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 September 30, 2003
[ ] 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.
(Formerly Health & Leisure, 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)
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 45,378,498
---------------------------- ----------------------------------
(Class) (Outstanding at November 10, 2003)
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page
----
Condensed Consolidated Balance Sheet
At September 30, 2003 (Unaudited) 1
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30,2003 and 2002 (Unaudited) 2
Condensed Consolidated Statement of Changes in
Stockholders' Equity (Deficiency) for the Nine Months Ended
September 30, 2003 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2003 and 2002 (Unaudited) 4
Notes to the Condensed Consolidated Financial Statements
(Unaudited) 5-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-20
ITEM 3. CONTROLS AND PROCEDURES 20
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
-i-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 2003
ASSETS
------
CURRENT ASSETS
Cash $ 16,865
Marketable securities 4,879
Accounts receivable 2,547
----------
TOTAL CURRENT ASSETS 24,291
SECURITY DEPOSITS 6,567
----------
TOTAL ASSETS $ 30,858
==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Accrued commissions and other expenses $ 11,522
Note payable- related party 125,000
----------
TOTAL CURRENT LIABILITIES 136,522
----------
STOCKHOLDERS' DEFICIENCY
Common stock - $0.10 par value: 50,000,000 shares
Authorized; 45,378,498 shares issued and outstanding 4,537,850
Additional paid-in capital (2,698,011)
Accumulated deficit (1,945,503)
----------
TOTAL STOCKHOLDERS' DEFICIENCY (105,664)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 30,858
==========
See accompanying notes to 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 For the Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
NET REVENUES $ 308,141 $ 65,902 $ 594,545 $ 241,195
COST OF REVENUES 246,721 55,793 427,668 188,280
----------- ----------- ----------- -----------
GROSS PROFIT 61,420 10,109 166,877 52,915
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative
expenses 65,068 18,664 143,050 55,431
Compensatory element of stock issuances 1,964,739 - 1,964,739 -
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,029,807 18,664 2,107,789 55,431
----------- ----------- ----------- -----------
OPERATING LOSS (1,968,387) (8,555) (1,940,912) (2,516)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Loss on sale of marketable
securities (24,227) - (7,383) -
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSES, NET (24,227) - (7,383) -
----------- ----------- ----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (1,992,614) (8,555) (1,948,295) (2,516)
PROVISION FOR INCOME TAXES - - 9,000 -
----------- ----------- ----------- -----------
NET LOSS $(1,992,614) $ (8,555) $(1,957,295) $ (2,516)
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE:
BASIC AND DILUTED $(0.12) $(0.01) $(0.40) $ -
====== ====== ====== ======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
BASIC AND DILUTED 16,457,748 1,019,767 6,181,466 1,019,767
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
2
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
Preferred Stock Common Stock
------------------------ ------------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
(1) (1)
Balance - January 1, 2003 342,500 $ 34,250 1,019,767 $ 101,977
Shares issued to Health & Leisure, Inc.
stockholders - - 1,732,543 173,254
Shares returned to the Company - - (752,767) (75,277)
Shares issued to settle notes payable - - 1,270,000 127,000
Shares issued for conversion of
preferred stock (342,500) (34,250) 34,250,000 3,425,000
Shares issued for services - - 7,858,955 785,896
Net loss - - - -
---------- ---------- ---------- ----------
Balance - September 30, 2003 - $ - 45,378,498 $4,537,850
========== ========== ========== ==========
Retained Total
Earnings Stockholders'
Paid-in (Accumulated Equity
Capital Deficit) (Deficiency)
------------ ------------ ------------
Balance - January 1, 2003 $ (136,127) $ 11,792 $ 11,892
Shares issued to Health & Leisure, Inc.
stockholders (310,954) - (137,700)
Shares returned to the Company 75,277 - -
Shares issued to settle notes payable (114,300) - 12,700
Shares issued for conversion of
preferred stock (3,390,750) - -
Shares issued for services 1,178,843 - 1,964,739
Net loss - (1,957,295) (1,957,295)
----------- ----------- ----------
Balance - September 30, 2003 $(2,698,011) $(1,945,503) $ (105,664)
=========== =========== ==========
(1) Restated to reflect 1-for-10 reverse stock-split completed on
August 31, 2003.
See accompanying notes to condensed consolidated financial statements.
3
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
2003 2002
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,957,295) $ (2,516)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Compensatory element of stock issuances 1,964,739 -
Changes in operating assets and liabilities:
Marketable securities 60,571 -
Accounts receivable 6,385 2,011
Prepaid expenses and other current assets 1,567 -
Security deposits (4,667) -
Accrued commissions and other expenses (31,507) (4,100)
Deferred revenue (27,625) -
----------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 12,168 (4,605)
----------- ----------
NET INCREASE (DECREASE)IN CASH 12,168 (4,605)
CASH - Beginning 4,697 10,874
----------- ----------
CASH - Ending $ 16,865 $ 6,269
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Income taxes $ 978 $ 4,767
=========== ==========
Non-cash investing and financing activities:
Issuance of notes payable related to
reverse merger $ 137,700 $ -
=========== ==========
Issuance of common stock to satisfy notes
payable $ 12,700 $ -
=========== ==========
See accompanying notes to condensed consolidated financial statements.
4
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The 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 by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted in accordance with such rules and regulations. The
information furnished in the interim condensed consolidated financial statements
includes normal recurring adjustments and reflects all adjustments, which, in
the opinion of management, are necessary for a fair presentation of such
financial statements. Although management believes the disclosures and
information presented are adequate to make the information not misleading, it is
suggested that these interim condensed consolidated financial statements be read
in conjunction with the Company's most recent audited financial statements and
notes thereto included in its December 31, 2002 Audited Report in an amendment
to Form 8-K filed on Form 8-KA. Operating results for the three and nine months
ended September 30, 2003 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2003.
NOTE 2 - BUSINESS AND REVERSE MERGER
Effective on June 13, 2003, Health & Leisure, Inc. ("HLLS"), a publicly-traded
Delaware corporation, and its wholly-owned subsidiary, Venture Sum, Inc., a
Delaware corporation ("Mergerco"), entered into a Merger and Acquisition
agreement with MKSR, a privately-held New York corporation, in the business of
providing on-line direct marketing solutions for enterprises. 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 the greater of 1,019,767 common shares of HLLS, or that number of
shares that shall result in ownership of fifty-one percent (51%) of the
outstanding shares of common stock of HLLS, and 3,425,000 shares of its voting
convertible non-cumulative preferred stock, par value $0.01 per share ("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. 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 will 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.
5
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - BUSINESS AND REVERSE MERGER (CONTINUED)
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.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
6
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
-------------------
Accounts receivable arise in the normal course of business. The Company
considers accounts receivable to be fully collectible; accordingly, no allowance
for doubtful accounts is provided for. If amounts become uncollectible, they
will be charged to operations when that determination is made. No charges were
recorded for the three and nine months ended September 30, 2003 and 2002.
INCOME TAXES
------------
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires the recognition of deferred tax assets and liabilities for
the expected impact of differences between the financial statements and the tax
basis of assets and liabilities and for the expected future tax benefits to be
derived from tax loss and tax credit carryforwards. SFAS No. 109 additionally
requires the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets.
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. 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 commissions liability. The Company
recognized a loss on the sale of marketable securities of $7,383 for the nine
months ended September 30, 2003.
EARNINGS PER COMMON SHARE
-------------------------
Basic earnings per share is computed on the basis of the weighted average number
of common shares outstanding. Diluted earnings per share is computed on the
basis of the weighted average number of common shares outstanding, plus the
potential dilution that could occur if securities or other contracts to issue
common shares were exercised or converted from stock options and warrants or
conversion of convertible Preferred Stock. There were no options or warrants
outstanding at September 30, 2003.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
----------------------------------------------
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN No. 45 requires a company, at the time it issues a guarantee, to
recognize an initial liability for the fair value of obligations assumed under
the guarantee and elaborates on existing disclosure requirements related to
guarantees and warranties. The initial recognition requirements of FIN No. 45
are effective for guarantees issued or modified after December 31, 2002. The
Company's adoption of the recognition requirements of FIN No. 45 did not have
any effect on its consolidated financial position or results of operations.
7
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
----------------------------------------------
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and Accounting Principles Board Opinion ("APB") No. 28, "Interim
Financial Reporting", to require disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported net income and earnings per
share in annual and interim financial statements. While the statement does not
amend SFAS No. 123 to require companies to account for employee stock options
using the fair value method, the disclosure provisions of SFAS 148 are
applicable to all companies with stock-based employee compensation, regardless
of whether they account for that compensation using the fair value method of
SFAS No. 123, or the intrinsic value method of APB No. 25. The Company will
continue to account for stock-based compensation according to APB No. 25, while
its adoption of SFAS No. 148 requires the Company to provide prominent
disclosures about the effect of SFAS No. 123 on reported income and will require
the Company to disclose these effects in the condensed consolidated interim
financial statements as well. The Company has no stock-based compensation.
In January 2003, the FASB issued Interpretation No. 46 (" FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletins ("ARB") No. 51." FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 is effective for all new variable interest entities
created or acquired after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual period beginning after June 15, 2003.
The Company does not expect the adoption of FIN 46 to have a material effect on
its financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" which is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability. The
adoption of this pronouncement did not have an effect on the Company's condensed
consolidated financial statements.
8
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROMISSORY NOTE
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.
The note is guaranteed by the stockholders of MKSR and is collateralized by the
shares of stock held by the stockholders of MKSR. This loan was paid in full
during the quarter ended September 30, 2003 from proceeds provided by the
Company's two significant shareholders.
NOTE 5 - STOCKHOLDERS' DEFICIENCY
PREFERRED STOCK
---------------
In June of 2003, HLLS amended its designation of preferred stock and designated
3,425,000 shares of Series A convertible preferred stock, par value $.01 per
share ("Series A Preferred Stock"). Each share of Series A Preferred Stock is
automatically convertible into 100 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. Such conversion rate
shall be proportionately adjusted upon a stock-split, reverse stock split, or
other changes in the HLLS' capitalization prior to the fling of such amendment.
The Series A 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 Series A Preferred Stock shall
be non-cumulative and shall not accrue if not declared. Each share of Series A
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 2, in connection with the June 2003 merger transaction with
MKSR, 3,425,000 shares of the Series A 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 SEC 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 3,450,000 shares of Series A Preferred
Stock was converted into 34,250,000 shares of common stock. The increase in
authorized common shares of 50,000,000 par value $.10 was effective on August
29, 2003.
During the quarter ended September 30, 2003, the Company issued 7,858,955 shares
of its common stock sold to consultants, which were valued at $1,964,739 and was
all charged to operations during the quarter ended September 30, 2003.
9
MARKETSHARE RECOVERY, INC. AND SUBSIDIARY
(FORMERLY HEALTH & LEISURE, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCKHOLDERS' DEFICIENCY (CONTINUED)
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 September 30, 2003, no options have been granted.
NOTE 6 - CONCENTRATIONS OF CREDIT RISK
There were no revenue from any customer amounting to 10% or more of the total
net revenues for the three months ended September 30, 2003 and 2002.
Revenue from two customers accounted for approximately 26% of the total net
revenues for the nine months ended September 30, 2002; one of these customers is
a related party by virtue of common ownership of MKSR's two officers that
amounted to 11%. There were no revenue from any customer amounting to 10% or
more of the total net revenues for the nine months ended September 30, 2003.
NOTE 7 - PROPOSED MERGER
In September 2003, the Company's wholly-owned subsidiary, MarketShare Recovery,
Inc. - NY signed a letter of intent to merge with Dominix, Inc., a
publicly-traded company. The closing of this merger is subject to due diligence
and the completion of definitive documents. If this merger is completed, the
Company will have no remaining assets and the business will revert to a public
shell. Shares of common stock of Dominix will be exchanged for the outstanding
shares of the Company's common stock.
The letter of intent provides for the shareholders of the Company together with
the shareholders of Jade Entertainment Group, Inc. to have majority control of
Dominix, Inc. after the completion of the merger.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE
RELATED NOTES INCLUDED IN THIS FORM 10-QSB.
THIS QUARTERLY REPORT OF FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. BASED UPON
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THESE FORWARD-LOOKING STATEMENTS
INCLUDE ALL STATEMENTS THAT ARE NOT STATEMENTS OF HISTORICAL FACT. YOU CAN
IDENTIFY THESE STATEMENTS BY OUR USE OF WORDS SUCH AS "MAY," "EXPECT,"
"BELIEVE," "ANTICIPATE," "INTEND," "COULD,""ESTIMATE," CONTINUE," `PLANS," OR
THEIR NEGATIVES OR COGNATES. SOME OF THESE STATEMENTS INCLUDE DISCUSSIONS
REGARDING OUR FUTURE BUSINESS STRATEGY AND OUR ABILITY TO GENERATE REVENUE,
INCOME AND CASH FLOW. WE WISH TO CAUTION THE READER THAT ALL FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS FORM 10-QSB ARE ONLY ESTIMATES AND PREDICTIONS. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED AS A RESULT OF
RISKS FACING US OR ACTUAL EVENTS DIFFERING FROM ASSUMPTIONS UNDERLYING SUCH
FORWARD-LOOKING STATEMENTS. SOME FACTORS THAT COULD AFFECT OUR RESULTS INCLUDE
THOSE THAT WE DISCUSS IN THIS SECTION AS WELL AS ELSEWHERE IN THIS FORM 10-QSB.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS PROSPECTUS. WE WILL NOT UPDATE THESE
FORWARD-LOOKING STATEMENTS UNLESS THE SECURITIES LAWS AND REGULATIONS REQUIRE US
TO DO SO.
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.
In accordance with the Agreement, Messrs. Robert Feldman, Arthur Aaronson, James
S. Koroloff, Burton Schildhouse and Donald S. Franklin resigned as directors and
officers and appointed Ray Barton and Timothy Schmidt as directors of the
Company. Messrs Barton and Schmidt have assumed the roles of chief executive
officer and Chief operating officer, respectively.
ABOUT MARKETSHARE RECOVERY, INC.
MarketShare Recovery, Inc. was incorporated in New York in November 2000.
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.
The financial information included in this 10-QSB consists of MarketShare
Recovery, Inc.'s results of operations for the three and nine months ending
September 30, 2003 and 2002 and Health & Leisure, Inc.'s results of operations
for the period from June 13, 2003 to September 30, 2003.
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RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
----------------------------------------------
Net revenues increased by 368% from approximately $66,000 for the three months
ended September 30, 2002 to approximately $308,000 for the three months ended
September 30, 2003. The improvement in revenues was a result of revenue from new
customers in which the Company is paid in freely-tradable marketable securities.
Cost of revenues as a percent of net revenues decreased from 85% of net revenues
for the three months ended September 30, 2002 to 80% of net revenues for the
three months ended September 30, 2003.
Selling, general and administrative expenses increased from approximately
$19,000, or 28% of net revenues for the three months ended September 30, 2002,
to approximately $65,000, or 21% of net revenues for the three months ended
September 30, 2003 mainly due to the Company hiring outside consultants to
implement business plans as well as to bring in business in 2003.
Net loss increased from approximately $9,000 for the three months ended
September 30, 2002 to approximately $1,993,000 for the three months ended
September 30, 2003. The increase was a result of the compensatory element of
stock issuances of $1,964,739 for the three months ended September 30, 2003.
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
---------------------------------------------
Net revenues increased by 147% from approximately $241,000 for the nine months
ended September 30, 2002 to approximately $595,000 for the nine months ended
September 30, 2003. The improvement in revenues was a result of revenue from new
customers in which the Company is paid in freely-tradable marketable securities.
Cost of revenues as a percent of net revenues improved from 78% of net revenues
for the nine months ended September 30, 2002 to 72% of net revenues for the nine
months ended September 30, 2003. The improvement was due to higher margin
revenues.
Selling, general and administrative expenses increased from approximately
$55,000, or 23% of net revenues for the nine months ended September 30, 2002, to
approximately $143,000, or 24% of net revenues for the nine months ended
September 30, 2003, mainly due to the Company hiring outside consultants to
implement business plans as well as to bring in business in 2003.
Net loss increased from approximately $2,500 for the nine months ended September
30, 2002 to approximately $1,948,000 for the nine months ended September 30,
2003. The increase was a result of the compensatory element of stock issuances
of $1,964,739 for the nine months ended September 30, 2003.
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LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash provided by operating activities during the nine months ended September 30,
2003 amounted to approximately $12,000. The Company had cash and marketable
securities of approximately $17,000 and $5,000, respectively, at September 30,
2003, as compared to approximately $5,000 and $65,000, respectively, at December
31, 2002.
The Company has no planned significant capital expenditures. Furthermore, the
Company believes that its available cash and marketable securities and cash from
operating activities are sufficient to fund its operations over the next twelve
months.
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.
We were 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 ANALYSTS AND 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 EMARKETING AS A MEANS TO ATTRACT NEW
CUSTOMERS, DEMAND FOR OUR SERVICES MAY NOT DEVELOP AND THE PRICE OF OUR COMMON
STOCK WOULD DECLINE.
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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.
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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.
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IF WE FAIL TO INTRODUCE NEW SERVICES, SUCH AS OUR RECENTLY-INTRODUCED EMAIL
EXCHANGE NETWORK, 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.
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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 THE CONFIDENTIAL INFORMATION IN OUR DATA
WAREHOUSE, OUR REPUTATION MAY BE HARMED AND WE MAY BE EXPOSED TO LIABILITY.
We currently retain highly confidential customer information in a secure data
warehouse. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to this data warehouse. 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.
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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, EMARKETING AND THE INTERNET, COULD PROHIBIT, LIMIT OR
INCREASE THE COST OF OUR BUSINESS.
Legislation has recently been enacted in several states restricting the sending
of unsolicited commercial email. We cannot assure you that existing or future
legislation regarding commercial email will not harm our business. The federal
government and several other states are considering, or have considered, similar
legislation. These provisions generally limit or prohibit both the transmission
of unsolicited commercial emails and the use of forged or fraudulent routing and
header information. Some states, including California, require that unsolicited
emails include opt-out instructions and that senders of these emails honor any
opt-out requests.
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.
19
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
An evaluation was performed, as of September 30, 2003, under the supervision and
with the participation of our President and Chief Executive Officer and our
Chief Financial Officer, of the effectiveness of the design and operation of our
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934, as amended, Rules 13a-14(c) and 15(d)-14(c)). Based on such evaluation,
these persons have concluded that our disclosure controls and procedures were
effective as of September 30, 2003. There have been no significant changes in
our internal controls or in other factors that could significantly affect our
internal controls subsequent to September 30, 2003.
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
The Company's Board of Directors received shareholder approval
obtained by written consent ("Shareholders Consents") in lieu of holding a
meeting. The Shareholders Consents represent 9,277,668 of the 17,325,427 shares
of common stock outstanding; which equates to a majority of the outstanding
shares of common stock of the Company, which is required under Delaware law in
order to effect 1) a ten-for-one reverse stock split of its shares of common
stock, 2) amend the Company's articles of incorporation increasing the
authorized number of shares of its Common Stock, par value $0.10 per share, from
30,000,000 shares to 50,000,000 shares, 3) to change the corporation's name from
Health & Leisure, Inc. to MarketShare Recovery, Inc.
The Company's Board of Directors received shareholder approval
obtained by written consent ("Shareholders Consents") in lieu of holding a
meeting. As previously disclosed in the Registrant's filing on Schedule 14F1 on
July 14, 2003 and mailing to security holders, the Board of directors nominated,
and elected by Shareholder Consents Ray Barton and Tim Schmidt to the Board of
directors. Subsequent thereto the remaining members of the Board of directors
resigned.
Director FOR AGAINST ABSTAIN
-------------- ------------ ------------- ------------
Ray Barton 9,277,668 0 8,047,759
Tim Schmidt 9,277,668 0 8,047,759
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 September 30, 2003.
On July 1, 2003, MarketShare filed a current report on Form 8-K
reporting that it had filed a press release reporting the signing of a merger
agreement with MarketShare Recovery, Inc.
On July 18, 2003, MarketShare filed a current report on Form 8-K
reporting changes in the control of registrant, the acquisition of assets and
the financial statements to accompany said acquisition.
On July 21, 2003, MarketShare filed a current report on Form 8-K/A
amending the current report on Form 8-K filed on July 18, 2003.
On August 20, 2003, MarketShare filed a current report on Form 8-K to
report changes in MarketShare's certifying accountant.
On September 15, 2003, MarketShare filed a current report on Form
8-K/A to amend the current report on Form 8-K originally filed on July 18, to
include the financial statements of MarketShare Recovery, Inc., as required by
Item 7(a) (4).
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: November 21, 2003 -------------------------------------
Raymond Barton,
Chief Executive Officer
Date: November 21, 2003 -------------------------------------
Timothy Schmidt,
Chief Financial Officer
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