================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Period Ended
June 30, 2005 Commission File No. 0-15807
MARKETSHARE RECOVERY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 31-1190725
------------------------------ ---------------------------------
(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
33 South Service Road, Suite 111, Jericho, NY 11753
--------------------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (516) 750-9733
95 Broadhollow Road, Suite 101, Melville, NY 11747
--------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for a shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, as of August 15, 2005 was 16,330,986.
================================================================================
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Changes in Stockholders'
Equity 5
Condensed Consolidated Statements of Cash Flows 6-7
Notes to the Condensed Consolidated Financial Statements 8-13
2
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2005
(Unaudited)
ASSETS
Current Assets:
Cash $ 572,139
Restricted Cash 79,699
Marketable Securities 2,182
Loans Receivable- Stockholder/Officer 203,844
------------
Total Current Assets 875,864
Other Assets:
Security Deposit 2,860
------------
TOTAL ASSETS $ 860,724
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable and Accrued Expenses $ 2,077,183
Payroll Taxes Payable 24,609
Commissions Payable 52,500
Accrued Compensation - Stockholder/Officers 347,500
------------
Total Current Liabilities 2,501,792
------------
TOTAL LIABILITIES 2,501,792
------------
Commitments and Contingencies
Stockholders' Deficit:
Preferred Stock, $.10 par value; 10,000,000 shares
authorized, 0 issued and outstanding --
Common Stock, 16,749par value;
50,000,000 shares authorized,
16,749,458 shares issued and
outstanding 16,749
Additional Paid-In Capital 8,163,867
Deferred Compensation (289,167)
Deficit Accumulated During the Development Stage (9,532,517)
------------
Total Stockholders' Deficit (1,641,068)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 860,724
============
The accompanying notes are an integral part of these financial statements.
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
FOR THE PERIOD
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS FEBRUARY 1, 2001
ENDED ENDED ENDED ENDED (INCEPTION) TO
JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2005
------------ ------------ ------------ ------------ ------------
REVENUES $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
EXPENSES:
General and Administrative Expenses 137,762 2,125,230 278,002 2,300,432 3,301,375
Research and Development Expenses 59 155,908 31,697 188,270 345,946
Compensatory Element of Stock and Option
Issuance 14,583 5,447,500 29,166 5,462,083 5,880,833
Unrealized Loss on Marketable Securities -- -- -- 4,363 4,363
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES 152,404 7,728,638 338,865 7,955,148 9,532,517
------------ ------------ ------------ ------------ ------------
NET LOSS $ (152,404) $ (7,728,638) $ (338,865) $ (7,955,148) $ (9,532,517)
============ ============ ============ ============ ============
Weighted Average Shares Outstanding 11,750,196 15,541,234 11,705,118 14,135,478
============ ============ ============ ============
Net Loss per Share
(Basic and Diluted) $ (0.01) $ (0.50) $ (0.03) $ (0.56)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD JANUARY 1, 2005 TO JUNE 30, 2005
(Unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid- In Development
Shares Amount Capital Stage
------------ ------------ ------------ ------------
BALANCE, January 1, 2005 9,540,999 $ 9,541 $ 1,015,209 $ (1,577,369)
Common Stock issued at $.40 per share 500,000 500 199,500 --
Common Stock issued at $.50 per share 850,000 850 424,150 --
Common Stock issued at $1.00 per share 105,000 105 104,895 --
Common Stock issued for services 500,000 500 499,500 --
Common Stock issued for services 100,000 100 99,900 --
Common Stock issued for payment of accrued salaries 940,000 940 469,060 --
Commission paid on sales of common stock -- -- (105,000) --
Common Stock issued as commissions on sales of common stock 40,000 40 (40) --
Amortization of deferred compensation -- -- -- --
Effect of recapitalization due to reverse merger 3,240,125 3,240 (317,374) --
Common Stock issued at $.75 per share 933,334 933 699,067 --
Commission on sales of common stock -- -- (70,000) --
Issuance of common stock purchase options for services -- -- 420,000 --
Issuance of common stock purchase options for services -- -- 4,725,000 --
Net loss for the six months ended June 30, 2005 -- -- -- (7,955,148)
------------ ------------ ------------ ------------
BALANCE, June 30, 2005 16,749,458 $ 16,749 $ 8,163,867 $ (9,532,517)
============ ============ ============ ============
Deferred
Compensation Total
------------ ------------
BALANCE, January 1, 2005 $ (6,250) $ (558,869)
Common Stock issued at $.40 per share -- 200,000
Common Stock issued at $.50 per share -- 425,000
Common Stock issued at $1.00 per share -- 105,000
Common Stock issued for services -- 500,000
Common Stock issued for services (100,000) --
Common Stock issued for payment of accrued salaries -- 470,000
Commission paid on sales of common stock -- (105,000)
Common Stock issued as commissions on sales of common stock -- --
Amortization of deferred compensation 27,083 27,083
Effect of recapitalization due to reverse merger -- (314,134)
Common Stock issued at $.75 per share -- 700,000
Commission on sales of common stock -- (70,000)
Issuance of common stock purchase options for services (210,000) 210,000
Issuance of common stock purchase options for services -- 4,725,000
Net loss for the six months ended June 30, 2005 -- (7,955,148)
------------ ------------
BALANCE, June 30, 2005 $ (289,167) $ (1,641,068)
============ ============
The accompanying notes are an integral part of these financial statements
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
FOR THE PERIOD
FEBRUARY 1, 2001
SIX MONTHS ENDED SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, 2005 JUNE 30, 2004 JUNE 30, 2005
------------------ ------------------ ------------------
Cash Flows from Operating Activities:
Net Loss $ (7,955,148) $ (338,865) $ (9,532,517)
Adjustment to reconcile net loss
to net cash used in operating activities:
Compensatory Element of Stock and
Option Issuances 5,462,083 29,166 5,880,833
Unrealized Loss on Marketable Securities 4,363 -- 4,363
Increase (Decrease) in operating assets and liabilities:
Security Deposit (2,860) -- (2,860)
Accounts Payable and Accrued Expenses 1,810,866 -- 1,896,240
Payroll Taxes Payable (2,025) 12,650 24,609
Accrued Compensation-Stockholder/Officers 217,500 210,000 997,500
------------------ ------------------ ------------------
Net Cash Used in Operating Activities (465,221) (87,049) (731,832)
------------------ ------------------ ------------------
Financing Activities:
Repayments of Loans from Officer (109,736) -- (109,736)
Restricted Cash (34,699) -- (34,699)
Proceeds of loans -- 25,000 --
Loan payments to stockholder (81,816) (105,807) (383,844)
Proceeds from Sales of Common Stock 1,430,000 174,750 2,029,750
Merger Related Advances (75,000) -- (75,000)
Expenses on Sale of Common Stock (122,500) -- (122,500)
------------------ ------------------ ------------------
Net Cash provided by Financing Activities 1,006,249 93,943 1,303,971
------------------ ------------------ ------------------
Net Increase in Cash 541,028 6,894 572,139
Cash, Beginning 31,111 116 --
------------------ ------------------ ------------------
Cash, Ending $ 572,139 $ 7,010 $ 572,139
================== ================== ==================
The accompanying notes are an integral part of these financial statements.
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
(Unaudited)
FOR THE PERIOD
FEBRUARY 1, 2001
SIX MONTHS ENDED SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, 2005 JUNE 30, 2004 JUNE 30, 2005
------------------ ------------------ ------------------
Supplemental Cash Flow Information:
Cash Paid During the Period for:
Interest $ -- $ -- $ --
================== ================== ==================
Income Taxes $ -- $ -- $ --
================== ================== ==================
Supplemental Disclosures of Cash Flow Information:
Non Cash Financing Activities:
Common Stock Issed as Commissions on
Sale of Common Stock $ 10,000 $ -- $ 443,250
================== ================== ==================
Accrued Commissions on Sales of
Sales of Common Stock $ 52,500 $ -- $ 52,500
================== ================== ==================
Issuance of Common Stock as Payment of
Accrued Officers' Salaries $ 470,000 $ -- $ 470,000
================== ================== ==================
Issuance of Common Stock for Services -
Deferred Compensation $ 310,000 $ -- $ 310,000
================== ================== ==================
Application of Loans Receivable - Officer
Against Accrued Compensation $ 180,000 $ -- $ 180,000
================== ================== ==================
The accompanying notes are an integral part of these financial statements.
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Marketshare Recovery, Inc. and its wholly owned subsidiaries
("the Company"). All significant inter-company accounts and transactions have
been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information and with instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by U.S.
generally accepted accounting principles for complete financial statements. In
the opinion of the Company's management, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the consolidated financial
position and results of operations and cash flows for the periods presented.
Results of operations for interim periods are not necessarily indicative of the
results of operations for a full year.
Certain items in these condensed consolidated financial statements have been
reclassified to conform to the current period presentation.
The condensed consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company is a development stage
company and has incurred recurring losses from operations and operating cash
constraints that raises substantial doubt about the Company's ability to
continue as a going concern.
There can be no assurance that sufficient funds required during the next year or
thereafter will be generated from operations or that funds will be available
from external sources such as debt or equity financings or other potential
sources. The lack of additional capital resulting from the inability to generate
cash flow from operations or to raise capital from external sources would force
the Company to substantially curtail or cease operations and would, therefore,
have a material adverse effect on its business. Furthermore, there can be no
assurance that any such required funds, if available, will be available on
attractive terms or that they will not have a significant dilutive effect on the
Company's existing stockholders.
NOTE 2- ORGANIZATION AND NATURE OF OPERATIONS
Reverse Acquisition - On May 27, 2005, Marketshare Recovery, Inc.
("Marketshare") completed the merger ("Merger") of Marketshare Merger Sub, Inc.
a wholly owned subsidiary of Marketshare ("Merger Sub") with bioMetrx
Technologies, Inc. a Delaware corporation ("bioMetrx") pursuant to the Agreement
and Plan of Merger dated April 27, 2005, by and among Marketshare, Merger Sub
and bioMetrx ("Merger Agreement").
1
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2- ORGANIZATION AND NATURE OF OPERATIONS (Continued)
Reverse Acquisition (Continued) - On June 1, 2005 (the Effective Date"), Merger
Sub filed a Merger Certificate completing the acquisition of bioMetrx. The
consideration for the Merger was 14,218,424 restricted shares of the Company's
common stock and the issuance of 182,029 Common Stock Purchase Warrants to the
holders of corresponding instruments of bioMetrx. The Merger was completed
according to the terms of the Merger Agreement. Simultaneously with the Merger,
certain stockholders of the Company surrendered 2,208,521 shares of the
Company's common stock which was cancelled and returned to the status of
authorized and unissued. In addition, 300,000 shares of the Company's common
stock were deposited by these stockholders into escrow to cover contingent
liabilities, if any. As a result of the Merger, bioMetrx was merged into the
Merger Sub and became a wholly owned subsidiary of the Company.
Since the Company had no meaningful operations immediately prior to the Merger,
the Merger will be treated as a reorganization of bioMetrx via a reverse merger
with the Company for accounting purposes.
The 14,218,424 shares and the shares issuable upon the exercise of 182,029
warrants issued as part of Merger to the former bioMetrx stockholders represent
approximately 91% of the total outstanding post-merger stock.
Organization- bioMetrx was incorporated with the name "M2 Extreme Sports
Centers, Inc." in the State of Delaware on February 1, 2001. On November 8, 2001
the bioMetrx's certificate of incorporation was amended to change its name to
"Biostat Technologies S.P.A., Inc." and 1500 shares of no par common voting
stock was issued to the sole shareholder for $1.00 per share. On April 1, 2002
the certificate of Incorporation was amended to:
1) Change the corporation's name to "Biometrx Technologies, Inc.
2) Increase the total number of shares that the corporation is
authorized to issue to 10,000,000 common shares, each with a par
value of $.001.
3) Authorize a 4000 to 1 split of then outstanding common shares
In December 2004, the Board of Directors authorized an increase of bioMetrx's
common stock from 10,000,000 to 20,000,000 shares, each having a par value of
$.001.
Nature of Operations- The Company is a developer of proprietary biometrics-based
products for the home security and electronics market, located on Long Island,
New York.
The Company is focused on developing a line of home security products called
smartTouchtm which includes biomedical enabled residential door locks, central
station alarm keypads, thermostats and garage/ gate openers. Its products
utilize fingerprints recognition technology designed to augment or replace
conventional security methods such as keys, keypads, and PIN numbers. The
Company develops market- specific products in home security which it plans
either be licensed or sold through manufacturers/ retailers worldwide when
deemed commercially viable.
2
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - RESTRICTED CASH
Restricted cash represents cash held in escrow by corporate counsel in
connection with the sale of common stock and in contemplation of the proposed
merger. Such restricted cash should be released after satisfaction of certain
requirements of the merger agreement (see Note 2).
NOTE 4 - STOCKHOLDERS' DEFICIT
bioMetrx was incorporated with the name "M2 Extreme Sports Centers, Inc." in the
State of Delaware on February 1, 2001. On November 8, 2001 the bioMetrx's
certificate of incorporation was amended to change its name to "Biostat
Technologies S.P.A., Inc." and 1500 shares of no par common voting stock was
issued to the sole shareholder for $1.00 per share. On April 1, 2002 the
certificate of Incorporation was amended to:
1) Change the corporation's name to "Biometrx Technologies, Inc.
2) Increase the total number of shares that the corporation is
authorized to issue to 10,000,000 common shares, each with a par
value of $.001.
3) Authorize a 4000 to 1 split of then outstanding common shares
In December 2004, the Board of Directors authorized an increase of bioMetrx's
common stock from 10,000,000 to 20,000,000 shares, each having a par value of
$.001.
During the quarter ended March 31, 2005 the Company sold 500,000 shares of
common stock for $200,000 ($.40 per share).
During the quarter ended March 31, 2005 the Company sold 850,000 shares of
common stock for $425,000 ($.50 per share).
During the quarter ended March 31, 2005 the Company sold 80,000 shares of common
stock for $80,000 ($1 per share).
During the quarter ended March 31, 2005 the Company issued 100,000 shares of
common stock valued at $100,000 ($1 per share) for services pursuant to
consulting agreements.
In April 2005 the Company entered into a consulting agreement with Steven
Horowitz and Arnold Kling, for general financial consulting services in
connection with potential merger and fund raising activities. In connection with
this agreement the Company issued 500,000 shares of common stock valued at $1
per share.
The Company issued 700,000 shares of common stock valued at $.50 cents per share
to Mark Basile/CEO for accrued payroll owed him. The Company issued 240,000
shares of common stock valued at $.50 cents per share to Steven Kang for accrued
payroll owed him.
3
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - STOCKHOLDERS' DEFICIT (Continued)
At June 30, 2005 the Company had warrants outstanding as follows:
Exercise Price Shares Expiration Date
-------------- -------- ---------------
$ .60 36,406 July 5, 2005
$ .60 37,333 July 5, 2010
$ .70 36,406 July 5, 2006
$ .70 37,333 July 5, 2010
$ .80 36,406 July 5, 2007
$ .80 37,333 July 5, 2010
$ .90 36,405 July 5, 2008
$ .90 37,333 July 5, 2010
$ 1.00 36,404 July 5, 2009
$ 1.00 37,334 July 5, 2010
----- -------
$ .80 368,693
====== =======
At June 30, 2005 the Company had options outstanding as follows:
Exercise Price Shares Expiration Date
-------------- ---------- ---------------
$ .10 100,000 September 1, 2005
$ .10 50,000 December 1, 2005
$ .10 50,000 June 1, 2005
$ .50 1,500,000 July 1, 2010
------ ---------
$ .45 1,700,000
====== =========
NOTE 5 - LOSS PER SHARE
Loss per common share is based upon the weighted average number of common shares
outstanding during the periods.
The common stock issued and outstanding with respect to the pre-merger
Marketshare stockholders has been included since January 1, 2004.
Diluted loss per common share is the same as basic loss per share, as the effect
of potentially dilutive securities (options and warrants) are anti-dilutive.
4
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6- RELATED PARTY TRANSACTIONS
Officer/shareholder advances - These advances are non-interest bearing,
unsecured, and payable on demand. These advances were made to the Company's CEO
and majority stockholder.
Due from Related Party - This amount represents funds advanced in connection
with the Company's reverse merger (see Note 2).
Employment Agreements - On June 1, 2005 the Company entered into employment
agreements with a new Chief Financial Officer and a new Chief Operating Officer.
Each agreement is for a an inititial six month term and calls a for base salary
of $18,000 for services on a part-time basis. If after the initial term the
Company elects to continue the officer on a full time basis, the annual salaries
will increase to $80,000 for the Chief Financial Officer and $90,000 for the
Chief Operating Officer. The employment agreements also provide for
discretionary bonuses and other employment related benefits. Both agreements
also call for the granting of stock options to purchase 100,000 shares at $.10
per share of the Company's common stock at various times through the term of the
agreement. Both agreements have an initial term of one year with an additional
one year extension.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
In December 2002 the Company entered into a five year employment agreement with
Mark Basile (CEO and a significant stockholder) for a base annual salary of
$360,000 per year. Accrual of compensation may be converted into shares of the
Company's common stock at $.50 cents per share, which can be exercised at
anytime after each twelve months of service, but in no event, shall cash
compensation be less than $60,000 per annum. The Company paid cash salaries of
$60,000 and $0 for the years ended December 31, 2004 and 2003, respectively and
$180,000 for the six months ended June 30, 2005. In addition, the Company issued
700,000 shares of common stock valued at $350,000 in connection with this
agreement.
In January 2004, the Company entered into a four year employment agreement with
Steven Kang (Engineer and a stockholder) for a base annual salary of $120,000
per year. The agreement has the same terms as the above, except, that in no
event, shall cash compensation be less than $20,000 per annum. For the year
ended December 31, 2004 there was no salary paid. The Company paid cash salaries
of $0 for the years ended December 31, 2004 and $22,500 for the six months ended
June 30, 2005. In addition, the Company issued 240,000 shares of common stock
valued at $120,000 in connection with this agreement.
The Company entered into a Finder's Fee Agreement on March 11, 2005 whereby the
Company will compensate the Finder 15% cash for funds raised by the Finder and
shares of the Company's common stock equal to 15% of the amount of the financing
attained by the Finder.
In April 2005 the Company entered into two short term research and development
agreements aggregating $220,000.
5
MARKETSHARE RECOVERY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - SUBSEQUENT EVENTS
On July 5, 2005 the Company's Board of Directors resolved to the following
common stock and stock option issuances:
o 750,000 shares of common stock to an employee; 500,000 shares
immediately and 250,000 shares on the second anniversary of his four
year employment contract (see Note 9).
o 750,000 common stock purchase options, exercise price $.50 per
share, to an employee (see above).
o 750,000 common stock purchase options, exercise price $.50 per
share, to the Company's CEO.
6
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background
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 NewYork
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
MarketShareRecovery, Inc.
MarketShare Recovery, the parent company's operating subsidiary
similarly named MarketShare Recovery, Inc., was incorporated in New York in
November 2000. The subsidiary, MarketShare Recovery, Inc. was a provider of
online direct marketing solutions for enterprises. The solutions enabled
corporations to create and deliver online direct marketing programs that drive
revenue, influence behavior and deepen customer relationships. Our solutions
provided customer insight and powerful program execution through a combination
of hosted applications and technology infrastructure.
We had derived our revenues from the sale of solutions that enable
businesses to proactively communicate with their customers online. Primarily,
these services have consisted of the design and execution of online direct
marketing campaigns and additional services provided by our Professional
Services organization, including the development and execution of Customer
Acquisition programs. Revenue for direct marketing and acquisition campaigns
were recognized when persuasive evidence of an arrangement exists, the campaign
has been sent, the fee was fixed or determinable and collection of the resulting
receivables is reasonably assured. Revenue generated by our professional service
organization was typically recognized as the service is provided.
Our ability to grow and operate our existing business was
constrained by new technologies and e-mail filtering devices installed at
internet service providers and on consumer's personal computers. These programs
block our emails from reaching their final destination, which in turn affected
our ability to effectively market our services. These technological obstacles
have been put in place to combat spam however their effect has been more
widespread and has adversely affected our ability to deliver our clients
messages to our opt-in database of users. As a result, we found it harder to
maintain and grow our business as we were not able to deliver as many
advertisements for our clients and in turn had having difficulty in recruiting
new sales persons as well as retaining members of our existing sales force.
As a result of the foregoing, we decided to discontinue that
business and sought out new business opportunities. On October 7, 2004, the
Company entered into an Asset Purchase Agreement with Palomar Enterprises, Inc.
(the "Agreement"). Pursuant to the Agreement, the Company agreed to purchase
3
certain assets, including certain automotive notes and contracts, a business
plan and model for an automotive financial services company and a data base of
potential customers and $150,000 in cash from Palomar in exchange for 85%, a
controlling interest.
On November 2, 2004, by mutual agreement, the Company and Palomar
terminated the Agreement. As a result of the foregoing, there will be no change
of control of the Company as reported in the Company's Form 8-K filed with the
SEC on October 13, 2004.
On January 13, 2005 we entered into a letter of intent, which was
amended on March 11, 2005 for the acquisition of bioMetrx Technologies, Inc., a
development stage company engaged in the development of biometrics-based
products for the homes security and electronics market, including biometrically
enabled residential door locks, central station alarm keypads, thermostats and
garage/gate openers.
On May 27, 2005, we completed the merger ("Merger") of MarketShare
Merger Sub, Inc. a wholly owned subsidiary of the Company ("Merger Sub") with
bioMetrx Technologies, Inc. a Delaware corporation ("bioMetrx") pursuant to the
Agreement and Plan of Merger dated April 27, 2005, by and among the Company,
Merger Sub and bioMetrx ("Merger Agreement").
On June 1, 2005 (the "Effective Date"), Merger Sub filed a Merger
Certificate completing the acquisition of bioMetrx. The consideration for the
Merger was 14,218,424 restricted shares of our common stock and the issuance of
182,027 Common Stock Purchase Warrants to the holders of corresponding
instruments of bioMetrx. The Merger was completed according to the terms of the
Merger Agreement. Simultaneously with the Merger, certain stockholders of the
Company surrendered 2,208,521 shares of the Company's common stock which was
cancelled and returned to the status of authorized and unissued. In addition,
300,000 shares of the Company's common stock were deposited by these
stockholders into escrow to cover contingent liabilities, if any. As a result of
the Merger, bioMetrx was merged into the Merger Sub and became our wholly owned
subsidiary.
Since the Company had no meaningful operations immediately prior to
the Merger, the Merger will be treated as a reorganization of bioMetrx via a
reverse merger with the Company for accounting purposes.
The 14,218,424 shares and the shares issuable upon the exercise of
182,027 warrants issued as part of Merger to the former bioMetrx stockholders
represent approximately 90% of the total outstanding post-merger stock.
Plan of Operations
bioMetrx is a developer of proprietary biometrics-based products for
the home security and electronics market, located on Long Island, New York.
Founded in 2001, bioMetrx is focused on developing a line of home
security products called smartTouchtm which includes biomedical enabled
residential door locks, central station alarm keypads, thermostats and
4
garage/gate openers. Our products utilize fingerprints recognition technology
designed to augment or replace conventional security methods such as keys,
keypads, and PIN numbers.
The home security industry consists of garage door manufacturers,
key and lock manufacturers and central station alarm monitoring companies,
representing a $25 billion global market. bioMetrx develops market- specific
products in this area which will either be licensed or sold through
manufacturers/ retailers worldwide when deemed commercially viable. bioMetrx, to
date, has not introduced its products and services commercially and is
considered a development stage enterprise. bioMetrx has limited assets,
significant liabilities and limited business operations. To date, activities
have been limited to organizational matters, development of its products and
services and capital raising.
Management's plan of operations for the next twelve months is to
raise additional capital, complete development of its product line and commence
marketing the Company's products and services. The Company expects it will
require $6,000,000 over the next 12 months to accomplish these goals and expects
to be financed by the private sale of its securities. There are no firm
commitments on anyone's part to invest in the Company and if it is unable to
obtain financing through the sale of its securities or other financing, the
Company's products and services may never be commercially sold.
From inception (February 1, 2001) through June 30, 2005, bioMetrx
has not generated any revenues. During the period from inception (February 1,
2001) through June 30, 2005, bioMetrx had net losses totaling $9,532,517. During
the three months ended June 30, 2005, net losses totaled $7,728,638. From
inception through June 30, 2005, bioMetrx' general and administrative expenses
totaled $3,301,375 or 34.6% of total expenses, while for the three months ended
June 30, 2005 general and administrative expenses totaled $2,125,230 or 27.5% of
total expenses. From inception through June 30, 2005, bioMetrx incurred salaries
and stock-based compensation of $5,880,833 or 61.7% of expenses, of which
$5,447,500 or 70.5% of total expenses was incurred during the three months ended
June 30, 2005. Research and development costs were $345,946 or 3.6% of total
expenses incurred in the period from inception through June 30, 2005, while
research and development costs during the three months ended June 30, 2005
totaled $155,908 or 2.0% of total expenses.
In December 2002, bioMetrx entered into a five-year employment
agreement with its CEO, Mark Basile. The employment agreement has an annual base
salary of $360,000. Accrual of compensation may be converted into shares of the
Company's common stock at $.50 per share, which can be converted at any time
after each twelve (12) months of service, but in no event shall cash
compensation be less than $60,000 per annum. For the years ended December 31,
2004 and 2003, Sixty Thousand Dollars ($60,000) and $0, respectively, was paid
under this employment agreement. For the three months ended June 30, 2005,
$130,000 was paid under this employment agreement.
In January 2004, bioMetrx entered into a four (4) year employment
agreement with Steven Kang for a base annual salary of $120,000. The agreement
has the same accrual and conversion terms as Mr. Basile's agreement, except that
in no event, shall cash compensation be less than $20,000 per annum. For the
5
year ended December 31, 2004 there was no cash paid under this employment
agreement. For the three months ended June 30, 2005, $7,500 was paid under this
employment agreement.
In April 2005 bioMetrx entered into two short-term research and
development agreements aggregating $220,000.
Liquidity and Capital Resources
Since inception, bioMetrx has financed its activities from the
private sales of its securities. In November 2001 bioMetrx issued 1,099,999
shares of its common stock, valued at $275,000 ($.25 per share), for services
rendered. In December 2002, bioMetrx sold 20,000 shares of its common stock for
$5,000 ($2.50 per share).
In 2003, bioMetrx sold 925,000 shares of its common stock for gross
proceeds of $231,250 or $.25 per share. During 2003, bioMetrx issued 300,000
shares of its common stock, valued at $150,000 ($.50 per share), for services
rendered to it pursuant to consulting agreements. During 2003, bioMetrx issued
140,000 shares of its common stock, valued at $140,000 ($1.00 per share), as
commission on sales of its stock. Also in 2003 bioMetrx issued 378,000 shares of
its common stock, valued at $94,500 ($.25 per share), as commission on sales of
its common stock.
In 2004, bioMetrx sold 108,000 shares of its common stock for
aggregate gross proceeds of $27,000 ($.25 per share). During that same year,
bioMetrx sold 335,000 shares of its common stock for aggregate gross proceeds of
$335,000 ($1.00 per share). Also in 2004, bioMetrx issued 200,000 and 35,000
shares of its common stock valued at $200,000 and $8,750, respectively, as
commissions on sales of its common stock.
As of June 30, 2005, bioMetrx had total assets of $1,123,224 and
total current assets of $1,120,364. At June 30, 2005 bioMetrx had total
liabilities of $2,764,292 and total current liabilities of $2,764,292. bioMetrx'
working capital deficit at June 30, 2005 was $1,643,928 and an equity deficiency
of $1,641,068.
bioMetrx is dependent on raising additional funding necessary to
implement its business plan. bioMetrx' auditors have issued a "going concern"
opinion on the financial statement for the year ended December 31, 2004,
indicating bioMetrx is in the development stage of operations, has a working
capital and net equity deficiency. These factors raise substantial doubt in
bioMetrx' ability to continue as a going concern. If bioMetrx is unable to raise
the funds necessary to complete the development of its products and fund its
operations, it is unlikely that bioMetrx will remain as available going concern.
Critical Accounting Policies and Estimates:
The preparation of financial statements in conformity in conformity
with accounting principles generally accepted in the United States of America
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
6
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.
Information Relating To Forward-Looking Statements
When used in this Report on Form 10-QSB, the words "may," "will,"
"expect," "anticipate," "continue," "estimate," "intend," "plans", and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 regarding events, conditions and financial
trends which may affect the Company's future plans of operations, business
strategy, operating results and financial position. Such statements are not
guarantees of future performance and are subject to risks and uncertainties and
actual results may differ materially from those included within the
forward-looking statements as a result of various factors. Such factors include,
among others: (i) the Company's ability to obtain additional sources of capital
to fund continuing operations; in the event it is unable to timely generate
revenues (ii) the Company's ability to retain existing or obtain additional
licensees who will act as distributors of its products; (iii) the Company's
ability to obtain additional patent protection for its technology; and (iv)
other economic, competitive and governmental factors affecting the Company's
operations, market, products and services. Additional factors are described in
the Company's other public reports and filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities", SFAS No.
147, "Acquisitions of Certain Financial Institutions - an Amendment of FASB
Statements No. 72 and 144 and FASB Interpretation No. 9", SFAS No. 148, "
Accounting for Stock-Based Compensation - Transition and Disclosure - an
Amendment of FASB Statement No. 123", SFAS No. 149, "Amendment of Statement 33
on Derivative Instruments and Hedging Activities", and SFAS No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity", were recently issued. SFAS No. 146, 147, 148, 149 and 150 have no
current applicability to the Company or their effect on the financial statements
would not have been significant.
In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement No. 123R)"SFAS 123R") "Share Based Payment, "a revision of
Statement No. 123, "Accounting for Stock Based Compensation." This standard
requires the Company to measure the cost of employee services received in
exchange for equity awards based on grant date fair value of the awards. The
Company is required to adopt SFAS 123R effective January 1, 2006. The standard
provides for a prospective application. Under this method, the Company will
begin recognizing compensation cost for equity based compensation for all new or
modified grants after the date of adoption.
7
In addition, the Company will recognize the unvested portion of the
grant date fair value of awards issued prior to the adoption based on the fair
values previously calculated for disclosure purposes. At December 31, 2004, the
Company had no unvested options.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Non-monetary Assets," ("SFAS 153"). SFAS 153 amends Accounting Principles Board
("APB") Opinion No. 29, Accounting for Non-monetary Transactions," to require
exchanges of non-monetary assets are accounted for at fair value, rather than
carryover basis. Non-monetary exchanges that lack commercial substance are
exempt from this requirement.
SFAS 153 is effective for non-monetary exchanges entered into in fiscal
years beginning after June 15, 2005. The Company does not routinely enter into
exchanges that could be considered non-monetary; accordingly the Company does
not expect adoption of SFAS 153 to have a material impact on the Company's
financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities - an Interpretation of Accounting Research
Bulletin No. 51" (FIN No. 46"). This interpretation provides guidance related to
identifying variable interest entities (previously known generally as special
purpose entities or SPEs) and determining whether such entities should be
consolidated. Certain disclosures are required when FIN No. 46 becomes effective
if it is reasonably possible that a company will consolidate or disclose
information about a variable interest entity when it initially applies FIN No.
46. This interpretation must be applied immediately to variable interest
entities created or obtained after January 31, 2003. For those variable interest
entities created or obtained on or before January 31, 2003, the Company must
apply the provisions of FIN No. 46 for the year ended December 31, 2003. FIN No.
46 did not apply to the Company's financial position or results of operations.
COMMITMENTS
We do not have any commitments that are required to be disclosed in
tabular form as of December 31, 2004 and as of June 30, 2005.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements.
Item 3: Controls and Procedures
Pursuant to provisions of the Securities Exchange Act of 1934, the
Company's Chief Executive Officer and Chief Financial Officer are responsible
for establishing and maintaining disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under their supervision,
for the Company. They have designed such disclosure controls and procedures to
ensure that material information relating to the Company, is made known to them
by others within the Company, particularly during the periods when the Company's
quarterly and annual reports are being prepared.
8
Changes in Internal Controls. During the second quarter of fiscal
year 2005, there were no changes in our internal control over financial
reporting that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. However, we intend to
continue to refine our internal controls on an ongoing basis. Our management and
our independent auditors have reported to our board of directors certain matters
involving internal controls that our independent auditors considered to be
material weaknesses, under standards established by the American Institute of
Certified Public Accountants. The material weakness relates to the December 31,
2004 financial closing process. Certain adjustments were identified in the
annual audit process, related to the accounting for stocks received by
customers, payment of commissions with marketable securities, as well as the
lack of segregation of duties in the process of cash receipts and disbursements.
In addition, there were instances where accounting analyses did not include
evidence of a timely review. The adjustments related to these matters were made
by the Company in connection with the preparation of the audited financial
statements for the year ended December 31, 2004.
Given these material weaknesses, management devoted additional
resources to resolving questions that arose during our year-end audit. As a
result, we are confident that our consolidated financial statements for the year
ended December 31, 2004 and for this quarter ended June 30, 2005 fairly present,
in all material respects, our financial condition and results of operations.
The material weaknesses have been discussed in detail among
management, our board of directors and our independent auditors, and we are
committed to addressing and resolving these matters fully and promptly, by
putting in place the personnel, processes, technology and other resources
appropriate to support our revenue recognition and financial close processes. In
that regard we will contract a full time CPA who will serve as our CFO and will
assist in the preparation of our financial statements, 10-QSB's and 10-KSB's. We
have completed a full review of our revenue recognition policy and practices and
have implemented a number of process improvements. We completed a review of our
financial disclosure process and we have implemented needed improvements in this
quarter ending June 30, 2005.
9
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
None
Item 2: Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) On June 1, 2005 (the "Effective Date"), Merger Sub, our wholly owned
subsidiary, filed a Merger Certificate completing the acquisition of
bioMetrx, a previously unaffiliated Delaware corporation. The
consideration for the Merger was 14,218,424 restricted shares of our
common stock and the issuance of 182,029 Common Stock Purchase
Warrants to the holders of corresponding instruments in bioMetrx.
The Merger was completed according to the terms of the Merger
Agreement. Simultaneously with the Merger, certain of our
stockholders surrendered 2,208,521 shares of our common stock which
was cancelled and returned to the status of authorized and unissued.
In addition, 300,000 shares of our common stock were deposited by
these stockholders into escrow to cover contingent liability, if
any. These securities were issued in reliance upon Section 4(2) and
4(6) of the Securities Act of 1933, as amended (the "Act"). As a
result of the Merger, bioMetrx was merged into Merger Sub and became
our wholly owned subsidiary.
On July 5, 2005, the Company consummated the private sale of its
Securities to Russell Kuhn (the "Purchaser"). The securities sold
were Nine Hundred and Thirty Three Thousand Three Hundred and
Thirty-Four (933,334) shares of the Company's common stock (the
"Shares") and warrants (the "Warrants") to purchase an additional
One Hundred and Eighty-Six Thousand Six Hundred and Sixty-six
(186,666) shares of the Company's Common Stock. The aggregate
purchase price for the securities was $700,000 or $.75 per share
without allocating any part of the purchase price for the Warrants.
At the closing the Registrant delivered 933,334 shares and 186,666
Warrants to the Purchaser.
The Warrants entitle the Purchaser to purchase shares of the
Company's common stock reserved for issuance thereunder (the
"Warrant Shares") for a period of five years from the date of
issuance. Twenty percent the Warrants are exercisable per year on a
cumulative basis at varying prices as set forth below:
10
Date(s) of Exercise Amount Exercise Price
------------------- ------ --------------
7/5/05 - Expiration Date 37,333 $ .60
7/5/06 - Expiration Date 37,333 $ .70
7/5/07 - Expiration Date 37,333 $ .80
7/5/08 - Expiration Date 37,333 $ .90
7/5/09 - Expiration Date 37,334 $ 1.00
-----
TOTAL: 186,666
=======
Pursuant to the Subscription Agreement, the Company agreed to
file with the Securities and Exchange Commission ("SEC") a
Registration Statement covering the Shares. If such
Registration Statement is not filed by the Company on or
before September 15, 2005 the Company has agreed to deliver
the Purchaser an additional Two Hundred Thousand (200,000)
shares ("Penalty Shares") of Company's Common Stock. If the
Company fails to file a Registration Statement by October 5,
2005, the Purchaser shall be entitled to an additional One
Hundred Thousand (100,000) Penalty Shares and a like number of
Penalty Shares for each month thereafter the Company does not
file such Registration Statement with the SEC by the fifteenth
day of each successive month.
As a result of this transaction, the Purchaser owns
approximately 10.43% of the issued and outstanding shares of
the Company's Common Stock. This amount does not reflect an
additional 344,950 shares which may be obtained by the
Purchaser from the exercise of the Warrants described above,
plus an additional 158,284 Warrants owned by the Purchaser
prior to the consummation of this transaction.
The Company will utilize the proceeds from this offering for
general working capital.
In April 2005 the Company entered into a consulting agreement
with Steven Horowitz and Arnold Kling, for general financial
consulting services in connection with potential merger and
fund raising activities. In connection with this agreement the
Company issued 500,000 shares of common stock valued at $1 per
share.
On July 5, 2005 the Company issued to Mr. Steven Kang, the
Company's Chief Operating Officer and Secretary, 500,000
shares of its common stock as compensation. In addition, the
Company agreed to issue Mr. Kang an additional 250,000 shares
on the second anniversary of his employment agreement (January
1, 2006).
On July 5, 2005, the Company issued an aggregate of 1,500,000
stock options to Mark Basile (750,000), the Company's
President and CEO, and Steven Kang (750,000), the Company's
Chief Operating Officer and Secretary. Each option is
exercisable for a term of five years at $.50 per share.
The securities discussed above were offered and sold in
reliance upon exemptions from the registration requirements of
Section 5 of the Securities Act of 1933, as amended (the
11
"Act"), pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder. Such securities were sold exclusively
to accredited investors as defined by Rule 501(a) under the
Act.
(d) Not Applicable
Item 3.: Defaults upon Senior Securities
None
Item 4.: Submission of Matters to a Vote of Security Holders
None
Item 5.: Other Information
On April 18, 2005, based upon the recommendation of and approval by our
board of directors, MarketShare Recovery, Inc. (the "Company") dismissed Marcum
& Kliegman LLP ("M&K") as its independent auditor and engaged Wolinetz & Lafazan
& Co. to serve as its independent auditor for the fiscal year ending December
31, 2005.
M&K's reports on the Company's consolidated financial statements for
each of the fiscal years ended December 31, 2004 and 2003 did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles. However, M&K's reports
each contained an explanatory paragraph about the Company's ability to continue
as a going concern.
During the years ended December 31, 2004 and 2003 and through April 18,
2005, there were no disagreements with M&K on any matter of accounting principle
or practice, financial statement disclosure or auditing scope or procedure
which, if not resolved to M&K's satisfaction, would have caused them to make
references to the subject matter in connection with their reports of the
Company's consolidated financial statements for such years.
Item 6.: Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
31.1 Certification of Chief Executive Officer of Periodic
Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2 Certification of Chief Financial Officer of Periodic
Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 31, 2005 MARKETSHARE RECOVERY, INC.
By: /s/ Mark Basile
---------------------------
Mark Basile
Chief Executive Officer
By: /s/ Frank Giannuzzi
---------------------------
Frank Giannuzzi
Chief Financial Officer