adopted a 2003 Stock Option Plan (the "2003
Plan"). Under the 2003 Plan, up to 15,000,000 incentive stock options, or
non-qualified stock options, could be granted to employees and
consultants. As of March 31, 2004, no options have been granted.
Common Stock Issuances
During the three months ended March 31, 2004, the Company issued 287,650
shares of its common stock to two officers of the Company as additional
compensation valued at $40,271 charged to operations for the three months
ended March 31, 2004. The Company also issued 36,000 shares of its common
stock to HLLS in connection with the merger recorded at par value in the
statement of stockholders' deficiency.
NOTE 7 - Concentrations of Credit Risk
Revenue from one customer accounted for approximately 59% and 17%,
respectively for the three months ended March 31, 2004 and 2003.
10
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH AND LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
NOTE 8 - Commitments and Contingencies
Lease Obligations
Beginning January 1, 2004, the Company entered into a sub lease agreement
with Dominix Inc. and Subsidiaries ("Dominix") to share the expense of
office facilities occupied by them jointly under a lease held by the
Company. The agreement includes future minimum rental payments to be
received amounting to approximately $16,000 per annum through March 2008.
Rent expense charged to operations for the three months ended March 31,
2004 and 2003 amounted to $4,596 and $6,998, net of sub rental income from
Dominix amounting to $5,149 and -0-, respectively.
NOTE 9 - Related Party Transactions
Deferred Revenue
The Company entered into a database license agreement with Dominix to use
and to sublicense the use of its database for a term of ten years. For
financial reporting, revenue is recognized using the straight-line method,
based upon the economic useful life of three years. At March 31, 2004,
deferred revenue was $41,770.
NOTE 10 - Terminated Proposed Merger
Dominix, Inc.
On November 25, 2003 Dominix, Inc. a Delaware corporation traded on NASDAQ
electronic bulletin board (DMNX) and the Company entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") under which Dominix,
subject to certain conditions, would acquire all of the outstanding
capital stock of MKSR. The parties have determined that it is in their
mutual best interest to terminate the Stock Purchase Agreement. In March
2004, the Company entered into a database license with Jade Entertainment
Group, Inc. ("Jade"), a wholly owned subsidiary of Dominix (see Note 9).
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING STATEMENTS; MARKET DATA
The discussion in this report on Form 10-QSB contains forward-looking statements
that involve risks and uncertainties. The statements contained in this Report
that are not purely historical are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements regarding our
expectations, beliefs, intentions or strategies regarding the future. 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 Quarterly Report contains certain estimates and plans related to us and the
industry in which we operate, which assumes certain events, trends and
activities will occur and the projected information based on those assumptions.
We do not know that all of our assumptions are accurate. In particular, we do
not know what level of growth will exist in our industry, if any, and
particularly in the foreign markets in which we operate, have devoted resources
and in which we shall seek to expand. If our assumptions are wrong about any
events, trends and activities, then our estimates for future growth for our
business may also be wrong. There can be no assurances that any of our estimates
as to our business growth will be achieved.
The following discussion and analysis should be read in conjunction with our
financial statements and the notes associated with them contained elsewhere in
this quarterly report. This discussion should not be construed to imply that the
results discussed in this quarterly report will necessarily continue into the
future or that any conclusion reached in this quarterly report will necessarily
be indicative of actual operating results in the future. The discussion
represents only the best present assessment of management.
Pursuant to an Acquisition Agreement and Plan of Merger dated June 13, 2003 (the
"Merger Agreement"), by and among Health & Leisure, Inc (the "Registrant");
Venture Sum, Inc., a Delaware corporation and a wholly owned subsidiary of
Registrant ("Mergerco"); and MarketShare Recovery, Inc., a New York corporation,
("MKSR"), Mergerco merged with and into MKSR, and MKSR became a wholly-owned
subsidiary of the Registrant. The merger became effective June 13, 2003, (the
"Effective Date,") however closing of the Agreement occurred on July 15, 2003.
Subsequently, Health & Leisure, Inc. filed an amendment to its certificate of
incorporation and thereby changed its name to MarketShare Recovery, Inc.
MarketShare Recovery the parent company's operating subsidiary similarly named
MarketShare Recovery, Inc. was incorporated in New York in November 2000. The
subsidiary, MarketShare Recovery, Inc. is a provider of online direct marketing
solutions for enterprises. Our solutions enable corporations to create and
deliver online direct marketing programs that drive revenue, influence behavior
and deepen customer relationships. Our solutions provide customer insight and
powerful program execution through a combination of hosted applications and
technology infrastructure.
We derive our revenues from the sale of solutions that enable businesses to
proactively communicate with their customers online. Primarily, these services
have consisted of the design and execution of online direct marketing campaigns
and additional services provided by our Professional Services organization,
including the development and execution of Customer Acquisition programs.
Revenue for direct marketing and acquisition campaigns are recognized when
persuasive evidence of an arrangement exists, the campaign has been sent, the
fee is fixed or determinable and collection of the resulting receivables is
reasonably assured. Revenue generated by our professional service organization
is typically recognized as the service is provided.
Currently our ability to grow is constrained by our inability to service our
existing customer base and their present demands, this is due to limitations of
our existing technology infrastructure. We have recently upgraded our systems
and plan to continue expanding our technology infrastructure to meet our current
and projected future needs. Upon said expansion We anticipate being able to
execute campaigns more efficiently and expeditiously. This will enable our sales
associates to sell more campaigns and generate additional revenues. We also plan
to launch additional product offerings which will allow our sales associates to
up-sell and cross promote/sell the services we offer to our existing customers
as well as to prospective customers.
Our principal customers and target market are e-commerce, consumer oriented
product and service companies. We work with these customers, who are typically
engaged is selling products via the internet, by driving traffic to their
respective websites. This is accomplished through CPA and CPM campaigns, CPM
campaigns or cost per thousand campaigns are programs which generate revenues
based on service fees collected for delivering a specific pre-established number
of e-mails to prospective customers, these fees vary based on the specificity of
the demographic of the intended recipients. CPA campaigns are performance based
campaigns, the earning potential of these type of campaigns is significant and
as we expand our infrastructure we intend to allocate a certain portion of our
resources to executing these performance based campaigns.
The financial information included in this 10QSB consists of MarketShare
Recovery, Inc.'s (New York) results of operations for the three months ended
March 31, 2004.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and the related disclosures. A summary of those accounting
policies can be found in the footnotes to the consolidated financial statements
included elsewhere in this report. Certain of our accounting policies are
considered critical as they are both important to the portrayal of our financial
condition and results of operations and require judgments on the part of
management about matters that are uncertain. We have identified the following
accounting policies that are important to the presentation of our financial
condition and results of operations.
Revenue Recognition
Revenue recognition. We generate revenue from the sale of solutions that enable
businesses to proactively communicate with their customers online.
MarketShare Recovery applies the provisions of Staff Accounting Bulletin 104
"Revenue Recognition" and recognizes revenue when persuasive evidence of an
arrangement exists, the service has been delivered, the fee is fixed or
determinable and collection of the resulting receivables is reasonably assured.
Customer Marketing revenues are recognized upon sending of the campaigns.
Revenues attributable to one-time set-up fees for service initiation are
deferred and recognized ratably over the term of the client's service agreement.
Customer Acquisition revenues are derived primarily from programs that assist
clients in marketing their respective products or services. Customer Acquisition
programs fall into two general categories: CPM mailing programs and CPA campaign
programs. CPM mailing programs involve the execution and delivery of email
campaigns to a defined number of individuals based on a fixed fee per number of
e-mails delivered. The CPM, which stands for cost per thousand will vary based
on the specificity of the demographic to whom the campaign is delivered to. CPA
campaign programs are performance based campaigns which involve the execution
and delivery of email campaigns wherein we are paid either a flat fee of a
percentage of a successful sale or acquisition of a customer by one of our
clients.
We assess probability of collection based on a number of factors, including our
past transaction history with the customer and the credit-worthiness of the
customer. New customers and certain existing customers may be subject to a
credit review process which evaluates the customers' financial position and
ultimately their ability to pay according to the original terms of the
arrangement. Based on our review process, if it is determined from the outset or
during the term of an arrangement that collection of the resulting receivable is
not reasonably assured, then revenue is recognized on a cash-collected basis.
Results of Operations
The following table includes consolidated statements of operations data for the
three months ended March 31, 2004 and 2003 expressed as dollar amounts and as a
percentage of revenues.
Three Months Three Months
Ended March 31 Ended March 31
2004 2003 2004 2003
---- ---- ---- ----
% %
Revenues
Net Revenue $104,963 $160,910 100.00 100.00
-------- -------- ------- ------
Total Net Revenue 104,963 160,910 100.00 100.00
Cost of Revenue
Officer Compensation 40,271 67,778 38.00 42.00
Salesmen Commissions 45,000 43,332 43.00 27.00
Analyst Costs 6,160 6,000 6.00 4.00
-------- -------- ------- ------
Total cost of revenues 91,431 117,110 87.00 73.00
-------- -------- ------- ------
Operating Expenses
Selling, general and
administrative 67,329 26,611 64.00 17.00
Depreciation 88 0 0.00 0.00
-------- -------- ------- ------
Total operating expenses 67,417 26,611 64.00 17.00
-------- -------- ------- ------
Operating Loss (53,885) 17,189
-------- --------
Other Income (Expense)
Interest (5,000) 0 (5.00) 00.00
Gain on sale of marketable
securities 764 (2,357) 1.00 (2.00)
Unrealized Loss on
marketable sec (25,577) (3,808) (24.00) (2.00)
-------- -------- ------- ------
Total Other Expenses (29,813) (6,165) (28.00) (4.00)
-------- -------- ------- ------
(Loss Income Before Taxes) (83,698) 11,024 (80.00) 7.00
-------- -------- ------- ------
Provision For Income Taxes 455 2,000 0.00 1.00
-------- -------- ------- ------
Net (Loss) Income $(84,153) $ 9,024
======== ========
Comparison of Quarters Ended March 31,2004 and 2003
Our net revenues decreased by 35% from $160,910 for the three months ended March
31, 2003 to $104,963 for the three months ended March 31, 2004. The decrease in
revenues is due to our reduced outside sales force consisting of experienced
salesmen with proven sales experience. Cost of revenues as a percent of net
revenues increased from 73% of net revenues for the three months ended March 31,
2003 to 87% of net revenues for the three months ended March 31, 2004. The
increase in cost of revenues is due to higher commission rates paid to the
outside sales force.
Selling, general and administrative expenses increased by 153% from $26,611 for
the three months ended March 31, 2003 to $67,417 for the three months ended
March 31,2004 this increase is due to professional fees incurred in connection
with Marketshare Recovery being a publicly held company as well as an increase
in health insurance costs due to the increase in our office staff.
Other expenses increased by 384% from $6,165 for the three months ended March
31, 2003 to $29,813 for the three months ended March 31, 2004. This increase is
attributed to interest accrued on amounts due to shareholders in connection with
the acquisition as well as unrealized losses on marketable securities held for
trading purposes.
Liquidity and Capital Resources
Cash provided by operating activities during the three months ended March 31,
2004 amounted to $14,687 compared to $100 during the three months ended March
31,2003.The increase in cash is due to more services being performed. The
company had cash and cash equivalents of $23,509 at March 31, 2004, compared to
$4,797 at March 31, 2003.
Cash used in operating activities increased due to professional fees incurred in
connection with Marketshare Recovery becoming a publicly traded company and for
commissions paid to outside sales consultants; for bringing new clientele to the
company for promotion and marketing services.
Cash used in investing activities during the three months ended March 31,2004
amounted to $1,055 compared to $0 during the three months ended March 31,2003.
The company purchased computer equipment necessary for expanding our direct
marketing capabilities in order to meet customer demands.
Beginning in 2004 the Company has expanded the manner in which the Company can
accept payment from customers, previously we only accepted cash, like cash
instruments and company check however, We can now accept payment by all major
credit cards, by phone and have implemented an auto-draft system which is a
billing system which allows us to directly debit funds from customers bank
accounts. We anticipate that these additional payment options will allow us to
sell our customers additional services and up-sell and cross-promote our
different product offerings by allowing our customers the ability to extend
their payment options, establish recurring billing. Although there can be no
assurance, we feel that these additional payment options should positively
impact revenues and cash flow.
Throughout 2003 and for the three months ended March 31, 2004 the company has
made significant upgrades to its database and emailing technology. We have
greatly increased capacity and can process and execute campaigns faster and more
efficiently. In addition We now have the ability to evaluate the overall success
of our campaigns by tracking how many people viewed the campaign. We can also
generate detailed reports to show the customer how successful the campaign was,
how many ads and emails were sent and received by the intended recipients and
whether the campaign generated leads, sales or impressions. Our upgrades have
also improved our ability to sort and analyze data to generate customized
reports for our customers.
In view of our accumulated deficit and recurring losses, our auditors have added
an explanatory paragraph to their report on our financial statements stating
that there is substantial doubt about our ability to continue as a going
concern. In this regard management is adopting a plan for the development of our
video and website product lines as well as seeking additional capital through
the private sale of our debt or equity securities. There is no assurance that we
will complete any financing or that we will achieve profitable operations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We expect to fund development expenditures and incur losses until we are able to
generate sufficient income and cash flows to meet such expenditures and other
requirements. We do not currently have adequate cash reserves to continue to
cover such anticipated expenditures and cash requirements. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern.
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to income tax and marketing related agreements with our affiliates. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
RISK FACTORS
BECAUSE OF OUR LIMITED OPERATING HISTORY AND THE EMERGING NATURE OF THE
EMARKETING INDUSTRY, ANY PREDICTIONS ABOUT OUR FUTURE REVENUES AND EXPENSES MAY
NOT BE AS ACCURATE AS THEY WOULD BE IF WE HAD A LONGER BUSINESS HISTORY, AND WE
CANNOT DETERMINE TRENDS THAT MAY AFFECT OUR BUSINESS.
Our operating subsidiary MarketShare Recovery was incorporated in November 2000
and first recorded revenue in 2001. Our limited operating history makes
financial forecasting and evaluation of our business difficult. Since we have
limited financial data, any predictions about our future revenues and expenses
may not be as accurate as they would be if we had a longer business history.
Because of the emerging nature of the e-marketing industry, we cannot determine
trends that may emerge in our market or affect our business. The revenue and
income potential of the e-marketing industry, and our business, are unproven.
OUR OPERATING RESULTS HAVE VARIED SIGNIFICANTLY IN THE PAST AND ARE LIKELY TO
VARY SIGNIFICANTLY FROM PERIOD TO PERIOD, AND OUR STOCK PRICE MAY DECLINE IF WE
FAIL TO MEET THE EXPECTATIONS OF INVESTORS.
Our operating results have varied significantly in the past and are likely to
vary significantly from period to period. As a result, our operating results are
difficult to predict and may not meet the expectations of securities analysts or
investors. If this occurs, the price of our common stock would likely decline.
SEASONAL TRENDS MAY CAUSE OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE, WHICH
MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
The traditional direct marketing industry has typically generated lower revenues
during the summer months and higher revenues during the calendar year-end
months. We believe our business may be affected by similar revenue fluctuations,
but our limited operating history is insufficient to predict the existence or
magnitude of these effects. If we do experience these effects, analysts and
investors may not be able to predict our quarterly or annual operating results,
and if we fail to meet expectations of analysts and investors, our stock price
could decline.
IF BUSINESSES AND CONSUMERS FAIL TO ACCEPT E-MARKETING AS A MEANS TO ATTRACT NEW
CUSTOMERS, DEMAND FOR OUR SERVICES MAY NOT DEVELOP AND THE PRICE OF OUR COMMON
STOCK WOULD DECLINE.
The market for e-marketing is new and rapidly evolving, and our business will be
harmed if sufficient demand for our services does not develop. Our current and
planned services are very different from the traditional methods that many of
our clients have historically used to attract new customers and maintain
customer relationships. Demand for e-marketing, including our services, may not
materialize for several reasons, including:
- Businesses that have already invested substantial resources in other methods
of marketing and communications may be reluctant to adopt new marketing
strategies and methods.
- Consumers and businesses may choose not to accept e-marketing messages.
- Businesses may elect not to engage in e-marketing because consumers may
confuse permission-based email services with unsolicited commercial email.
- The effectiveness of direct marketing through the use of emails may diminish
significantly if the volume of direct marketing email saturates consumers.
COMPETITION IN THE EMARKETING INDUSTRY IS INTENSE AND, IF WE ARE UNABLE TO
COMPETE EFFECTIVELY, THE DEMAND FOR, OR THE PRICES OF, OUR SERVICES MAY DECLINE.
The market for e-marketing is intensely competitive, rapidly evolving and
experiences rapid technological change. We expect the intensity of competition
to increase significantly in the future because of the attention the internet
has received as a medium for advertising and direct marketing and because there
are no significant barriers to entry into our market. Intense competition may
result in price reductions, reduced sales, gross margins and operating margins,
and loss of market share.
Our principal competitors include:
- Providers of e-marketing solutions such as @Once, Acxiom and its affiliate
Bigfoot, Exactis.com, Kana Communications, L-Soft, Media Synergy, MessageMedia,
Digital Impact, CoolSavings, NetCreations, Responsys.com and YesMail.com.
- The in-house information technology departments of our existing and
prospective clients.
In addition, we expect competition to persist and intensify in the future, which
could harm our ability to increase sales and maintain our prices. In the future,
we may experience competition from Internet service providers, advertising and
direct marketing agencies and other large established businesses such as America
Online, DoubleClick, Microsoft, IBM, AT&T, Yahoo!, ADVO and the Interpublic
Group of Companies. Each of these companies possess large, existing customer
bases, substantial financial resources and established distribution channels and
could develop, market or resell a number of e-marketing solutions. These
potential competitors may also choose to enter the market for e-marketing by
acquiring one of our existing competitors or by forming strategic alliances with
these competitors. Any of these occurrences could harm our ability to compete
effectively.
RAPID TECHNOLOGICAL CHANGES COULD CAUSE OUR SERVICES TO BECOME OBSOLETE AND
UNMARKETABLE OR REQUIRE US TO REDESIGN OUR SERVICES, WHICH COULD BE COSTLY AND
TIME-CONSUMING.
The market for e-marketing services is characterized by rapid technological
change. Our services could become obsolete and unmarketable if we are unable to
adapt our services to these new technologies. For example, the emergence of new
media formats such as streaming video and audio may require us to adapt our
services to remain competitive which could be costly and time-consuming.
IF WE DO NOT ATTRACT AND RETAIN ADDITIONAL HIGHLY-SKILLED PERSONNEL WE MAY BE
UNABLE TO EXECUTE OUR BUSINESS STRATEGY.
Our business depends on the continued technological innovation of our core
services and our ability to provide comprehensive e-marketing expertise. If we
fail to identify, attract, retain and motivate these highly skilled personnel,
we may be unable to successfully introduce new services or otherwise implement
our business strategy. We plan to significantly expand our operations, and we
will need to hire additional personnel as our business grows. In particular, we
have experienced difficulties in hiring highly skilled technical and client
services personnel due to significant competition for experienced personnel in
our market.
WE RELY ON THE SERVICES OF OUR FOUNDERS AND OTHER KEY PERSONNEL, WHOSE KNOWLEDGE
OF OUR BUSINESS AND TECHNICAL EXPERTISE WOULD BE EXTREMELY DIFFICULT TO REPLACE.
Our future success depends to a significant degree on the skills, experience and
efforts of our senior management. In particular, we depend upon the continued
services of Raymond Barton, our Chief Executive Officer, Chief Technology
Officer and co-founder and Timothy Schmidt, our Chief Financial Officer and
co-founder, whose vision for our company, knowledge of our business and
technical expertise would be extremely difficult to replace. In addition, we
have not obtained life insurance benefiting MarketShare Recovery on any of our
key employees. If any of our key employees left or was seriously injured and
unable to work and we were unable to find a qualified replacement, the level of
services we are able to provide could decline or we may be otherwise unable to
execute our business strategy.
IF WE FAIL TO EXECUTE OUR STRATEGY TO EXPAND INTO NEW MARKETS, THE MARKET FOR
OUR SERVICES AND OUR POTENTIAL REVENUE WILL BE LIMITED.
The majority of our e-marketing clients to date have been online
business-to-consumer retailers. We intend to expand our presence among clients
in other consumer markets, in markets where the customers are businesses rather
than consumers, and in international markets. If this strategy fails, the market
for our services and our potential revenue will be limited. We have limited
experience in these markets and may encounter obstacles which we have not
anticipated.
IF WE FAIL TO INTRODUCE NEW SERVICES OUR REVENUES MAY NOT INCREASE.
Part of our strategy is to increase our revenues by introducing new services. If
we fail to introduce new services our revenues may not increase. If any of our
new service offerings are not accepted by our clients, our revenues may be
lower.
IF WE ARE UNABLE TO ENHANCE OUR SERVICES AND ADD CLIENT SERVICES PERSONNEL TO
HANDLE INCREASED EMAIL VOLUME AND CONSUMER RESPONSES, WE MAY BE UNABLE TO
ADEQUATELY RESPOND TO OUR CLIENTS' DEMANDS FOR EMARKETING SERVICES AND MAY LOSE
MARKET SHARE.
If we are unable to expand capacity to keep pace with our clients' demands, we
may lose market share. The volume of emails we are sending has grown
significantly and we expect this volume to continue to grow. We will need to
enhance our services to handle both any increased email volume and the increased
level of response from consumers that are generated by this volume. In addition,
as we seek to grow our base of clients, we must add client services personnel to
handle the increased volume of emails and campaigns. If we are unable to add
client services personnel, the level of services we are able to provide our
clients could decline.
IF THE DELIVERY OF OUR EMAILS IS LIMITED OR BLOCKED, THEN OUR CLIENTS MAY
DISCONTINUE THEIR USE OF OUR SERVICES.
Our business model relies on our ability to deliver emails over the internet
through internet service providers and to recipients in major corporations. In
particular, a significant percentage of our emails are sent to recipients who
use America Online. We do not have, and we are not required to have, an
agreement with America Online to deliver emails to their customers. America
Online uses a proprietary set of technologies to handle and deliver email and
the value of our services will be reduced if we are unable to provide emails
compatible with these technologies. In addition, America Online and other
internet service providers are able to block unwanted messages to their users.
If these companies limit or halt the delivery of our emails, or if we fail to
deliver emails in such a way as to be compatible with these companies' email
handling technologies, then our clients may discontinue their use of our
services.
OUR FACILITIES AND SYSTEMS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER
UNEXPECTED EVENTS, AND ANY OF THESE EVENTS COULD RESULT IN AN INTERRUPTION OF
OUR ABILITY TO EXECUTE OUR CLIENT'S EMARKETING CAMPAIGNS.
We depend on the efficient and uninterrupted operations of our data center and
hardware systems. Our data center and hardware systems is located in Long
Island, New York. Our data center and hardware systems are also vulnerable to
damage from fire, floods, power loss, telecommunications failures, and similar
events. If any of these events result in damage to our data center or systems,
we may be unable to execute our clients' e-marketing campaigns until the damage
is repaired, and may accordingly lose clients and revenues. In addition, we may
incur substantial costs in repairing any damage.
OUR DATA CENTER IS LOCATED AT FACILITIES PROVIDED BY A THIRD PARTY, AND IF THIS
PARTY IS UNABLE TO ADEQUATELY PROTECT OUR DATA CENTER, OUR REPUTATION MAY BE
HARMED AND WE MAY LOSE CLIENTS.
Our data center, which is critical to our ongoing operations, is located at
facilities provided by a third party. Our operations depend on this party's
ability to protect our data center from damage or interruption from human error,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. If this party is unable to adequately protect our data center and
information is lost or our ability to deliver our services is interrupted, our
reputation may be harmed and we may lose clients.
OUR OPERATING RESULTS WOULD SUFFER IF WE WERE FORCED TO DEFEND AGAINST A
PROTRACTED INFRINGEMENT CLAIM OR IF A THIRD PARTY WERE AWARDED SIGNIFICANT
DAMAGES.
There is a substantial risk of litigation regarding intellectual property rights
in our industry. A successful claim of technology infringement against us and
our failure or inability to license the infringed or similar technology could
harm our business.
We expect that our technologies may experience an increase in third- party
infringement claims as the number of our competitors grows. In addition, we
believe that many of our competitors have filed or intend to file patent
applications covering aspects of their technology that they may claim our
intellectual property infringes. We cannot be certain that third parties will
not make a claim of infringement against us relating to our technology. Any
claims, with or without merit, could:
- Be time-consuming and costly to defend.
- Divert management's attention and resources.
- Cause delays in delivering services.
- Require the payment of monetary damages which may be tripled if The
infringement is found to be willful.
- Result in an injunction which would prohibit us from offering a particular
service.
- Require us to enter into royalty or licensing agreements which, if required,
may not be available on acceptable terms.
IF ANY OF THE THIRD PARTY TECHNOLOGIES WE USE BECOME UNAVAILABLE TO US, WE WILL
NOT BE ABLE TO OPERATE OUR BUSINESS UNTIL EQUIVALENT TECHNOLOGY CAN BE OBTAINED.
We are highly dependent on technologies we license which enable us to send email
through the internet and allow us to offer a variety of targeted marketing
capabilities. Our market is evolving, and we may need to license additional
technologies to remain competitive. However, we may not be able to license these
technologies on commercially reasonable terms or at all. Our inability to obtain
any of these licenses could delay the development of our services until
equivalent technology can be identified, licensed or developed and integrated.
IF WE ARE UNABLE TO SAFEGUARD OUR DATA, OUR REPUTATION MAY BE HARMED AND WE MAY
BE EXPOSED TO LIABILITY.
We may from time to time retain confidential customer information in our
servers. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to this data. If any compromise or
breach of security were to occur, it could harm our reputation and expose us to
possible liability. Any unauthorized access to our servers could result in the
misappropriation of confidential customer information or cause interruptions in
our services. It is also possible that one of our employees could attempt to
misuse confidential customer information, exposing us to liability. In addition,
our reputation may be harmed if we lose customer information maintained in our
data warehouse due to systems interruptions or other reasons.
ACTIVITIES OF OUR CLIENTS COULD DAMAGE OUR REPUTATION OR GIVE RISE TO LEGAL
CLAIMS AGAINST US.
Our clients' promotion of their products and services may not comply with
federal, state and local laws. We cannot predict whether our role in
facilitating these marketing activities would expose us to liability under these
laws. Any claims made against us could be costly and time-consuming to defend.
If we are exposed to this kind of liability, we could be required to pay
substantial fines or penalties, redesign our business methods, discontinue some
of our services or otherwise expend resources to avoid liability.
Our services involve the transmission of information through the internet. Our
services could be used to transmit harmful applications, negative messages,
unauthorized reproduction of copyrighted material, inaccurate data or computer
viruses to end-users in the course of delivery. Any transmission of this kind
could damage our reputation or could give rise to legal claims against us. We
could spend a significant amount of time and money defending against these legal
claims.
NEW REGULATION OF AND UNCERTAINTIES REGARDING THE APPLICATION OF EXISTING LAWS
AND REGULATIONS TO, E-MARKETING AND THE INTERNET, COULD PROHIBIT, LIMIT OR
INCREASE THE COST OF OUR BUSINESS.
The Federal government of t he United States has enacted "CAN-SPAM Act of 2003,"
which became effective on January 1, 2004 restricting the sending of unsolicited
commercial email. The "Act" generally limits or prohibits both the transmission
of unsolicited commercial emails and requires unsolicited commercial e-mail
messages to be labeled as such and to include opt-out instructions and the
sender's physical address. It prohibits the use of deceptive subject lines and
false headers in such messages. The Act further authorizes the FTC (but does not
require) the establishment of a "do-not-email" registry. State laws that require
labels on unsolicited commercial e-mail or prohibit such messages entirely are
pre-empted, although provisions merely addressing falsity and deception would
remain in place. We believe that our current suite of services are not affected
by such legislation because the list management practices that we espouse to our
clients are intended to prevent the sending of unsolicited commercial email.
Our business could be negatively impacted by new laws or regulations applicable
to e-marketing or the internet, the application of existing laws and regulations
to e-marketing or the internet or the application of new laws and regulations to
our business as we expand into new jurisdictions. There is a growing body of
laws and regulations applicable to access to or commerce on the internet.
Moreover, the applicability to the internet of existing laws is uncertain and
may take years to resolve. Due to the increasing popularity and use of the
internet, it is likely that additional laws and regulations will be adopted
covering issues such as privacy, pricing, content, copyrights, distribution,
taxation antitrust, characteristics and quality of services and consumer
protection. The adoption of any additional laws or regulations may impair the
growth of the internet or e-marketing, which could, in turn, decrease the demand
for our services and prohibit, limit or increase our cost of doing business.
INTERNET-RELATED STOCK PRICES ARE ESPECIALLY VOLATILE AND THIS VOLATILITY MAY
DEPRESS OUR STOCK PRICE.
The stock market and specifically the stock prices of internet- related
companies have been very volatile. Because we are an internet- related company,
we expect our stock price to be similarly volatile. As a result of this
volatility, the market price of our common stock could significantly decrease.
This volatility is often not related to the operating performance of the
companies and may accordingly reduce the price of our common stock without
regard to our operating performance.
ITEM 3. CONTROLS AND PROCEDURES
Marketshare Recovery, Inc is developing a business and implementing systems of
internal and disclosure controls. Within the ninety-day period preceding the
filing of this report, our management evaluated the effectiveness of the design
and operation of its disclosure controls and procedures (the "Disclosure
Controls") as of the end of the period covered by this Form 10-QSB and (ii) any
changes in internal controls over financial reporting that occurred during the
last quarter of our fiscal year. This evaluation ("Controls Evaluation") was
done under the supervision and with the participation of management, including
the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO").
[insert]
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Chief Executive Officer's Certificate pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer's Certificate pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer's Certificate pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer's Certificate pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The following reports have been filed on Form 8-K during the quarter ended
March 31, 2004.
On March 5, 2004, MarketShare filed a current report on Form 8-K/A to amend
the current report on Form 8-K originally filed on August 20, 2003 to provide
notice of the registrant's change in certifying accountant.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MARKETSHARE RECOVERY, INC.
Date: May 18, 2004
---------------------------
Raymond Barton,
Chief Executive Officer
Date: May 18, 2004
---------------------------
Timothy Schmidt,
Chief Financial Officer