SCHEDULE 14C AND 14F- INFORMATION
(Rule 14c-10 & Rule 14f-10)
Information Statement Pursuant to Section 14(c) and Section 14(f) of the
Securities Exchange Act of 1934 (Amendment No.1)
Check the appropriate box:
[X] Preliminary Information Statement [ ] Confidential, for use of the
[ ] Definitive Information Statement Commission only
(as permitted by Rule 14c-5(d)(2))
DOMINIX, INC.
(Name of Registrant as Specified in Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14c- 5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
N/A
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
DOMINIX, INC.
40 MARQUETTE DRIVE
SMITHTOWN, NEW YORK 11787
Information Statement pursuant to sections 14(C) and 14(F) of the securities and
exchange act of 1934
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement (the "Information Statement") is being mailed on or
about January ___, 2004 to the holders of record at the close of business on
January 15, 2004 (the "Record Date") of the shares of common stock, $.001 par
value per share ("Common Stock") of Dominix, Inc. (the "Company"), in connection
with the Company's acquisition of MarketShare Recovery, Inc., a New York
corporation (the "MarketShare Acquisition") and merger with Jade Entertainment
Group, Inc., a New York corporation (the "Jade Merger") and the appointment of
certain persons to the Board of Directors of the Company other than at a meeting
of the shareholders of the Company.
This Information Statement is also being mailed to the Company's shareholders in
connection with a proposed action by written consent to authorize and approve:
1. An amendment and restatement of the Company's Certificate of Incorporation
which (a) changes the name of the Company to "110 Media Group, Inc."; (b)
reverse splits the outstanding shares of the Company's Common Stock one-for-two
hundred (the "Reverse Split"); (c) changes the number of shares of Common Stock
the Company is authorized to issue to 50,000,000 post Reverse Split; and (d)
increases the number of shares of Preferred Stock, no par value, the Company is
authorized to issue from 5,000,000 to 10,000,000 post Reverse Split.
2. The adoption of the Company's 2003 Equity Incentive Plan.
The Company has obtained all necessary corporate approvals in connection with
the foregoing actions and your consent is not required and is not being
solicited in connection with the approval of the foregoing action (collectively,
the "Stockholder Matters"). Section 228 of the Delaware General Corporation Law
and the bylaws of the Company provide that any action required or permitted to
be taken at a meeting of the stockholders may be taken without a meeting if
stockholders holding at least a majority of the voting power sign a written
consent approving the action. Dissenting shareholders do not have any statutory
appraisal rights as a result of the action taken. On November 25, 2003,
stockholders of the Company that owned 19,231,410 shares of the Company's Common
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Stock, and holders of Series A Preferred Stock of the Company that owned
2,824,999 shares of Series A Preferred Stock and entitled to vote 564,999,800
shares of the Common Stock which in combination constituted 66%% of the
outstanding shares entitled to vote, executed written consents to approve the
foregoing actions. The corporate action will be effective 20 days after the
mailing of this Information Statement.
This Information Statement is being distributed pursuant to the requirements of
Sections 14(c) and 14(f) of the Securities Exchange Act of 1934.
The entire cost of furnishing this Information Statement will be borne by the
Company. The Company will request brokerage houses, nominees, custodians,
fiduciaries and other like parties to forward this Information Statement to the
beneficial owners of the Common Stock held of record by them and will reimburse
such persons for their reasonable charges and expenses in connection therewith.
Expenses in connection with the distribution of this information Statement will
be paid by the Company and are anticipated to be less than $10,000.
INFORMATION RELATING TO THE COMPANY'S COMMON STOCK
The shares of Common Stock and the shares of Series A Preferred Stock and a
newly created Series B Preferred Stock issued to the shareholders of Jade in
connection with the Jade Merger are the only classes of voting securities
currently outstanding. The Company is authorized to issue 200,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. Each share of Common Stock
is entitled to one vote per share on all matters submitted to a vote of the
shareholders. Each share of Series A Preferred Stock is entitled to two hundred
(200) votes per share on all matters submitted to a vote of the shareholders.
Each share of Series B Preferred Stock is entitled to approximately 12,142 votes
per share on all matters submitted to a vote of the shareholders. As of January
15, 2004, the Company had 197,140,105 shares of Common Stock outstanding, which
is the same number of votes this class is entitled to cast, 3,439,999 shares of
Series A Preferred Stock outstanding, which entitles this class to have an
aggregate of 687,999,800 votes cast and 82,167 shares of Series B Preferred
Stock outstanding, which entitles this class to have an aggregate of 997,675,000
votes cast on Stockholder Matters. The outstanding Common Stock of the Company
does not include shares of Common Stock to be issued effective upon the Reverse
Split to accredited investors in the Company's private placement of convertible
notes (the "Notes") pursuant to which the Company raised gross proceeds of
$575,000 and closed such private placement on December 1, 2003 (the "Private
Placement"), and up to 330,000 shares of Common Stock to be issued effective
upon the Reverse Split pursuant to agreements with several of the Company's
holders of its outstanding convertible securities (the "Settlement Shares"). The
Company will issue 575,000 shares of Common Stock and warrants to acquire
287,500 shares of Common Stock at an exercise price of $1.75 in connection with
the conversion of the Notes to the accredited investors in the Private Placement
upon the Reverse Split becoming effective. The Company will also issue a warrant
to acquire 10,000 shares of Common Stock at an exercise price of $1.00 and a
warrant to acquire 10,000 shares of Common Stock at an exercise price of $1.75
to CGF Securities, LLC as a selling agent commission as consideration for its
participation in raising capital in the Private Placement. Such warrants are to
be issued upon the Reverse Split becoming effective. The outstanding Common
Stock does not include the 500,000 shares of Common Stock to be issued effective
upon the Reverse Split which were awarded under the Company's 2003 Equity
Incentive Plan.
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CHANGES OF CONTROL OF THE COMPANY
Effective with the closing of the Jade Merger on December 5, 2003, Raymond
Barton and Timothy Schmidt who were the management of Jade, were appointed by
the Company's sole director as the Company's Chief Executive Officer and
President, respectively. Ten days after the mailing of this Information
Statement, the Company's sole director, Mr. Andrew J. Schenker, will nominate
and elect Messrs. Schmidt and Barton to the Company's Board of Directors and he
will resign all his positions with the Company. There are no other
understandings or arrangements between Mr. Schenker and the new management team
of the Company.
Prior to the Jade Merger, the Company had no significant assets and was a
"shell" company with minimal assets and no operations. As a result of the Jade
Merger, the shareholders of Jade received a newly created Series B Preferred
Stock of the Company convertible into 997,675,000 shares of Common Stock of the
Company which together with the issuance of 85,000,000 shares of the Company's
Common Stock equals approximately fifty percent (50%) of the Common Stock
outstanding of the Company on a fully diluted basis as of the date of the
closing of the Jade Merger and the closing of the MarketShare Acquisition. As a
further result of the Jade Merger, Messrs. Barton and Schmidt became "control
persons" of the Company, as that term is defined in the Securities Act of 1933,
as amended (the "Act"). Pursuant to Rule 405 of the Act, the term (control"
including the terms "controlling", "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person, whether though
ownership of voting securities, by contract or otherwise. Mr. Schenker delivered
his letter of resignation as President of the Company effective upon such
appointments and intends to deliver a letter of resignation as a member of the
Board of Directors of the Company effective 10 days after the mailing of this
Information Statement.
BOARD OF DIRECTORS
GENERAL
Management of the Company, prior to the Jade Merger and MarketShare Acquisition
is set forth below:
Name Age Position
- ---- --- --------
Andrew J. Schenker 43 President, Treasurer, Secretary and
Sole Director
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Mr. Schenker was appointed Director, President and Secretary of the Company on
April 30, 2002. Mr. Schenker became the sole director of the Company in April
2003. Since January 2002, Andrew J. Schenker has also been the President of
CDKnet.com, Inc. where he has also been a director since May, 1998. Effective
November, 2003, Mr. Schenker became the Senior Vice President and Chief
Financial Officer of Genio Group, Inc. Prior to November 2003, Mr. Schenker was
a Director of Genio Group, Inc. since October 2002 when it was known as National
Management Consulting, Inc. From November 1986 to May 2001, he held several
financial management positions at Symbol Technologies, Inc., most recently at
the position of General Manager for Education Marketing-Worldwide at Symbol
Technologies, Inc. He is also the trustee for several trusts and a public
foundation, as well as an executive committee member of the Smithtown Central
School District Industry Advisory Board. Mr. Schenker is a graduate of Hofstra
University where he received a Bachelor of Arts Degree in Accounting in 1982.
Ten days after mailing this Information Statement, Mr. Schenker will resign as
the Company's sole director and will nominate and elect the following
individuals to the Company's Board of Directors:
Name Age Position
---- --- --------
Raymond Barton 33 CEO and Chairman
Timothy Schmidt 32 President and a Director
Raymond Barton and Timothy Schmidt co-founded Jade Entertainment Group, Inc. and
MarketShare Recovery, Inc. Raymond Barton serves as Chairman of the Board of
Directors, Chief Operating Officer and Chief Technology Officer of MarketShare
Recovery, Inc. Mr. Barton also serves as the Chairman of the Board of Directors
and Chief Technology Officer of Jade Entertainment Group, Inc. Prior to
co-founding Jade Entertainment Group, Inc. and MarketShare Recovery, Inc., Mr.
Barton was a stock broker at Meyers Pollock Robbins, and at Continental Broker
Dealers where he served as a retail broker. Mr. Barton also served as Business
Development Manager with PcQuote, Inc. and was in charge of developing business
contacts and negotiating joint ventures. Prior to that Mr. Barton served as
Executive Vice President of Financialweb.com, where his responsibilities
included managing the production of online content. Mr. Barton served as the
CEO/President of Thinkersgroup, Inc. a mobile wireless software developer, where
he developed the Company's business. Mr. Barton attended the State University of
New York at Farmingdale, and received a Bachelor of Arts Degree in criminal
justice from New York City Police Academy in 1991.
Timothy Schmidt has served as the President and CEO of MarketShare Recovery,
Inc. since its inception in January 2000. Mr. Schmidt is also the Chief
Executive Officer, Chief Financial Officer, President and director of Jade
Entertainment Group, Inc. Prior to these positions, Mr. Schmidt served as Chief
Operating Officer for Thinkersgroup.com, a wireless developer of software
applications where he managed company operations, administration and human
resources. Mr. Schmidt attended the State University of New York at Farmingdale
where he studied Business Administration from 1989 through 1991.
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 8, 2003, information with respect
to the securities holdings of all persons which the Company, pursuant to filings
with the Securities and Exchange Commission, has reason to believe may be deemed
the beneficial owners of more than 5% of the Company's outstanding Common Stock,
Series A Preferred Stock and Series B Preferred Stock calculated on an as
issued, as converted basis. For purposes of calculations for this table, the
total number of outstanding shares is 10,319,075. Also set forth in the table is
the beneficial ownership of all shares of the Company's outstanding stock, as of
such date, of all officers and directors, individually and as a group.
Percent of
Amount of Beneficial
Beneficial Ownership and
Name and Address Class Ownership (1) Voting Power (2)
- ---------------- ----- ------------- ----------------
Andrew J. Schenker Common 100,000 .99%
Director
Ray Barton(3) Common 2,575,332 24.9%
Chief Executive Officer
Timothy Schmidt(4) Common 1,291,916 12.5%
President
Steven A. Horowitz(5) Common 693,666 6.7%
Snapper Partners, LLC(6) Common 545,000 5.3%
All Directors and Officers as a Group Common 3,967,248 38.5%
(3 Persons)
(1) Except as otherwise indicated, includes (i) total number of shares
outstanding and the number of shares which each person has the right to acquire
within 60 days through the exercise of warrants or the conversion of Series A
Preferred Stock and Series B Preferred Stock pursuant to Item 403 of Regulation
S-B and Rule 13d-3(d)(1), promulgated under the Securities Exchange Act of 1934
and takes into account (ii) the Reverse Split; (iii) the issuance of securities
in the Private Placement; (iv) the Settlement Shares, which in the aggregate
equals 330,000 shares of Common Stock; (v) the Shares underlying the Series B
Preferred Shares issued to the Jade shareholders, but does not take into account
the Shares underlying the Series B Preferred Shares to be issued upon the
closing of the Market Share Acquisition.
(2) This column takes into account the disproportionate voting rights granted to
the holders of the Series A Preferred Stock and the Series B Preferred Stock.
Holders of Series A Preferred Stock and Series B Preferred Stock are each
entitled to two hundred (200) votes per share for every Series A or Series B
shares held.
(3) Includes ownership of 37,796.82 Series B Preferred Shares which converts
into 2,294,832 Post Reverse Split shares of common stock and 280,500 shares of
Post Reverse Split common stock received from the Jade Merger. Does not include
the 17,833 shares of Series B Preferred Stock that MarketShare will receive upon
the closing of the MarketShare Acquisition. Mr. Barton will not receive these
shares directly but will instead by virtue of his ownership of shares of common
stock of MarketShare, indirectly have ownership of the shares of Series B
Preferred Stock that MarketShare, will receive in the MarketShare Acquisition.
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(4) Includes ownership of 18,898.41 Series B Preferred Shares which converts
into 1,147,416 Post Reverse Split shares of common stock and 144,500 shares of
Post Reverse Split common stock received from the Jade Merger. Does not include
the 17,833 shares of Series B Preferred Stock that MarketShare, Inc. will
receive upon the closing of the MarketShare Acquisition. Mr. Schmidt will not
receive these shares directly but will instead by virtue of his ownership of
shares of common stock of MarketShare, indirectly have ownership of the shares
of Series B Preferred Stock that MarketShare, will receive in the MarketShare
Acquisition.
(5) Does not include 141,000 shares of Series A Preferred Stock held by the law
firm of Morritt Hock Hamroff & Horowitz, of which Mr. Horowitz is a partner.
Also does not include 50,000 shares of Series A Preferred Stock held by
CDKNet.com, Inc., a company in which Mr. Horowitz is a shareholder and a
director and officer.
(6) Does not include 165,000 shares of Series A Preferred Stock each held by
Peter Christos and Arnold Kling, individually, the managing members of Snapper
Partners, LLC.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS AND DIRECTORS
We currently do not pay any compensation to any officers or directors nor did we
pay any compensation to any officers or directors for the fiscal year ended
December 31, 2002.
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities for the fiscal years ended December 31,
2000, 2001 and 2002. Other than as set forth herein, no executive officer's
salary and bonus exceeded $100,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted and certain other compensation, if any, whether paid or
deferred.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------- ------------
Fiscal Year
Ended
Name and Principal Position December 31 Salary ($) Bonus ($) Options/SARS (#)
- --------------------------- ----------- ---------- --------- ----------------
Andrew J. Schenker (1) 2002 $0 -0- -0-
President and Director 2001 $0 -0- -0-
2000 $0 -0- -0-
James W. Zimbler (2) 2002 $0 -0- -0-
Former Chairman and Chief Executive Officer 2001 $0 -0- -0-
2000 $0 $-0- -0-
Enrique J. Abreu (3) 2002 $0 -0- -0-
Former Chairman and Chief Executive Officer 2001 $175,000(4) -0- 1,000,000(5)
2000 $175,000(4) -0- -0-
Ric Cmiel (6) 2002 -0- -0- -0-
Former Director 2001 -0- -0- 1,000,000(5)
2000 -0- -0- -0-
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(1) Mr. Schenker became a director of the Company in April 2002 and in April
2003 he became Chairman of the Board of Directors and President of the Company.
(2) Mr. Zimbler resigned from his positions as Chairman and Chief Executive
Officer effective April 8, 2003.
(3) Mr. Abreau resigned as Chairman and Chief Executive Officer in April 2002.
(4) His salary was accrued but not paid during this period.
(5) Represents restricted stock awards issued April 29, 2002 and is pre-Reverse
Split.
(6) Mr. Cmiel resigned his position as Director in April 2002.
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
INDIVIDUAL GRANTS
% of Total
Options/SARs
Granted to Exercise or
Fiscal Options/SARs Employees in Base Price Expiration
Name Year Granted (#) Fiscal Year ($/Sh) Date
- ------------------------------------- --------- ---------------- ---------------- ------------- -------------
Enrique Abreu 2002 -0-(1) 0.0% -0- -
Former Chairman of the Board and
Chief Executive Officer
James W. Zimbler 2002 -0-(1) 0.0% -0- -
Former Chairman of the Board and
Chief Executive Officer
Andrew J. Schenker 2002 -0-(1) 0.0% -0- -
President and Director
Ric Cmiel 2002 -0-(1) 0.0% -0- -
Director
(1) No options were granted during fiscal year 2002.
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OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Value
- ------------------------------------- ------- ------------- --------- --------------------- -----------------
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Value FY-End (#) FY-End ($)(1)
Fiscal Acquired on Realized Exercisable / Exercisable /
Name Year Exercise (#) ($) Unexercisable Unexercisable
- ------------------------------------- ------- ------------- --------- --------------------- -----------------
Enrique Abreu 2002 -0- -0- (E) -0- / (U) -0- (E)$0 / (U)$0
Former Chairman of the Board and
Chief Executive Officer
James W. Zimbler 2002 -0- -0- (E)-0- /(U)-0- (E)$0 / (U)$0
Former Chairman of the Board and
Chief Executive Officer
Andrew J. Schenker 2002 -0- -0- (E) -0- (U) -0- (E)$0 / (U)$0
President and Director
Ric Cmiel 2002 -0- -0- (E) -0- (U) -0- (E)$0 / (U)$0
Former Director
(1) There were no outstanding options held by any of the Company's officers or
directors during the fiscal year ended December 31, 2002. Based upon the closing
price of the Company's Common Stock of $.02 per share as reported on the NASDAQ
OTC Bulletin Board as of December 31, 2002.
In addition to the foregoing, the Board of Directors and a majority of the
shareholders of the Company approved the Company's 2003 Equity Incentive Plan
(the "Plan"). Additional information concerning the Plan is set forth under the
caption "Approval of the 2003 Equity Incentive Plan," below.
APPROVAL OF AMENDMENT AND RESTATEMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION
At present, the Company is authorized to issue 200,000,000 shares of Common
Stock and 5,000,000 shares of Preferred Stock. The Company's sole director
approved an amendment and restatement to the Company's Certificate of
Incorporation to (a) change the name of the Company to "110 Media Group, Inc.";
(b) reverse split the outstanding shares of the Company's Common Stock
one-for-two hundred (the "Reverse Split"); (c) change the number of shares of
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Common Stock the Company is authorized to issue after the Reverse Split to
50,000,000; and (d) increase the number of shares of Preferred Stock, $.001 par
value the Company is authorized to issue after the Reverse Split to 10,000,000.
Among the factors considered in determining the amount by which the Common Stock
would be Reverse Split was a target price range of $2.00 and $2.50 and avoiding
the loss of a significant number of holders of at least 100 shares of Common
Stock (a "Round Lot"). Based on the most recent bid price of $.01 per share, a
one-for-two hundred Reverse Split would result in a theoretical price per share
of $2.00. The sole member of the board of directors determined that a
one-for-two hundred reverse split adequately balanced the objectives of reducing
the number of outstanding shares and maintaining at least 100 Round Lot holders.
The theoretical price ranges considered should not be interpreted an estimate of
value or a prediction of any market price. The sole board member has approved
these actions and has consented to the taking of these actions without a
meeting. A copy of the restated and amended Certificate of Incorporation
substantially in the form it will be filed with the Secretary of the State of
Delaware is attached hereto as Appendix A.
CHANGE OF CORPORATE NAME
The change of corporate name will become effective upon the filing with the
Secretary of State of an amendment and restatement to the Company's Certificate
of Incorporation which states that, upon the filing of the Certificate of
Amendment the name of the Corporation will be "110 Media Group, Inc."
The Company closed the Jade Merger on December 5, 2003, pursuant to which Jade
Entertainment Group, Inc., a New York corporation merged with a wholly owned
subsidiary of the Company. As a result of the Jade Merger, Jade became a wholly
owned subsidiary of the Company in exchange for the issuance of 85,000,000
shares of Common Stock and 82,167 shares of newly issued Series B Preferred
Stock of the Company to the shareholders of Jade that are convertible into
shares of Common Stock of the Company which in the aggregate is equal to
approximately fifty percent (50%) of the outstanding Common Stock of the Company
effective as of the closing of the Jade Merger and the closing of the
MarketShare Acquisition.
In addition, the Company also entered into a Stock Purchase Agreement dated as
of November 25, 2003 (the "Stock Purchase Agreement") with MarketShare Recovery,
Inc., a Delaware corporation, which owns all of the outstanding capital stock of
MarketShare Recovery, Inc., a New York corporation ("MarketShare") regarding
acquisition by the Company of all of the issued and outstanding common stock of
MarketShare. Pursuant to the Stock Purchase Agreement, the Company will acquire
MarketShare in exchange for the issuance of 17,833 shares of newly issued Series
B Preferred Stock of the Company to MarketShare Recovery, Inc., that are
convertible into 1,082,675 shares of Common Stock of the Company equal to ten
percent (10%) of the outstanding Common Stock of the Company effective as of the
date of the Stock Purchase Agreement. It is anticipated that a closing will
occur during January 2004 and the sole director believes it is prudent to take
the necessary corporate actions necessary to consummate the MarketShare
Acquisition and the Jade Merger, including the Reverse Split. Information
concerning Jade and MarketShare are set forth under the captions "Approval of
the Jade Merger" and Approval of the MarketShare Acquisition,", respectively
below. In the event that the MarketShare Acquisition does not close, the Company
will still implement the change of corporate name to 110 Media Group, Inc.
10
REVERSE SPLIT
As a result of the Reverse Split, each share of Common Stock outstanding at the
effective time of the Reverse Split, will, without any action on the part of the
holder thereof, each outstanding share will become one-two hundredth of a share
of Common Stock. For purposes of this description, the Common Stock, as
presently constituted, is referred to as the "Old Common Stock" and the Common
Stock resulting from the Reverse Split is referred to as the "New Common Stock."
The closing bid price of the Company's Common Stock on January 15, 2004 was
$.01.
The Reverse Split will become effective upon the filing with the Secretary of
State of an amendment and restatement to the Company's Certificate of
Incorporation which states that, upon the filing of the amended and restated
Certificate of Incorporation, each share of Old Common Stock then issued and
outstanding would automatically become one-two hundredth of a share of New
Common Stock. The Stock Purchase Agreement requires the Company to issue 17,833
shares of the Series B Preferred Stock at closing to MarketShare that can be
converted into a percentage of shares of Common Stock of the Company equal to
approximately 10% of the Company's outstanding shares as of the date of the
Stock Purchase Agreement, after giving effect to the Jade Merger and Reverse
Split of the Company's outstanding Common Stock. Each share of Series B
Preferred Stock is convertible into approximately 12,142 shares of Old Common
Stock or into 60.71497 shares of New Common Stock. Under the Jade Merger, the
Company issued 82,167 shares of Series B Preferred Stock that together with the
85 million shares of Common Stock previously issued at the closing can be
converted into a percentage of shares of Common Stock of the Company equal to
approximately 50% of the Company's outstanding shares as of the date of the
closing, after giving effect to such issuance and including the acquisition of
MarketShare. At the closing of the acquisition of MarketShare, the current
Dominix shareholders will own 40% of the Company, the Jade shareholders will own
approximately 50% and MarketShare will own approximately 10% of the Company.
There will be a total of 100,000 shares of Series B Preferred Stock issued and
outstanding in the event that the Company completes the MarketShare Acquisition
prior to the Reverse Split.
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PRINCIPAL EFFECTS OF THE REVERSE SPLIT
The principal effects of the Reverse Split will be as follows:
Based upon the 197,140,105 shares of Old Common Stock not including the shares
of Common Stock issuable upon conversion of the Series A Preferred Stock or the
shares of Common Stock issuable upon conversion of the Series B Preferred Stock)
outstanding on the Record Date, the Reverse Split would decrease the outstanding
shares of Old Common Stock by 200% or to approximately 985,700 shares. The
Amendment to the Certificate of Incorporation changes the authorized number of
shares of Common Stock from 200,000,000 to 50,000,000. Upon the effectiveness of
the Reverse Split and the completion of the Jade Merger and the MarketShare
Acquisition, the conversion of the Series A Preferred Stock and the conversion
of the Series B Preferred Stock, the issuance of shares of New Common Stock to
accredited investors in the Private Placement of the Company's securities
(discussed below), and the issuance of the Settlement Shares and shares under
the 2003 equity incentive, plan, approximately 11,901,750 shares of New Common
Stock would be outstanding.
The Company will obtain a new CUSIP number for the New Common Stock at the time
of the Reverse Split. Following the effectiveness of the Reverse Split, each yet
to be determined number of shares of Old Common Stock, without any action on the
part of the holder, will represent one share of New Common Stock.
Subject to the provisions for elimination of fractional shares, as described
below, consummation of the Reverse Split will not result in a change in the
relative equity position or voting power of the holders of Old Common Stock.
The Certificate of Restatement and Amendment of the Company's Certificate of
Incorporation will be filed with the Secretary of State of Delaware ten days
after the mailing of this Information Statement. The Reverse Split would become
effective as of the date of such filing (the "Effective Date").
PURPOSES OF THE REVERSE STOCK SPLIT
The Reverse Split will decrease the number of shares of Old Common Stock
outstanding and presumably increase the per share market price for the New
Common Stock. Theoretically, the number of shares outstanding should not, by
itself, affect the marketability of the stock, the type of investor who acquires
it, or the Company's reputation in the financial community, but in practice this
is not necessarily the case, as many investors look upon a stock trading at or
under $1.00 per share as unduly speculative in nature and, as a matter of
policy, avoid investment in such stocks.
12
Many leading brokerage firms are reluctant to recommend lower-priced securities
to their clients and a variety of brokerage house policies and practices
currently tend to discourage individual brokers within firms from dealing in
lower-priced stocks. Some of those policies and practices pertain to the payment
of brokers' commissions and to time-consuming procedures that make the handling
of lower priced stocks unattractive to brokers from an economic standpoint. In
addition, the structure of trading commissions also tends to have an adverse
impact upon holders of lower priced stocks because the brokerage commission on a
sale of a lower priced stock generally represents a higher percentage of the
sales price than the commission on a relatively higher priced issue.
In addition, there are not a sufficient number of authorized but unissued shares
of Common Stock to consummate the Jade Merger or the MarketShare Acquisition.
The sole director believes that the Reverse Split, the Jade Merger and the
MarketShare Acquisition are in the best interests of the Company and its
shareholders because the acquisitions will provide shareholders with operating
businesses with the potential for rapid growth. The Reverse Split is a post
closing condition to the Jade Merger and necessary to consummate the MarketShare
Acquisition and, if the Reverse Split is not consummated, the MarketShare
Acquisition will not take place and the Jade Merger may be reversed, and in such
case, the Company will remain a shell company with no significant assets or
business. Additionally, the Reverse Stock Split would reduce the number of
shares of its Common Stock outstanding to amounts that the sole director
believes are more reasonable in light of its size and market capitalization. The
Company requires additional capital for its operations and does not believe that
it will be able to raise the necessary capital unless the price of the Common
Stock is higher than the current Common Stock price levels. However, no
assurance can be given that the Reverse Split will result in any increase in the
Common Stock price or that the Company will be able to complete any financing
following the Reverse Split.
EXCHANGE OF CERTIFICATE AND ELIMINATION OF FRACTIONAL SHARE INTERESTS
On the Effective Date, shares of Old Common Stock will automatically be combined
and changed into one share of New Common Stock. No additional action on the part
of the Company or any shareholder will be required in order to effect the
Reverse Split. Shareholders will be requested to exchange their certificates
representing shares of Old Common Stock held prior to the Reverse Split for new
certificates representing shares of New Common Stock. Shareholders will be
furnished the necessary materials and instructions to effect such exchange
promptly following the Effective Date. Certificates representing shares of Old
Common Stock subsequently presented for transfer will not be transferred on the
books and records of the Company but will be returned to the tendering person
for exchange. Shareholders should not submit any certificates until requested to
do so. In the event any certificate representing shares of Old Common Stock is
not presented for exchange upon request by the Company, any dividends that may
be declared after the Effective Date of the Reverse Split with respect to the
Common Stock represented by such certificate will be withheld by the Company
until such certificate has been properly presented for exchange, at which time
all such withheld dividends which have not yet been paid to a public official
pursuant to relevant abandoned property laws will be paid to the holder thereof
or his designee, without interest.
No fractional shares of New Common Stock will be issued to any shareholder.
Accordingly, shareholders of record who would otherwise be entitled to receive
fractional shares of New Common Stock, will, upon surrender of their
certificates representing shares of Old Common Stock, receive a cash payment in
lieu thereof equal to the fair value of such fractional share. Holders of less
than sixty shares of Old Common Stock as a result of the Reverse Split will on
the Effective Date no longer be shareholders of the Company. The Board of
Directors had determined that the fair value of the Common Stock will be based
on the closing price of the Common Stock on the OTC-Bulletin Board on the
Effective Date (as adjusted to reflect the Reverse Split) or, if there are no
reported sales on the Effective Date, the average of the last reported high bid
and low ask price on the last date of reported sales shall be used.
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FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The combination of shares of the Old Common Stock into one share of New Common
Stock should be a tax-free transaction under the Internal Revenue Code of 1986,
as amended, and the holding period and tax basis of the Old Common Stock will be
transferred to the New Common Stock received in exchange therefor.
Generally, cash received in lieu of fractional shares will be treated as a sale
of the fractional shares (although in unusual circumstances such cash might
possibly be deemed a dividend), and shareholders will recognize gain or loss
based upon the difference between the amount of cash received and the basis in
the surrendered fractional share.
This discussion should not be considered as tax or investment advice, and the
tax consequences of the Reverse Split may not be the same for all shareholders.
Shareholders should consult their own tax advisors to know their individual
Federal, state, local and foreign tax consequences.
CHANGE IN AUTHORIZED CAPITAL STOCK
The sole director has approved an amendment to the Company's Certificate of
Incorporation which would change the number of authorized shares of Common
Stock, and the par value to $.001 per share. The number of authorized common
shares post Reverse Split would be increased to 50,000,000 shares. In addition,
the amendment will increase the number of authorized shares of Preferred Stock
from 5,000,000 to 10,000,000 shares post Reverse Split. As of the Record Date
there were 3,439,999 shares of Series A Preferred Stock outstanding and 82,167
shares of Series B Preferred Stock outstanding pursuant to the Jade Merger and
not including the 17,833 shares of Series B Preferred Stock to be issued in the
Market Share Acquisition.
CONVERSION OF NOTES
On December 1, 2003 the Company completed the Private Placement of the Notes
which resulted in the Company receiving gross proceeds of $575,000. In
connection with the Private Placement, the Company issued Notes in the principal
amount of $575,000. The Notes bear interest at the rate of 7% per annum and
mature one year from the date of issuance. The Notes (principal and accrued
interest) are convertible into Units of the Company's securities on the basis
that each $1.00 of the Notes will convert into one Unit comprised of one share
of New Common Stock and one warrant to purchase one-half share of Common Stock
for a two year period following issuance at an exercise price of $1.75 per
share. The Notes may be redeemed at any time by the Company, in whole or part,
pro rata, upon not less than ten (10) days nor more than twenty (20) days notice
for 120% of the principal amount. By their terms, the Notes automatically
converted upon the merger with Jade, however, the issuance of the Units cannot
occur until after the Reverse Split. Accordingly, the conversion of these Notes
is contingent upon the consummation of the Reverse Split and increase in
authorized shares. The Company used the proceeds of the Private Placement to
fund working capital.
The Company will also issue a warrant to acquire 10,000 shares of New Common
Stock at an exercise price of $1.00 per share and a warrant to acquire 10,000
shares of New Common Stock at an exercise price of $1.75 per share to CGF
Securities LLC as a selling agent commission as consideration for its
participation in raising capital in the Private Placement.
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DISCUSSION OF THE AMENDMENT
Under the Company's Certificate of Incorporation, the Board of Directors of the
Company has authority to issue authorized and unissued shares of Common and
Preferred Stock without obtaining approval from the holders of the Common Stock.
The holders of the Company's Common Stock and Preferred Stock do not have
preemptive rights. The Preferred Stock provisions give the Board of Directors
broad authority to issue shares of Preferred Stock in one or more series and to
determine such matters as the dividend rate and preference, voting rights,
conversion privileges, redemption provisions, liquidation preferences and other
rights of each series. Each share of Common Stock is entitled to one vote. The
holders of any series of preferred stock issued in the future will be entitled
to such voting rights as may be specified by the Board of Directors.
In connection with the Jade Merger, the Company issued 82,167 shares of a newly
created Series B Preferred Stock and in connection with the closing of the
MarketShare Acquisition, the Company will issue 17,833 shares of the Series B
Preferred Stock which Series B Preferred Stock contains certain rights,
including that may affect the rights of the holders of Common Stock including
(i) restrictions on the payment of dividends to the holders of the Common Stock;
(ii) dilution of voting power to the extent that the holder of the Preferred
Stock are given voting rights; (iii) dilution of the equity interests and voting
powers if the Preferred Stock is convertible into Common Stock; and (iv)
restrictions upon any distribution of assets to the holders of the Common Stock
upon liquidation or dissolution and until the satisfaction of any liquidation
preference granted to the holders of Preferred Stock. Because of the broad
powers granted to the Board of Directors to issue shares of Preferred Stock and
determine the rights, preferences and privileges of the holders of such series,
the Board of Directors has the power to issue shares of Preferred Stock in a
manner which could be used as a defensive measure against a hostile takeover or
to keep the Board of Directors in power. However, the Board of Directors has no
present plans to issue shares for such purpose.
As a result of the one-for-two hundred reverse split, the Company's outstanding
shares of Common Stock will be reduced by 200% and the number of combined shares
of Common Stock the Company will be authorized to issue will be decreased to
1,000,000. In order to consummate the Jade Merger and the MarketShare
Acquisition it is necessary to increase the number of authorized shares of the
Company's Common Stock.
As a result of the amendment the Company will be authorized to issue 50,000,000
shares of Common Stock of which approximately 10,826,750 shares on a fully
diluted basis will be issued and outstanding after the closing of the Jade
Merger and the MarketShare Acquisition but prior to any issuances of the
securities in the Private Placement and any issuances in connection with the
Stock Grant discussed below. The issuance of additional shares of Common Stock
will dilute shareholders equity interests and voting power in the Company. The
Board of Directors of the Company believes it will benefit the shareholders to
have additional unreserved shares available for issuance in order that adequate
shares may be available for the possible issuance of Common Stock, convertible
Preferred Stock or convertible debt securities in connection with a possible
financing of the Company's business or an acquisition. The Company has no plans,
arrangements, understanding or commitments with respect to the issuance of such
shares except for the reservation of the shares of New Common Stock that are
issuable upon the Series B Preferred Stock issued in connection with the Jade
Merger and to be issued in connection with the MarketShare Acquisition and the
shares of New Common Stock to be issued in connection with the stock grant
awarded by the Board of Directors pursuant to the 2003 Equity Incentive Plan
(discussed below).
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APPROVAL REQUIRED
The approval of a majority of the outstanding stock entitled to vote will be
necessary to approve the proposed amendment. As discussed above, the Company's
holders of its Common Stock and holders of its Series A Preferred Stock who
combined hold approximately 66% of the votes of the Company's outstanding Common
Stock have consented to this amendment. They have executed a written consent
voting those shares in favor of the proposed amendment. The sole director of the
Company does not intend to solicit any proxies or consents from any other
shareholders in connection with this action.
APPROVAL OF THE COMPANY'S
2003 EQUITY INCENTIVE PLAN
The Company's sole director adopted a 2003 Equity Incentive Plan (the "Plan").
As discussed above, the Company's holders of its Common Stock and holders of its
Series A Preferred Stock when combined hold approximately 66% of the votes of
the Company's outstanding Common Stock have consented to the Plan. The Plan
designates the Board of Directors to grant or award to eligible participants of
the Company and its subsidiaries and affiliates, until November 17, 2013, stock
options, stock appreciation rights, restricted stock performance stock awards
and Bonus Stock awards for up to 3,000,000 shares of the New Common Stock of the
Company. On November 17, 2003, the Board of Directors awarded 500,000 shares of
New Common Stock to certain eligible participants effective upon the closing of
the Jade Merger and the effectiveness of the Reverse Split (the "Stock Grant").
A complete copy of the Plan is attached hereto as Appendix B.
The following is a general description of certain features of the Plan:
1. Eligibility. Officers, other key employees and consultants of the Company,
its subsidiaries and its affiliates who are responsible for the management,
growth and profitability of the business of the Company, its subsidiaries and
its affiliates are eligible to be granted stock options, stock appreciation
rights, and restricted or deferred stock awards under the Plan. Directors are
eligible to receive Stock Options.
2. Administration. The Incentive Plan is administered by the Board of Directors
of the Company. The Board of Directors has full power to select, from among the
persons eligible for awards, the individuals to whom awards will be granted, to
make any combination of awards to any participants and to determine the specific
terms of each grant, subject to the provisions of the Incentive Plan.
3. Stock Options. The Plan permits the granting of non-transferable stock
options that are intended to qualify as incentive stock options ("ISO's") under
section 422 of the Internal Revenue Code of 1986 and stock options that do
16
not so qualify ("Non-Qualified Stock Options"). The option exercise price for
each share covered by an option shall be determined by the Stock Option
Committee but shall not be less than 100% of the fair market value of a share on
the date of grant. The term of each option will be fixed by the Board of
Directors, but may not exceed 10 years from the date of the grant in the case of
an ISO or 10 years and two days from the date of the grant in the case of a
Non-Qualified Stock Option. In the case of 10% stockholders, no ISO shall be
exercisable after the expiration of five (5) years from the date the ISO is
granted.
4. Stock Appreciation Rights. Non-transferable stock appreciation rights
("SAR's") may be granted in conjunction with options, entitling the holder upon
exercise to receive an amount in any combination of cash or unrestricted common
stock of the Company (as determined by the Board of Directors), not greater in
value than the increase since the date of grant in the value of the shares
covered by such right. Each SAR will terminate upon the termination of the
related option.
5. Restricted Stock. Restricted shares of the common stock may be awarded by the
Board of Directors subject to such conditions and restrictions as they may
determine. The Board of Directors shall also determine whether a recipient of
restricted shares will pay a purchase price per share or will receive such
restricted shares without, any payment in cash or property. No Restricted Stock
Award may provide for restrictions beyond ten (10) years from the date of grant.
6. Performance Stock. Performance shares of Common Stock may be awarded without
any payment for such shares by the Board of Directors if specified performance
goals established by the Board are satisfied. The designation of an employee
eligible for a specific Performance Stock Award shall be made by the Board in
writing prior to the beginning of the period for which the performance is based.
The Board shall establish the maximum number of shares to stock to be issued to
a designated Employee if the performance goal or goals are met. The Board
reserves the right to make downward adjustments in the maximum amount of an
Award if, in it discretion unforeseen events make such adjustment appropriate.
The Board must certify in writing that a performance goal has been attained
prior to issuance of any certificate for a Performance Stock Award to any
Employee.
7. Bonus Stock. The Board of Directors may award shares of Common Stock to
Eligible Persons, without any payment for such shares and without any specified
performance goals. The Employees eligible for bonus Stock Awards are senior
officers and consultants of the Company and such other employees designated by
the Board.
8. Transfer Restrictions. Grants under the Plan are not transferable except, in
the event of death, by will or by the laws of descent and distribution.
9. Termination of Benefits. In certain circumstances such as death, disability,
and termination without cause, beneficiaries in the Plan may exercise Options,
SAR's and receive the benefits of restricted stock grants following their
termination or their employment or tenure as a Director as the case may be.
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10. Change of Control. The Plan provides that (a) in the event of a "Change of
Control" (as defined in the Plan), unless otherwise determined by the Board of
Directors prior to such Change of Control, or (b) to the extent expressly
provided by the Board of Directors at or after the time of grant, in the event
of a "Potential Change of Control" (as defined in the Plan), (i) all stock
options and related SAR's (to the extent outstanding for at least six months)
will become immediately exercisable: (ii) the restrictions and deferral
limitations applicable to outstanding restricted stock awards and deferred stock
awards will lapse and the shares in question will be fully vested: and (iii) the
value of such options and awards, to the extent determined by the Board of
Directors, will be cashed out on the basis of the highest price paid (or
offered) during the preceding 60-day period, as determined by the Board of
Directors. The Change of Control and Potential Change of Control provisions may
serve as a disincentive or impediment to a prospective acquirer of the Company
and, therefore, may adversely affect the market price of the common stock of the
Company.
11. Amendment of the Plan. The Plan may be amended from time to time by majority
vote of the Board of Directors provided as such amendment may affect outstanding
options without the consent of an option holder nor may the plan be amended to
increase the number of shares of common stock subject to the Plan without
stockholder approval.
Shareholders should note that certain disadvantages may result from the adoption
of the Plan. Pursuant to the Plan the Company is reserving the right to issue up
to 3,000,000 shares of New Common Stock and the Company has already awarded the
Stock Grant under the Plan. Such issuances may be in the form of stock options,
stock appreciation rights, restrictive stock awards, performance stock or bonus
stock. Each of these issuances may be made at prices below the then current
market price of the Company's Common Stock or at the time or exercise the
exercise price may be below current market prices of the Company's Common Stock.
Accordingly, the sale of these shares may adversely affect the market price of
our Common Stock. The issuance of shares upon the exercise of stock options may
also result in substantial dilution to the interests of other stockholders.
Additionally, the issuance of shares under the plan will result in the reduction
of shareholder's interest of the Company with respect to earnings per share,
voting, liquidation and book value per share.
APPROVAL OF THE JADE MERGER AND MARKETSHARE ACQUISITION
The Company's sole director has approved the Jade Merger and MarketShare
Acquisition. There is no requirement that the Jade Merger or the MarketShare
Acquisition be approved by stockholders of the Company, however, both the
Reverse Split and the Amendment of the Company's Certificate of Incorporation
are conditions of the above mentioned transactions.
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INFORMATION ABOUT THE ACQUISITIONS
MARKETSHARE ACQUISITION
Pursuant to the proposed MarketShare Acquisition, the Company will acquire
MarketShare by exchanging 17,833 shares of a newly created Series B Preferred
Stock for all of the issued and outstanding capital stock of MarketShare. As a
result of this transaction and the Jade Merger, MarketShareRecovery, Inc., the
sole shareholder of MarketShare will own ten percent (10%) of the outstanding
Common Stock of the Company on a fully diluted basis as of the date of the
consummation of the MarketShare transaction. There are no federal or state
regulatory requirements that must be complied with, nor are there any regulatory
approvals required to consummate this transaction.
JADE MERGER
Pursuant to the Jade Merger, the Company acquired Jade in a merger by issuing
82,167 shares of the newly created Series B Preferred Stock and 85,000,000
shares of Common Stock to the stockholders of Jade and merging Jade into a
wholly-owned subsidiary of the Company. The 85,000,000 shares of Common Stock
and the 82,167 Series B Preferred Stock issued to Jade shareholders is
convertible into shares of Common Stock of the Company which together equal
fifty percent (50%) of the shares of Common Stock on a fully diluted basis
outstanding as of the closing of the Jade Merger and upon the closing of the
MarketShare Acquisition. There are no federal or state regulatory requirements
that must be complied with, nor are there any regulatory approvals required to
consummate this transaction.
Accordingly, after the Jade Merger, the closing of the MarketShare Acquisition
and the Reverse Split, the conversion of both Series A and B Preferred Stock and
the closing of the Private Placement, the new combined entity will have an
aggregate of 11,401,750 shares of New Common Stock issued and outstanding. The
Jade shareholders will own approximately 50%, the MarketShare shareholder will
own approximately 10%, and the existing Company shareholders will own
approximately 40% before the issuance of the Private Placement Securities and
the Stock Grant. As a result of these transactions, Jade stockholders and the
MarketShare stockholder will become stockholders of the Company. The Jade
stockholders and the MarketShare stockholder will no longer have any interest in
Jade or MarketShare other than through their interests in shares of the combined
organization. We anticipate that the closing date of the MarketShare Acquisition
will occur as promptly as practicable. The basis of the exchange of the
Company's Series B Preferred Stock and Common Stock for Jade's common stock and
the Company's Series B Preferred Stock for MarketShare's common stock was the
result of arm's-length negotiations between the Company and each of these two
entities. There were no specific methods used to value either the Company's
Common Stock or Series B Preferred Stock or the common stock of Jade or
MarketShare.
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INFORMATION ABOUT JADE
Jade Entertainment Group, Inc. was incorporated on July 5, 2001 under the laws
of the State of New York and is a development stage business. It's principal
executive office is located at 95 Broadhollow Road, Suite 101, Melville, New
York 11747. It's telephone number is (631) 385-0007. The company since inception
has been developing its technology, marketing its website to potential
advertisers and building consumer awareness of the Company's website and
services.
Jade operates AskJade.com a specialty search engine for the adult entertainment
industry. Its search engine allows Internet users to enter a word, phrase or
plain English query describing what they want to locate on the Internet. Its
search engine then displays a selection of web sites related to that query.
Advertisers can determine exactly where on the results page their web site link
will appear for any given query. This is accomplished through an open, automated
bidding process. Advertisers submit bids for the amount they will pay for each
consumer who clicks-through to their web sites. The highest bidder receives the
first listing with all other bidders listed in descending bid order.
DISTRIBUTION
Jade employs a broad based affiliate program which drives traffic to the
AskJade.com site and also functions as an online branding program, by placing
the AskJade.com logo on numerous sites around the web. Any website owner can
become an affiliate simply by placing a uniquely generated computer generated
tag on their website which forwards the user to the AskJade.com website. We
currently have 50 affiliates in our affiliate program that have signed up
through our website. These affiliates generate revenue either on a per search
basis or through revenue sharing on paid click-throughs. Furthermore Jade plans
to establish other affiliate programs to link our advertisers to consumers who
may not otherwise use the AskJade.com search engine. We also plan to develop
affiliate relationships with other heavily trafficked sites, browsers, community
portals and Internet service providers. Central to our Internet- based marketing
is an additional affiliate program that allows other web sites to place the
AskJade.com search interface on their web pages in the form of small boxes or
banners.
Jade plans to utilize traditional media strategies to generate unique users for
the AskJade.com search engine. To build brand awareness with consumers and drive
traffic to the AskJade.com web site, we use off-line media including:
public relations, telemarketing, radio and outdoor advertising in key markets.
Jade believes off-line media has proven to be highly effective for online media
companies. Jade's online advertising includes targeted e-mail, banners and our
affiliate program.
COMPETITION
Jade faces competition in three principal areas: (i) distribution of its
services;(ii) demand for its services on its affiliates Web sites and (iii)
usage of its services by advertisers. It competes with companies that provide
both mainstream and specialty adult oriented pay-per-click advertising services
that are similar to Jades. In addition, we cannot assure you that another search
service will not successfully offer a competitive pay-per-click advertising
service. We believe it is likely that there will be additional entrants to the
pay-per-click search market. These competitors will compete against Jade for
affiliate arrangements and could cause Jade to enter into affiliate agreements
with less favorable terms or lose affiliates or potential affiliates, which
could reduce our number of paid introductions, increase the amount of revenue
shared with affiliates, and reduce total revenues and thereby have a material
adverse effect on our business, operating results and financial condition.
20
Our affiliates face competition for user traffic within the search marketplace,
which affects the number of paid introductions on our service. If the users of
these affiliates prefer the services offered by the affiliates competitors with
whom we do not have a relationship, the businesses of our affiliates may suffer,
which may in turn have a material adverse effect on our business, operating
results and financial condition. In addition, many of our affiliates compete
with one other, and this may make it difficult for us to develop some affiliate
relationships.
We also compete with providers of pay-per-click search services and other search
services, Internet service providers, other Web sites and advertising networks
such as DoubleClick, Inc. and 24/7 Media, Inc., as well as traditional offline
media such as television, radio and print and direct marketing companies, for a
share of advertisers total advertising budgets. Accordingly, Jade may face
increased pricing pressure for the sale of advertisements and direct marketing
opportunities, as well as a decrease in demand for the Askjade.com service,
which could have a material adverse effect on our business, operating results
and financial condition.
Many of our competitors, as well as potential entrants into our market, have
longer operating histories, larger customer or user bases, greater brand
recognition and greater financial, marketing and other resources than we do.
Many current and potential competitors can devote substantially greater
resources to promotion, Web site and systems development than we can. In
addition, as the use of the Internet and other online services increases,
larger, well-established and well-financed entities may continue to acquire,
invest in or form joint ventures with providers of Web directories, search and
information services or advertising solutions. Existing providers of Web
directories, search and information services or advertising solutions may
continue to consolidate.
ANTICIPATED ACCOUNTING TREATMENT
We expect to account for the Jade Merger as a recapitalization of the equity of
Jade, in which in principle is equivalent to the issuance of stock by Jade for
the net monetary assets of the Company. We will apply this accounting treatment
because the Company is a non-operating public shell and because the Jade
stockholders will own fifty percent (50%) of the outstanding common stock of the
combined company following the transaction.
GOVERNMENT REGULATION AND INDUSTRY STANDARDS
There are an increasing number of laws and regulations in the United States and
abroad pertaining to communications and commerce on the Internet. In addition, a
number of legislative and regulatory proposals are under
21
consideration by federal, state, local and foreign governments. Laws or
regulations may be adopted with respect to the Internet relating to liability
for information retrieved from or transmitted over the Internet, user privacy,
taxation and the quality of products and services. Moreover, the application to
the Internet of existing laws governing issues such as intellectual property
ownership and infringement, pornography, obscenity, libel, gaming, employment
and personal privacy is uncertain and developing. Any such legislation or
regulation, or the application or interpretation of existing laws, may decrease
the growth in the use of the Internet in general, prevent us from delivering our
content in different parts of the world and increase Jade's costs of selling
products or otherwise operating our business.
Several federal, state and foreign statutes prohibit the transmission of
indecent, pornographic, obscene or offensive content over the Internet to
particular groups or persons. The extent to which these laws apply to us is
limited due to the fact that we do not own or display photographic/pictorial
content, other than advertising banners that appear on our site. We will use
discretion in determining what graphical advertisements will be allowed on our
website in order to avoid legal scrutiny. Furthermore we have taken measures,
principally the consent form/disclaimer at the entry page to Jade's website to
discourage and put users on notice of the adult oriented content of Jade's
website in an effort to re-direct users who may be sensitive to certain sexual
depictions which may be viewed on our website. In addition some private legal
actions have been brought or threatened against libraries and various public
facilities that offer unfiltered Internet access. If these statutes are deemed
to apply to us and our activities, if new laws or regulations are adopted which
are found to apply to Jade's activities, or if caselaw establishes broad
limitations on distribution, we may be limited in the types of content and
advertisements we make available on our Web sites. In such case we would be
compelled to moderate the nature of the contents of the advertising we permit on
the site, which may result in a decrease in traffic; if users decide that we are
no longer able to serve their personal preferences with respect to the sexual
nature of the content and the facility with which they will be able to locate
those websites which makes that content available. In addition, some foreign
countries, such as Singapore and China, entirely restrict access to our Web
sites throughout their countries. If other countries decide to adopt similar
policies, our business and financial results may be harmed. Furthermore,
legislation regulating online content could limit the growth in use of the
Internet generally and decrease the acceptance of the Internet as an advertising
and e-commerce medium.
Web sites typically place identifying data, or cookies, on a user's hard drive
without the user's knowledge or consent. Our company and many other Internet
companies use cookies for a variety of different reasons, including the
collection of data derived from the user's Internet activity. Any reduction or
limitation in the use of cookies could limit the effectiveness of our sales and
marketing efforts. Most currently available Web browsers allow users to remove
cookies at any time or to prevent cookies from being stored on their hard drive.
Some privacy advocates and governmental bodies have suggested limiting or
eliminating the use of cookies. In addition, the European Union and many
countries within the EU have adopted privacy directives or laws that strictly
regulate the collection and use of information regarding Internet users that is
identifiable to particular individuals. Privacy legislation has been proposed in
the U.S. as well, and the U.S. Federal Trade Commission has taken action against
Web site operators that do not comply with state privacy policies. These and
other governmental efforts may limit our ability to target advertising or
collect and use information regarding the use of our Web sites. Fears relating
to a lack of privacy could also result in a reduction in the number of our users
and subscribers which could harm our business and financial results.
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MANAGEMENT'S PLAN OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the financial statements of Jade and the Notes thereto appearing
elsewhere herein.
PLAN OF OPERATIONS
Jade was incorporated in July 2001. Jade operates AskJade.com a specialty search
engine for the adult entertainment industry. Its search engine allows Internet
users to enter a word, phrase or plain English query describing what they want
to locate on the Internet. Its search engine then displays a selection of web
sites related to that query. Advertisers can determine exactly where on the
results page their web site link will appear for any given query. This is
accomplished through an open, automated bidding process. Advertisers submit bids
for the amount they will pay for each consumer who clicks-through to their web
sites. The highest bidder receives the first listing with all other bidders
listed in descending bid order.
Jade's plan of operations for the next twelve months is to become a leading
internet portal for adult oriented content and to benefit from additional
advertising and sponsorship opportunities and expanded e-commerce offerings.
Jade seeks to recruit advertisers to utilize its services primarily through
direct sales efforts. Jade targets adult entertainment e-commerce businesses and
advertisers who it locates through online and off-line research An introduction
to its service is made directly to the potential advertiser, utilizing e-mail.
Its AskJade.com search listing paid click-through revenue is determined by
multiplying the number of paid introductions/click-throughs on paid search
results by the amounts bid for applicable keywords. Our services are designed to
connect consumers who are most likely to purchase specific goods and services to
businesses that provide those goods and services.
Search is a large and growing market. In the United States alone, hundreds of
millions of searches each day are conducted on the Internet. Jade believes a
substantial portion of these searches are commercial in nature. Commercial
search queries, we believe, are best served by paid search, which Jade defines,
generally, as targeted advertising paid pr lead. It believes that paid search is
one of the fastest growing segment of Internet search. In its view, improvements
in the quality, relevance, breadth and depth of paid listings will likely drive
growth of paid introductions on commercial inquiries.
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In addition, Jade also believes that the price per paid introduction that
advertisers pay will continue to grow. Relative to alternatives, a lead on
AskJade.com at an average price of $.03 is less expensive, yet more targeted and
measurable than other direct sales methods.
Jade believes that paid search is a relatively untapped market for many
advertisers. Pay-For-Performance search has only been introduced recently and we
believe that there are many large advertisers that still have not contributed
portions of their marketing budget to Internet advertising and more specifically
paid search, but will as the Internet becomes a more acceptable medium for
advertising goods and services.
Jade also believes that its business will continue to experience growth outside
of the United States as Internet usage and e-commerce development continue to
grow in other countries.
Datamonitor, a leading internet research firm, estimates that $3.1 billion of
the projected $5.4 billion of paid online content projected for 2003 will be
attributable to adult content.
Jade is in the process of employing a broad based affiliate program which drives
traffic to the AskJade.com site and also functions as an online branding
program, by placing the AskJade.com logo on numerous sites around the web. Any
website owner can become an affiliate simply by placing a uniquely generated
computer generated tag on their website which forwards the user to the
AskJade.com website. Jade currently have 50 affiliates in our affiliate program
that have signed up through our website. These affiliates generate revenue
either on a per search basis or through revenue sharing on paid click-throughs.
Furthermore Jade plans to establish other affiliate programs to link our
advertisers to consumers who may not otherwise use the AskJade.com search
engine. We also plan to develop affiliate relationships with other heavily
trafficked sites, browsers, community portals and Internet service providers.
Central to Jade's Internet- based marketing is an additional affiliate program
that allows other web sites to place the AskJade.com search interface on their
web pages in the form of small boxes or banners.
Jade plans to utilize traditional media strategies to generate unique users for
the AskJade.com search engine. To build brand awareness with consumers and drive
traffic to the AskJade.com web site, we use off-line media including:
public relations, telemarketing, radio and outdoor advertising in key markets.
Jade believes off-line media has proven to be highly effective for online media
companies. Jade's online advertising includes targeted e-mail, banners and our
affiliate program.
Its objective is to expand advertiser participation and increase business and
consumer transactions through our AskJade.com search engine. Jade believes that
if it builds a solid foundation of active bidders and users, it will stimulate
growth which should increase the efficiency of its service. A large and active
base of advertisers will enable it to generate more relevant search results for
consumers, which in turn should increase the number of consumers utilizing its
services and clicking through on bided results.
24
The search results in the AskJade service are prioritized for consumers by the
amount the advertiser has bid for placement in the keyword market. Advertisers
are listed in descending order of their bid, with the highest bidder appearing
as the first search listing in the search results. Bids may be expressed either
as the amount the advertiser pays Jade each time there is a click on the
advertisers search listing or as the maximum amount the advertiser is willing to
pay for a click on the advertisers search listing. Advertisers pay Jade only
when a click-through occurs on the advertisers search listing. Advertisers may
see the bids of other advertisers on their keywords, enabling the advertiser to
determine his or her own bid necessary to achieve a desired ranking, which
instills competition among advertisers and promotes greater relevance for
consumers.
Jade seeks to attract advertisers who want to drive highly targeted leads to
their Web sites. Advertisers utilize Jades self-service tools to open and manage
accounts online through our automated Web-based account management tool that
offers several tracking, bid management and measurement features. By automating
the sales and maintenance of many of its advertiser accounts, Jade gives
businesses greater control over the advertising process, while leveraging the
scalable nature of its business.
Potential advertisers find AskJade.com directly, through third-party referral
programs, through our direct sales efforts and through a variety of direct
marketing activities. Currently, all new U.S. AskJade advertisers must commit to
a minimum spend of $25 which is pre-paid by credit card.
Jade makes its services available to consumers and businesses, affiliates and
advertisers through a combination of its own proprietary technology and
commercially available technology from industry providers. Jade also relies upon
third parties to provide hosting services, including hardware support and
service and network coordination.
Any disruption in Internet access or other services provided by third parties
could have a material adverse effect on our business. Jade is undertaking
initiatives to develop and implement business continuity, improve data
retention, create backup and recovery processes and systems and standardize
technology platforms.
Jade seeks to protect its copyrights, service marks, trademarks and trade
secrets through a combination of laws and contractual restrictions. For example,
we attempt to register our trademarks and service marks in the United States and
other countries throughout the world. However, effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our services are made available online.
From inception through September 30, 2003, Jade generated $18,637 in revenue.
During that period the Company had net losses of $171,630.
25
MANAGEMENT'S PLAN OF OPERATIONS
The following discussion should be read in conjunction with the
information contained in the financial statements of Jade and the Notes thereto
appearing elsewhere herein.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Net revenues increased by 293% from approximately $1452 for the nine
months ended September 30, 2002 to approximately $5708 for the nine months ended
September 30, 2003. The minor increase in revenues was a result of increased
marketing and advertising efforts.
Cost of revenues as a percent of net revenues decreased from 200% of
net revenues for the nine months ended September 30, 2002 to 15% of net revenues
for the nine months ended September 30, 2003. The decrease was due to higher
margin revenues.
Selling, general and administrative expenses decreased from
approximately $16,217, or 1,117% of net revenues for the nine months ended
September 30, 2002, to approximately $8433, or 148% of net revenues for the nine
months ended September 30, 2003, mainly due to the reduction of rent expense and
salary expense.
Net loss decreased from approximately $17,798 for the nine months
ended September 30, 2002 to approximately $3626 for the nine months ended
September 30, 2003. The increase was a result of improved margin revenues as
well as the reduction of selling, general and administrative expenses for the
nine months ended September 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Jade was incorporated on July 5, 2001 in New York as a "c" corporation for the
purpose of creating, launching and developing an online specialized search
directory.
Click-through revenue or earned revenue is calculated by multiplying the number
of click-through of an advertisers advertisement/link by the respective bid
price for that advertisement. Deferred revenue represents, advertising sold but
not yet earned.
Our initial selling efforts have resulted in 372 advertiser accounts,
advertisers fund their accounts in denominations of $25, $50 or $100 and can
increase account balances and pay-for-position bids at any time.
Advertiser accounts are non-refundable; in the event of early termination of an
advertiser account the unearned balance in the advertisers account will be
forfeited to the Company. Of the current 372 advertiser funded accounts we
estimate that we realized revenues as a result of activity on 254 of our
advertisers ad placements. We do not enter into long term contracts and due to
the young age of our company and our uncertainty as to the amount of traffic to
our website and the frequency of searches for specific terms, we may be unable
to predict the rate at which click-through will occur thus creating uncertainty
in our revenue stream.
The Company expects to fund development expenditures and incur losses until it
is able to generate sufficient income and cash flows to meet such expenditures
and other requirements. The Company does not currently have adequate cash
reserves to continue to cover such anticipated expenditures and cash
requirements. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern.
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to income tax and marketing related agreements with our affiliates. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
26
Jade is dependent on the Jade Merger with the Company which will provide it with
the necessary capital through the proceeds of the Private Placement Securities
to implement its business plan as outlined above.
HISTORICAL FINANCIAL INFORMATION
The Historical Financial Statements required by item 310(c) of Regulation S-B
pertaining to Jade are part of this Information Statement.
INFORMATION ABOUT MARKETSHARE
MarketShare Recovery, Inc. was incorporated in New York in November 2000. It's
principal executive office is located at 95 Broadhollow Road, Suite 101,
Melville, New York 11747. It's telephone number is (631) 385-0007. Market Share
Recovery, Inc. is a provider of online direct marketing solutions for
enterprises. Its solutions enable corporations to create and deliver online
direct marketing programs that drive revenue, influence behavior and deepen
customer relationships. Its solutions provide customer insight and powerful
program execution through a combination of hosted applications and technology
infrastructure.
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.
DEVELOPMENT OF MARKETSHARE'S BUSINESS AND PRODUCTS
Since MarketShare's inception in November 2000, its founders have focused their
efforts principally on developing on-line marketing programs. The majority of
its e-marketing clients to date have been online business-to-consumer retailers.
It intends to expand its 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 its services and
its potential revenue will be limited. It has limited experience in these
markets and may encounter obstacles which it has not anticipated.
27
ANTICIPATED ACCOUNTING TREATMENT
We expect to account for the MarketShare Acquisition as a recapitalization of
the equity of MarketShare, in which in principle is equivalent to the issuance
of stock by the Company for the net monetary assets of MarketShare. Such assets
do not include the $125,000 note payable by MarketShare Reovery, Inc., the
parent of MarketShare. We will apply this accounting treatment because the
company is a non-operating public shell and because the MarketShare stockholder
will
DISTRIBUTION
Marketshare is highly dependent on technologies it licenses which enable it to
send email through the internet and allow us to offer a variety of targeted
marketing capabilities. Its market is evolving, and we may need to license
additional technologies to remain competitive. However, it may not be able to
license these technologies on commercially reasonable terms or at all. Its
inability to obtain any of these licenses could delay the development of its
services until equivalent technology can be identified, licensed or developed
and integrated.
COMPETITION
The market for e-marketing is intensely competitive, rapidly evolving and
experiences rapid technological change. MarketShare expects 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.
MarketShare's 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, MarketShare expects competition to persist and intensify in the
future, which could harm its ability to increase sales and maintain our prices.
In the future, it 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 Marketshare'sexisting competitors or by forming strategic
alliances with these competitors. Any of these occurrences could harm
MarketShare's ability to compete effectively.
28
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.
There is a substantial risk of litigation regarding intellectual property rights
in MarketShare's industry. A successful claim of technology infringement against
it and its failure or inability to license the infringed or similar technology
could harm its business. MarketShare expects that its technologies may
experience an increase in third-party infringement claims as the number of our
competitors grows. In addition, MarketShare believes that many of its
competitors have filed or intend to file patent applications covering aspects of
their technology that they may claim MarketShare's intellectual property
infringes. MarketShare cannot be certain that third parties will not make a
claim of infringement against it relating to its 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 MarketShare from offering a
particular service.
- - Require MarketShare to enter into royalty or licensing agreements which, if
required, may not be available on acceptable terms.
29
GOVERNMENT REGULATION AND INDUSTRY STANDARDS
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 MarketShare's 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.
MarketShare's 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 MarketShare expands 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 its services and prohibit, limit or increase MarketShare's cost
of doing business.
MarketShare's clients' promotion of their products and services may not comply
with federal, state and local laws. MarketShare cannot predict whether its role
in facilitating these marketing activities would expose it to liability under
these laws. Any claims made against MarketShare could be costly and
time-consuming to defend. If MarketShare is exposed to this kind of liability,
MarketShare 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. MarketShare's services involve the transmission of
information through the internet. Its 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 its reputation or could
give rise to legal claims against it, both from governmental authorities and
private parties. MarketShare could spend a significant amount of time and money
defending against these legal claims.
MANAGEMENT'S PLAN OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the financial statements of MarketShare and the Notes thereto
appearing elsewhere herein.
30
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 MarketShare 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 MarketShare 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 MarketShare 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.
31
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities during the nine months ended September 30,
2003 amounted to approximately $12,000. MarketShare 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.
MarketShare 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.
MarketShare plans to significantly expand its operations, and it will need to
hire additional personnel as our business grows. The volume of emails
MarketShare is sending has grown significantly and it expects this volume to
continue to grow. It will need to enhance its 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 it seeks to grow its base of
clients, it must add client services personnel to handle the increased volume of
emails and campaigns. In particular, it has experienced difficulties in hiring
highly skilled technical and client services personnel due to significant
competition for experienced personnel in its market. MarketShare plans on
utilizing cash flow from its business operations and proceeds from the Private
Placement Securities to fund the expansion of its online marketing business.
HISTORICAL FINANCIAL INFORMATION
The Historical Financial Statements required by Item 310 (c) of Regulation S-B
pertaining to each of Jade and MarketShare are part of this Information
Statement.
PRO FORMA INFORMATION
The Pro Forma Financial Information required by Item 310(d) of Regulation S-B
showing the effect on the Company and Jade and MarketShare of the Jade Merger
and the MarketShare Acquisition are part of this Information Statement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Commission. The Registration Statement and such reports and
other information may be inspected without charge at the Public Reference Room
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Office located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be
obtained from the Public Reference Room of the Commission at 450 Fifth Street,
N.W., Washington D.C. 20549, at prescribed rates. Information on the operation
of the Public Reference Room is available by calling the Commission at
1-800-SEC-0330. In addition, the Commission maintains an Internet site where the
Registration Statement and other information filed with the Commission may be
retrieved, and the address of such site is http://www.sec.gov. Statements made
in this Information Statement concerning the contents of any document referred
to herein are not necessarily complete.
32
INFORMATION ACCOMPANYING THIS INFORMATION STATEMENT
The following documents filed with the Commission are incorporated by reference
and are being mailed to the Company's shareholders along with this Information
Statement:
1. Form 10-KSB report for the year ended December 31, 2002.
2. Form 10-QSB report for the nine months ended September 30, 2003.
Andrew J. Schenker, Sole Director
January ___, 2004
ATTACHMENTS:
Appendix A - Form of Amended and Restated Certificate of Incorporation (1)
Appendix B - 2003 Equity Incentive Plan (1)
(1) Previously filed.
33
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2003 and 2002
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
CONTENTS
- --------------------------------------------------------------------------------
INDEX
Page
----
FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED BALANCE SHEET 1
CONDENSED STATEMENTS OF OPERATIONS 2
For the Nine Months Ended September 30, 2003 and 2002 and for the
Cumulative Period (July 5, 2001 to September 30, 2003)
CONDENSED STATEMENTS OF CASH FLOWS 3
For the Nine Months Ended September 30, 2003 and 2002 and for the
Cumulative Period (July 5, 2001 to September 30, 2003)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS 4-8
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEET
(Unaudited)
September 30, 2003
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 50,159
Other current assets 290
---------
TOTAL ASSETS $ 50,449
========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Note payable $ 50,000
Accrued expenses 3,635
---------
TOTAL LIABILITIES $ 53,635
STOCKHOLDERS' DEFICIENCY
Common stock, par value $0.001; 10,000,000 shares
authorized; 2,169,682 shares issued and outstanding 2,169
Additional paid - in capital 166,275
Deficit accumulated during the development stage (171,630)
---------
TOTAL STOCKHOLDERS' DEFICIENCY (3,186)
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 50,449
========
See notes to condensed financial statements.
1
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
- --------------------------------------------------------------------------------
Cumulative Period
For the Nine-Months Ended July 5, 2001 to
September 30, September 30,
2003 2002 2003
--------- --------- ---------
REVENUE - NET $ 5,708 $ 1,452 $ 18,637
COST OF REVENUE 901 3,033 15,237
--------- --------- ---------
GROSS PROFIT (LOSS) 4,807 (1,581) 3,400
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES 8,433 16,217 175,030
--------- --------- ---------
NET LOSS $ (3,626) $ (17,798) $(171,630)
========= ========= =========
See notes to condensed financial statements.
Draft 1
2
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
Cumulative Period
For the Nine-Months Ended July 5, 2001 to
September 30, September 30,
2003 2002 2003
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,626) $ (17,798) $(171,630)
Adjustments to reconcile net loss to net cash
used in operating activities:
Services received in exchange for stock -- -- 6,400
Changes in operating assets and liabilities:
Other current assets (290) -- (290)
Accrued expenses 3,635 -- 3,635
Deferred revenue (1,800) -- --
--------- --------- ---------
NET CASH USED IN
OPERATING ACTIVITIES (2,081) (17,798) (161,885)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 50,000 -- 50,000
Proceeds from issuance of common stock -- 17,986 162,044
NET CASH PROVIDED BY
FINANCING ACTIVITIES 50,000 17,986 212,044
--------- --------- ---------
NET INCREASE IN CASH 47,919 188 50,159
CASH - Beginning 2,240 5,002 --
--------- --------- ---------
CASH - Ending $ 50,159 $ 5,190 $ 50,159
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ -- $ -- $ --
Income Taxes $ -- $ -- $ --
Non-cash investing and financing activities:
Stock issued for services $ -- $ -- $ 6,400
See notes to condensed financial statements.
3
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to schedule.
Accordingly, they do not include all of the information and disclosures
required for annual financial statements.
In the opinion of the Company's management, all adjustments (consisting
of normal recurring accruals) necessary to present fairly the Company's
financial position as of September 30, 2003 and the results of operations
and cash flows for the nine-month periods ended September 30, 2003 and
2002 and for the period July 5, 2001 through September 30, 2003 have been
included.
NOTE 2 - Nature of Business
Jade Entertainment Group, Inc. (a development stage company as defined in
Statement of Financial Accounting Standard No. 7) (the "Company") was
incorporated in the state of New York, on July 5, 2001. The Company since
inception has been developing its technology, marketing its website to
potential advertisers and building consumer awareness of the Company's
website and services. The Company's website, AskJade.com, is a specialty
search engine for the adult entertainment industry. Its search engine
allows Internet users to enter a word, phrase or plain English query
describing what they want to located on the Internet. Its search engine
then displays a selection of websites related to that query. None of its
planned principal operations have commenced. All losses accumulated since
inception has been considered as part of the Company's development stage
activities.
The accompanying condensed financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States of America, assuming that the Company will continue as a going
concern. For the nine months ended September 30, 2003 and 2002, the
Company had incurred losses of approximately $3,600 and $17,800,
respectively. As of September 30, 2003, the Company had a stockholders'
deficiency of approximately $3,200. These factors raise substantial doubt
about the Company's ability to continue as a going concern.
The Company's ability to continue as a going-concern is dependent upon
obtaining additional financing and the successful completion of a merger
or acquisition transaction. The condensed financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. No assurance can be provided that the Company will be
successful in obtaining additional financing or be successful in
marketing its website and related services.
4
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Unaudited)
NOTE 3 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of the condensed 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized when earned based on paid introduction. Banner
advertisement revenue is recognized when earned under the terms of the
contractual arrangement with the advertiser.
Website Development Costs
The Company recognizes the costs associated with developing a website in
accordance with the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use".
Relating to website development costs the Company follows the guidance
pursuant to the Emerging Issues Task Force (EITF) No. 00-2, "Accounting
for Website Development Costs". Internal costs related to the development
of website content are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). SFAS No. 109 requires the recognition of deferred tax
assets and liabilities for both 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.
5
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Unaudited)
NOTE 3 - Summary of Significant Accounting Policies, continued
Impact of Recently Issued Accounting Standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections". SFAS No. 145
requires that gains and losses from extinguishment of debt be classified
as extraordinary items only if they meet the criteria in Accounting
Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the
provisions of Opinion No. 30 will distinguish transactions that are part
of an entity's recurring operations from those that are unusual and
infrequent that meets the criteria for classification as an extraordinary
item. The adoption of SFAS No. 145 did not have a material impact on the
Company's financial position and results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)". SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized and measured
initially at fair value when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities that are initiated after March
31, 2003, with early application encouraged. The Company adopted this
statement on January 1, 2002.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 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 45 are
effective for guarantees issued or modified after March 31, 2003 and
adoption of the disclosure requirements are effective for the Company
during the first quarter ending January 31, 2003. The adoption of FIN 45
did not have a material impact on the Company's financial position and
results of operations.
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 APB Opinion 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.
6
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Unaudited)
NOTE 3 - Summary of Significant Accounting Policies, continued
Impact of Recently Issued Accounting Standards, continued
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 No. 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 Opinion No. 25. The Company
will continue to account for stock-based compensation according to APB
Opinion No. 25. The adoption of SFAS No. 148 did not have an impact on
net income or proforma net income applying the fair value method as the
Company did not have stock-based compensation for the nine months ended
September 30, 2003 and 2002.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of 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 December 15, 2003. The Company does not
expect the adoption of FIN 46 will have a significant impact on its
financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." The statement amends
and clarifies accounting for derivative instruments, including certain
derivatives instruments embedded in other contracts and for hedging
activities under SFAS No. 133. This statement is effective for contracts
entered into or modified after June 30, 2003, except as stated below and
for hedging relationships designated after June 30, 2003 the guidance
should be applied prospectively. The provisions of this statement that
relate to SFAS No. 133, Implementation Issues, that have been effective
for fiscal quarters that began prior to June 15, 2003, should continue to
be applied in accordance with respective effective dates. In addition,
certain provisions relating to forward purchases or sales of when-issued
securities or other securities that do not yet exist, should be applied
to existing contracts as well as new contracts entered into after June
30, 2003. The adoption of SFAS No. 149 is not expected to have an impact
on the Company's financial position and results of operations.
7
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Unaudited)
NOTE 3 - Summary of Significant Accounting Policies, continued
Impact of Recently Issued Accounting Standards, continued
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS No. 150 establishes standards for classification and
measurement in the statement of financial position of certain financial
instruments with characteristics of both liabilities and equity. It
requires classification of a financial instrument that is within its
scope as a liability (or an asset in some circumstances). SFAS No. 150 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. The Company adopted SFAS
No. 150 in the quarter ended September 30, 2003. The adoption did not
have an impact on the condensed financial statements.
NOTE 4 - Note Payable and Business Combination
On September 30, 2003, in connection with the merger discussed in Note 5,
Dominix Inc. ("Dominix") advanced to the Company $50,000, which it
received from a third party investor, in exchange for a promissory note.
The note bears interest at 8% per annum and was contributed to capital by
Dominix in December 2003.
NOTE 5 - Subsequent Event
Business Combination
On December 5, 2003, the Company closed a business combination with
Dominix, a company whose shares trade on the OTC bulletin board under the
ticker symbol "DMNX", whereby Dominix acquired 100% of the Company's
Common Stock in exchange for 85,000,000 shares of Dominix's Common Stock
and 82,167 of Dominix's Series B Preferred Stock convertible into
997,675,000 shares of Dominix's Common Stock totaling approximately 50%
of Dominix's Common Stock outstanding on a fully diluted basis.
8
JADE ENTERTAINMENT GROUP INC
FINANCIAL STATEMENTS
DECEMBER 31, 2002
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors F-2
FINANCIAL STATEMENTS:
Balance Sheets F-3
Income Statement F-4
Statements of Operations F-5
Notes to Financial Statements F-6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Jade Entertainment Group, Inc.
(A Development Stage Company)
Melville, New York
We have audited the accompanying consolidated balance sheet of Jade
Entertainment Group, Inc. (a development stage company) as of December 31, 2002,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years ended December 31, 2002 and 2001 and from
inception on July 5, 2001 through December 31, 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Jade
Entertainment Group, Inc. (a development stage company) as of December 31, 2002
and the consolidated results of their operations and their cash flows for the
years ended December 31, 2002 and 2001, and from inception on July 5, 2001
through December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in the footnotes
to the consolidated financial statements, the Company has had limited operations
and limited capital which together raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in the footnotes to the financial statements. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Eisner CPA PC
429 ATLANTIC AVENUE
FREEPORT, NY 11520
April 25, 2003
CERTIFIED PUBLIC ACCOUNTANTS
429 ATLANTIC AVENUE FREEPORT, NY 11520
TEL. (516) 623-4900 FAX: (516) 623 4996
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31 2002
ASSETS
CURRENT ASSETS
Cash $ 2,240
Total current assets $ 2,240
TOTAL ASSETS $ 2,240
LIABILITIES AND STOCKHOLDERS'EQUIT
CURRENT LIABILITIES $ 1,800
Deferred revenue
TOTAL LIABILITIES $ 1,800
STOCKHOLDERS' EQUITY
Common Stock,$0.001 par value;
10,000,000 shares authorized;
2,134,341 shares issued and
Outstanding $ 2,134
Paid in Surplus 161,309
Retained Earnings (158,443)
Current Income (Loss) ($ 4,560)
TOTAL STOCKHOLDERS' EQUITY $ 440
TOTAL LIABILITIES & STOCKHOLDERS'EQUITY $ 2,240
JADE ENTERTAINMENT GROUP INC
Income Statement
For the Period Ended December 31, 2002
12 Months Ended
Dec 31, 2002
Sales 12,595.00
Total Income 12,595.00
Cost of Sales
Hosting Expenses 9,335.90
Total Cost Of Sales 9,335.90
Gross Profit 3,259.10
Operating Expenses
Accounting 2,750.00
Advertising 3,336.87
Auto 289.58
Bank Charges 163.90
Computer Service & Programming 1,234.00
Consulting 6,794.01
Legal 13,800.00
Licenses and Fees 1,035.00
Marketing 36,805.99
Office Expense 7,390.76
Rent 10,928.07
Salaries and Wages 13,750.00
Supplies 315.88
Taxes - Payroll 1,456.38
Taxes - Other 205.00
Telephone 4,117.56
Travel 6,441.69
Total Expenses 110,814.69
Operating Income (107,555.59)
Net Income (Loss) (107,555.59)
JADE ENTERTAINMENT GROUP, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
December 31, 2002
Three Months July 05, 2001
Ended Inception to
December 31 2002 December 31 2002
---------------- ----------------
Sales 7,181 12,930
Cost of Sales 1,476 9,336
Gross Gain\Loss 5,705 3,594
General & Administrative Expenses (10,265) 166,598
NET GAIN (LOSS) (4,560) (163,004)
Basic and diluted net loss per share (0.02)
Weighted shares used in the computation
Of basic and diluted loss per share 2,134,031
JADE ENTERTAINMENT GROUP INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENT
DECEMBER 31 2002
- ---------------------------
NOTE I NATURE OF OPERATIONS
Jade Entertainment Group, Inc. (A Development Stage Company) (The "Company") was
incorporated in the state of New York, on July 5, 2001. The Company plans to
launch an Internet search engine to assist and attract the people requesting
information on finding specific adult content on the Internet. The Company plans
to use the website to earn income from companies who are prepared to pay to have
Web advertising in the form of positions on the search engine or banners on the
website selling their products or services. The Company plans to solicit
advertisers that are targeting sales of their products and services to people
using the Company's website. The Company's website address is www.askjade.com.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States. Because a precise
determination of many assets and liabilities is dependent upon future events,
the preparation of financial statements for a period necessarily involves the
use of estimates, which have been made using careful judgment.
Development Stage Company
The Company is a development stage company as defined in Statement of Financial
Accounting Standards No. 7. The Company is devoting substantially all of its
current efforts to establish a new business and none of its planned principal
operations have commenced. All losses accumulated since inception has been
considered as part of the Company's development stage activities.
Since formation, the Company's operations have been devoted primarily to:
Raising capital
Developing its product
Obtaining financing
Developing its marketing plan
Developing its accounting system
These statements are presented on the basis that the Company will continue as a
going concern. This contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business over a reasonable length of
time. As shown in the accompanying financial statements, the Company has
incurred net losses since its inception and minimal revenues.
The Company's plan to fund its future operations and activities is based upon
obtaining additional equity financing in order for the Company to implement its
business plan and generate sufficient revenues to maintain profitable
operations. There can be no assurance that the Company's plan will be adequately
implemented even if sufficient funds are obtained. Further, any additional
equity financing if obtained may be dilutive to existing stockholders.
If the Company is unable to obtain sufficient additional equity financing, the
Company is expected to operate under a more moderate business plan in order to
reduce operating costs while trying to slowly increase revenues and working
capital.
These factors, as well as the Company's ability to obtain adequate stockholder
capital contributions, future equity funding and achieve and maintain profitable
operations, raise substantial doubt about the Company's ability to continue Es a
going concern. The financial statements do not include any adjustments that
night result from the outcome of these uncertainties.
B) Revenue Recognition
The Company generates revenue from fees charged to clients for predetermined
click-through rates charged to its clients and banner advertisement on the
AskJade.com search engine.
Revenue from click-through rates is recognized as it's generated in accordance
with the terms of its agreement. Additionally, revenue from banner
advertisements is recognized in accordance with the terms of the advertising
agreement and when services are provided.
JADE ENTERTAINMENT GROUP INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENT
DECEMBER 31 2002
- ---------------------------
C) Deferred Revenue
Deferred revenue represents advance deposits received from the Company's clients
for future click-through for search listing advertisements on the askjade.com
search engine. Revenue is recognized as click-through are made to a client's
website.
D) Income Taxes
The Company has adopted Statement of Financial Accounting Standards no. 109
"Accounting for Income Taxes "(SFAS 109)". SFAS No. 109 requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Deferred tax liabilities and assets are determined based on temporary
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect on deferred tax liabilities and
assets of a change in tax rates is recognized in income in the period that
includes the enactment date.
If it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recognized. Since it is a
development stage company, a 100% valuation allowance has been recognized for
the period presented.
E) Net Loss Per Share
Earnings per share are determined in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share". This statement establishes
standards for computing and presenting earnings per share ("EPS"). It replaces
the presentation of primary EPS with a presentation of basic EPS.
The net loss per share is computed by dividing the net loss for the period by
the weighted average number of shares outstanding (as adjusted retroactively for
the dilutive effect of common stock options) for the period plus the dilutive
effect of outstanding common stock options and warrants considered to be common
stock, equivalents. Stock options and other common stock equivalents are
excluded from the calculations, as their effect would be anti-dilutive. Common
stock issued for nominal consideration is deemed outstanding for all historical
periods.
F) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the related reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates made in preparation of
the financial statements.
NOTE 3 INCOME TAXES
The Company has a net loss of $107,556 for the period ended December 31, 2002
The resulting deferred tax asset has been offset by a valuation allowance equal
to the deferred tax asset, as the realization of such deferred tax asset is
uncertain.
NOTE 4 The Factors described above in "Limited History of Operations; Net
Losses: Company is a "Start-Up" with nominal Revenues c Date" raise substantial
doubt about the Company's ability to continue as a going concern. In this
regard, see the Report of Independent Certified Public Accountants accompanying
the Company's audited finical statements appearing elsewhere herein which cites
substantial doubt about the Company's ability to continue as a going concern.
There can be no assurance that the Company will achieve profitability or
generate positive cash flow in the future. As a result of these and other
factors, there can be no assurance, that the Company's proposed activities
and/or acquisitions will be successful or that the Company will be a)!e to
achieve or maintain profitable operations. If the Company fails to achieve
profitability, its growth strategies could be materially and adversely affected.
JADE ENTERTAINMENT GROUP INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENT
DECEMBER 31 2002
- ---------------------------
NOTE 4 COMMITMENTS AND CONTINGENCIES
(A) Marketing Agreement: The Company has entered into a marketing agreement
with a company that is controlled by the Company's majority stockholder. The
agreement is on a month to month basis and calls for payments of $5000 per
month.
Sub-lease Agreement: The Company has entered into a sub-lease agreement with a
company that is Controlled by the company's majority stockholder. The agreement
provides for the use of office space, office equipment, telephone, Internet
access and other amenities as needed. The amount of monthly rent to be paid is
not to exceed $1,800 per month and the agreement is month to month.
Other Contingencies: The Company's business model maybe affected by other
entities' business models and certain patents on those business models that may
affect the operations of the Company. At this time, the Company is unable to
determine whether or not other entities' business models and related patents
will or will not affect the Company's operations and the implementation of its
business plan.
As indicated in Note 1, the operations of the Company are expected to be
concentrated in the facilitation of electronic identification and distribution
of adult content, There may be laws or regulations in the United States or other
countries that may affect the operations of the Company.
NOTE 5 STOCKHOLDERS'EQUITY
At the time of inception, The Company issued a total of 1,500,000 shares to its
two founders. The shares were issued at par value and were purchased for $100 in
cash and $1,400 in services contributed at inception.
GOING CONCERN REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
DECEMBER 31, 2002
---------------------------
The Factors described above in "Limited History of Operations; Net Losses:
Company is a "Start-Up" with nominal Revenues to, Date" raise substantial doubt
about the Company's ability to continue as a going concern. In this regard, see
the Report of Independent Certified Public Accountants accompanying the
Company's audited financial statements appearing elsewhere herein which cites
substantial doubt about the Company's ability to continue as a going concern.
There can be no assurance that the Company will achieve profitability or
generate positive cash flow in the future. As a result of these and other
factors, there can be no assurance that the Company's proposed activities and/or
acquisitions will be successful or that the Company will be able to achieve or
maintain profitable operations. If the Company fails to achieve profitability,
its growth strategies could be materially and adversely affected.
CERTIFIED PUBLIC ACCOUNTANTS
429 ATLANTIC AVENUE FREEPORT, NY 11520
TEL: (516) 623-4900 FAX: (516) 623 4996
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
MARKETSHARE RECOVERY, INC.
FINANCIAL STATEMENTS
For the Years Ended December 31, 2002 and 2001, and the Three Months
Ended March 31, 2003 and 2002 (Unaudited)
MARKETSHARE RECOVERY, INC.
CONTENTS
- --------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets - December 31, 2002 and March 31, 2003 (Unaudited) 2 Statements
of Operations - For the Years Ended December 31, 2002
and 2001, and the Three Months Ended March 31, 2003 and 2002 (Unaudited) 3
Statement of Stockholders' Equity - For the Years Ended December 31
2002 and 2001, and the Three Months Ended March 31, 2003 (Unaudited) 4
Statements of Cash Flows - For the Years Ended December 31, 2002
and 2001, and the Three Months Ended March 31, 2003 and 2002 (Unaudited) 5
NOTES TO FINANCIAL STATEMENTS 6-11
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders of
MarketShare Recovery, Inc.
We have audited the accompanying balance sheet of MarketShare Recovery, Inc. as
of December 31, 2002 and the related statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 2002 and 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as, evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MarketShare Recovery, Inc. as
of December 31, 2002 and the results of its operations and its cash flows for
the years ended December 31, 2002 and 2001, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Marcum & Kliegman LLP
New York, New York
August 8, 2003
1
MARKETSHARE RECOVERY, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS
------
December 31, March 31,
2002 2003
-----------------------------------------
(Unaudited)
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 4,697 $ 4,797
Marketable securities 65,450 35,199
Accounts receivable 8,932 -
Prepaid expense and other current assets 1,567 6,000
------------------ -----------------
Total Current Assets 80,646 45,996
Security deposits 1,900 6,567
------------------ -----------------
TOTAL ASSETS $ 82,546 $ 52,563
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accrued commissions and other current liabilities $ 43,029 $ 31,647
Unearned revenue, net of deferred commission
expenses of $40,375 and $-0-, respectively 27,625 --
------------------ -----------------
Total Current Liabilities 70,654 31,647
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
- -----------------------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock - $0.0001 par value; 100 shares
authorized, issued and outstanding -- --
Additional paid-in capital 100 100
Retained earnings 11,792 20,816
------------------ -----------------
TOTAL STOCKHOLDERS' EQUITY 11,892 20,916
------------------ -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 82,546 $ 52,563
================== =================
The accompanying notes are an integral part of these financial statements.
2
MARKETSHARE RECOVERY, INC.
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Years Ended For the Three Months Ended
December 31, March 31,
2002 2001 2003 2002
-----------------------------------------------------------
(Unaudited)
NET REVENUES (including revenues from related party
of $20,000, $20,000, $-0- and $15,000, respectively) $ 308,317 $ 183,191 $ 160,910 $ 74,560
COST OF REVENUES 234,929 152,433 117,110 64,548
----------- ------------ ------------ -----------
GROSS PROFIT 73,388 30,758 43,800 10,012
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 71,553 16,034 26,611 16,971
----------- ------------ ------------ -----------
OPERATING INCOME (LOSS) 1,835 14,724 17,189 (6,959)
----------- ------------ ------------ -----------
OTHER EXPENSES
- --------------
Loss on sale of marketable securities -- -- (2,357) --
Unrealized loss on marketable securities -- -- (3,808) --
----------- ------------ ------------ -----------
TOTAL OTHER EXPENSES -- -- (6,165) --
----------- ------------ ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) 1,835 14,724 11,024 (6,959)
PROVISION FOR INCOME TAXES (BENEFIT) 1,567 3,200 2,000 (1,000)
----------- ------------ ------------ -----------
NET INCOME (LOSS) $ 268 $ 11,524 $ 9,024 $ (5,959)
=========== ============ ============ ===========
The accompanying notes are an integral part of these financial statements.
3
MARKETSHARE RECOVERY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Period January 1, 2001 through March 31, 2003
- --------------------------------------------------------------------------------
Common Stock Additional
---------------------- Paid-In Retained
Shares Amount Capital Earnings Total
-----------------------------------------------------------
BALANCE - January 1, 2001 100 $ -- $ 100 $ -- $ 100
Net income -- -- -- 11,524 11,524
--------- ------- --------- --------- ---------
BALANCE - December 31, 2001 100 -- 100 11,524 11,624
Net income -- -- -- 268 268
--------- ------- --------- --------- ---------
BALANCE - December 31, 2002 100 -- 100 11,792 11,892
Net income for the quarter ended March 31, 2003
(unaudited) -- -- -- 9,024 9,024
--------- ------- --------- --------- ---------
BALANCE - March 31, 2003 (unaudited) 100 $ -- $ 100 $ 20,816 $ 20,916
========= ======= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
MARKETSHARE RECOVERY, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the Years Ended For the Three Months Ended
December 31, March 31,
2002 2001 2003 2002
-----------------------------------------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 268 $ 11,524 $ 9,024 $ (5,959)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Changes in operating assets and liabilities:
Loss on sale of marketable securities -- -- 2,357 --
Unrealized loss on marketable securities -- -- 3,808 --
Accounts receivable (3,932) (5,000) 8,932 5,000
Prepaid and other current assets (1,567) -- (4,433) --
Security deposits -- (1,900) (4,667) --
Accrued commissions and other current liabilities 36,879 6,150 (11,382) (7,115)
Marketable securities (65,450) -- 30,251 --
Unearned revenue 27,625 -- (33,790) --
---------- ----------- ------------ ----------
TOTAL ADJUSTMENTS (6,445) (750) (8,924) (2,115)
---------- ----------- ------------ ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (6,177) 10,774 100 (8,074)
---------- ----------- ------------ ----------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
Issuance of common stock -- 100 -- --
---------- ----------- ------------ ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (6,177) 10,874 100 (8,074)
CASH AND CASH EQUIVALENTS - Beginning 10,874 -- 4,697 10,874
---------- ----------- ------------ ----------
CASH AND CASH EQUIVALENTS - Ending $ 4,697 $ 10,874 $ 4,797 $ 2,800
========== =========== ============ ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the periods for:
Income taxes $ 4,767 $ -- $ 978 $ --
The accompanying notes are an integral part of these financial statements.
5
MARKETSHARE RECOVERY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to March 31, 2003 and
the three months ended March 31, 2003 and 2002)
- -------------------------------------------------------------------------------
NOTE 1 - Business and Continued Operations
---------------------------------
Organization and Description of Business
----------------------------------------
MarketShare Recovery, Inc. (the "Company") was incorporated under the
laws of the State of New York on November 30, 2000 and began operations
in January of 2001. The Company is an electronic direct marketing firm
that provides direct email solutions helping marketers reach their target
consumers throughout the United States.
NOTE 2 - Summary of Significant Accounting Policies
------------------------------------------
Revenue Recognition and Related Commission Expenses
---------------------------------------------------
Revenues include the sale and/or electronic delivery of email
distribution lists. The terms of the sales agreements determine the
appropriate revenue recognition method. Revenues are generally recognized
at the time and/ or during the period that the distribution lists are
delivered and collectibility is reasonably assured, usually over one to
three months. Commissions due to sales consultants are initially deferred
and netted against unearned revenues and expensed over the same period
that the revenue is recognized.
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.
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 years ended December 31, 2002
and 2001, as well as for the three months ended March 31, 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.
6
MARKETSHARE RECOVERY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to March 31, 2003 and
the three months ended March 31, 2003 and 2002)
- -------------------------------------------------------------------------------
NOTE 2 - Summary of Significant Accounting Policies, continued
-----------------------------------------------------
Income Taxes, continued
-----------------------
SFAS No. 109 additionally requires the establishment of a valuation
allowance to reflect the likelihood of realization of deferred tax
assets.
Unaudited Interim Information
-----------------------------
The information presented for the three months ended March 31, 2003 and
2002, has not been audited. In the opinion of management, the unaudited
interim financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial position as of March 31, 2003 and the results of its operations
and its cash flows for the three months ended March 31, 2003 and 2002,
and the stockholders' equity for the three months ended March 31, 2003.
Operating results for the three months ended March 31, 2003 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2003. Additionally, the traditional direct marketing
industry has typically generated lower revenues during the summer months
and higher revenues during the calendar year-end months. Management
believes the Company's business may be affected by similar revenue
fluctuations, but due to the Company's limited operating history is
insufficient to predict the existence or magnitude of these effects.
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
financial position or results of operations.
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
7
MARKETSHARE RECOVERY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to March 31, 2003 and
the three months ended March 31, 2003 and 2002)
- -------------------------------------------------------------------------------
NOTE 2 - Summary of Significant Accounting Policies, continued
-----------------------------------------------------
Impact of Recently Issued Accounting Standards, continued
-----------------------------------------------------------
SFAS No. 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 interim financial statements as
well. The Company has no stock-based compensation.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research Bulletins
("ARB") No. 51." FIN No. 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 No. 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 No. 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 No. 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 Company is still evaluating the
effect of this pronouncement on its financial statements.
NOTE 3 - Marketable Securities
---------------------
On certain engagements, the Company receives shares of publicly-traded
entities from its customers in lieu of cash payments for services
rendered. The fair value of the marketable securities 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
8
MARKETSHARE RECOVERY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to March 31, 2003 and
the three months ended March 31, 2003 and 2002)
- -------------------------------------------------------------------------------
NOTE 3 - Marketable Securities, continued
--------------------------------
increase or decrease in the accrued commissions liability. The Company
recognized a realized loss of $2,357 on the sale of marketable securities
and an unrealized loss on marketable securities of $3,808 during the
three months ended March 31, 2003.
NOTE 4 - Income Taxes
------------
The components of corporate provision for income taxes (benefit) are as
follows:
For the Years Ended For the Three Months Ended
December 31, March 31,
2002 2001 2003 2002
---------------------------- ---------------------------------
(Unaudited)
Current tax expense $ 267 $ 3,800 $ 9,300 $ 300
Deferred tax provision (benefit) 1,300 (600) (7,300) (1,300)
-------- -------- --------- ---------
Provision for income taxes (benefit) $ 1,567 $ 3,200 $ 2,000 $ (1,000)
======== ======== ========= =========
The provision for income taxes (benefit) differ from the amounts computed
by applying the U.S. federal and state tax rates as a result of graduated
tax rates, alternative minimum taxes and nondeductible items.
The approximate tax effect of significant temporary differences that give
rise to deferred tax assets (liabilities) are as follows:
December 31, March 31,
2002 2003
--------- ---------
(Unaudited)
Deferred tax assets $ 23,200 $ 6,000
Deferred tax liabilities (25,600) --
--------- ---------
Net deferred tax assets (liabilities) $ (1,300) $ 6,000
========== =========
The deferred tax assets (liabilities) mainly consist of timing
differences from marketable securities, accrued expenses and unearned
revenues.
9
MARKETSHARE RECOVERY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to March 31, 2003 and
the three months ended March 31, 2003 and 2002)
- -------------------------------------------------------------------------------
NOTE 5 - Commitments and Contingencies
-----------------------------
The Company leases a facility in New York under a lease, which expires
March 31, 2008. The Company also leases computer equipment under various
leases, which expire through February 28, 2006.
Future annual minimum lease payments under noncancelable operating leases
as of December 31, 2002 are as follows:
For the Year Ending
December 31, Amount
----------------------------------- -------------------
2003 $ 33,308
2004 34,798
2005 34,772
2006 33,127
2007 32,783
Thereafter 8,196
-----------
Total $ 176,984
===========
Rent expense charged to operations for the years ended December 31, 2002
and 2001 amounted to $23,534 and $3,390, respectively, which were net of
month to month sublet rental income received from a related party of
$5,476 and $5,400, respectively.
Rent expense charged to operations for the three months ended March 31,
2003 and 2002 amounted to $6,988 and $3,308, respectively, which were net
of month to month sublet rental income received from a related party of
$-0- and $3,600, respectively.
NOTE 6 - Concentrations of Credit Risk
-----------------------------
There were no revenue concentrations for the year ended December 31,
2002. Revenue from one customer accounted for approximately 10% of the
total net revenues for the year ended December 31, 2001.
Revenue from one customer accounted for approximately 17% of the total
net revenues for the three months ended March 31, 2003. Revenue from two
different customers accounted for approximately 55% of the total net
revenues for the three months ended March 31, 2002. One of these
customers is a related party by virtue of common ownership and net
revenues amounted to 20%.
10
MARKETSHARE RECOVERY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to March 31, 2003 and
the three months ended March 31, 2003 and 2002)
- -------------------------------------------------------------------------------
NOTE 7 - Related Party Transactions
--------------------------
In September 2001, the Company entered into a consulting agreement with a
related party by virtue of common ownership to provide them with
financial services. As of December 31, 2002 and 2001, the Company
received fees from a related party of $20,000 and $20,000, respectively.
For the three months ended March 31, 2003 and 2002 the Company received
fees from a related party of $-0- and $15,000, respectively.
NOTE 8 - Subsequent Events
-----------------
In June of 2003, the Company entered into a Merger and Acquisition
agreement with Health & Leisure, Inc. ("HLLS"), a publicly held and
traded Delaware Corporation, which trades on the NASDAQ, OTCBB and a
wholly-owned subsidiary of HLLS ("Mergerco"). Pursuant to the agreement,
Mergerco merged with and into MarketShare Recovery, Inc. ("MKSR") and
MKSR became the surviving corporation. As consideration for the merger,
the stockholders of MKSR received from HLLS the greater of 10,197,668
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"). The 3,425,000 shares of HLLS Preferred Stock are
convertible into 342,500,000 shares of HLLS common stock prior to a 1 for
10 reverse split of the HLLS common stock. After the issuance of common
stock as described above and the conversion of the HLLS Preferred Stock,
the stockholders of MKSR will own approximately 94% of HLLS. As part of
the transaction, MKSR agreed to pay $125,000 to H & L Concepts, a former
subsidiary of HLLS. The loan is payable in twelve equal monthly
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 colleralized by the shares of stock of HLLS
held by the stockholders of MKSR. As a result of the merger, commencing
with the June 30, 2003 period, the financial results of MKSR will be
consolidated with HLLS.
11
DOMINIX, INC, JADE ENTERTAINMENT GROUP, INC. AND
MARKETSHARE RECOVERY, INC.
PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited proforma consolidated combined balance sheet aggregates
the balance sheet of Dominix, Inc. (a Delaware corporation) ("Parent") as of
September 30, 2003 and the balance sheet of Jade Entertainment, Inc. (a New York
corporation) and the balance sheet of MarketShare Recovery, Inc.
("Subsidiaries") as of September 30, 2003, accounting for the transaction as a
recapitalization of Subsidiaries with the issuance of shares for the net assets
of Parent (a reverse acquisition) and using the assumptions described in the
following notes, giving effect to the transaction, as if the transaction had
occurred as of the end of the period. The transaction was not completed as of
September 30, 2003.
The following unaudited proforma condensed consolidated statement of operations
combine the results of operations of Parent and Subsidiaries for the year ended
December 31, 2002 as if the transaction had occurred as of the beginning of the
period.
The following unaudited proforma condensed consolidated statement of operations
combine the results of operations of Parent and Subsidiaries for the nine months
ended September 30, 2003 as if the transaction had occurred as of the beginning
of the period.
The proforma condensed consolidated financial statements should be read in
conjunction with the separate financial statements and related notes thereto of
Parent and Subsidiaries. These proforma financial statements are not necessarily
indicative of the consolidated financial position, had the acquisition occurred
on the date indicated above, or the consolidated results of operations which
might have existed for the periods indicted or the results of operations as they
may be in the future.
Dominix, Inc and Subsidiary
Schedule 14/c
Information statement
Proforma Balance Sheet
30-Sep-03
- ----------------------------------------------------------------------------------------------------------------------------------
Dominix, Inc Jade Entertainment MarketShare Historical
Description and Subsidiary Group, Inc Recovery Inc. Combined
- ----------------------------------------------------------------------------------------------------------------------------------
Assets
CURRENT ASSETS
Cash - 50,159 16,865 67,024
Marketable securities - - 4,879 4,879
Other current assets - 290 290
Accounts receivable - - 2,547 2,547
-------------------------------------------------------------------
TOTAL CURRENT ASSETS - 50,449 24,291 74,740
SECURITY DEPOSITS - - 6,567 6,567
-------------------------------------------------------------------
TOTAL ASSETS - 50,449 30,858 81,307
===================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Convertible note payable - related party (default) 100,000 - - 100,000
Convertible notes payable - others (default) 142,000 - - 142,000
Note payable - 50,000 - 50,000
Accounts payable and accrued other liabilities 216,299 3,635 219,934
Accrued commissions and other expenses - - 11,522 11,522
Due to third party 9,024 - - 9,024
Due to stockholders 161,921 - - 161,921
-------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 629,244 53,635 11,522 694,401
-------------------------------------------------------------------
STOCKHOLDERS' DEFICIENCY
Preferred stock - $.001 par value - - - -
Preferred stock - Series A Cumulative Convertible -
$.001 par value 1,333 - - 1,333
Preferred stock - Series B -
Common stock 112,140 2,169 100 114,409
Additional paid-in capital 20,995,130 166,275 1,964,739 23,126,144
Accumulated deficit (21,145,838) (1,945,503) 23,091,341)
Deficit accumulated during the development stage (592,009) (171,630) (763,639)
-------------------------------------------------------------------
TOTAL STOCKHOLDERS' (DEFICIENCY)/EQUITY (629,244) (3,186) 19,336 (613,094)
-------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY - 50,449 30,858 81,307
===================================================================
30-Sep-03
- ------------------------------------------------------------------------------------------------------------------------------------
Pro forma Pro Forma
Description Adjustments AJE Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
CURRENT ASSETS
Cash 404,555 11 471,579
Marketable securities - 4,879
Other current assets - 290
Accounts receivable - 2,547
-------------- -----------------
TOTAL CURRENT ASSETS 404,555 479,295
SECURITY DEPOSITS - 6,567
-------------- -----------------
TOTAL ASSETS 404,555 485,862
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Convertible note payable - related party (default) (100,000) 9 -
Convertible notes payable - others (default) (142,000) 6,9 -
Note payable (50,000) -
Accounts payable and accrued other liabilities (216,299) 6,7,8,9,11 3,635
Accrued commissions and other expenses - 11,522
Due to third party (9,024) 11 -
Due to stockholders (161,921) 1,11 -
-------------- -----------------
TOTAL CURRENT LIABILITIES (679,244) 15,157
-------------- -----------------
STOCKHOLDERS' DEFICIENCY
Preferred stock - $.001 par value - -
Preferred stock - Series A Cumulative Convertible -
$.001 par value (1,333) 1,5 -
Preferred stock - Series B -
Common stock (103,007) 2,3,5,6,8,9,10,11,12 11,402
Additional paid-in capital (22,495,211) 1,2,3,4,6,7,8,9,10,11,12 630,933
Accumulated deficit 23,091,341 12 -
Deficit accumulated during the development stage 592,009 12 (171,630)
-------------- -----------------
TOTAL STOCKHOLDERS' (DEFICIENCY)/EQUITY 1,083,799 470,705
-------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 404,555 485,862
============== =================
Dominix, Inc and Subsidiary
Schedule 14/c
Information statement
Proforma Balance Sheet Adjustments
J/E Account Dr Cr
- ------------------------------------------------------------------------------------------------------------
Outstanding 9/30/03
1 Due to stockholders 158,000
Preferred stock - Series A Cumulative Convertible - 2,107
Additional paid-in capital 155,893
(Amounts due stockholder converted into 2,106,666 shares of class A preferred)
2 Additional paid-in capital 85,082
Common stock 85,000
Preferred stock - Series B 82
(Record Jade acquisition and issuance of 85,000,000 shares of common and
82167 sharse of series b preferred stock)
---------------------------------------------------------------------------------------------------------
Outstanding presplit
3 Common stock 196,154
Additional paid-in capital 196,154
(To record common stock split one for two hundred)
Outstanding post split
4 Additional paid-in capital 18
Preferred stock - Series B 18
(Record marketshare acquisition and issuance of 17833 shares of class B preferred)
5 Common stock 3,440
Preferred stock - Series A Cumulative Convertible - 3,440
(To record conversion of preferred to common)
6 Convertible notes payable - others (default) 112,000
Accounts payable and accrued other liabilities 38,937
Common stock 189
Additional paid-in capital 150,748
(To record conversion of notes in exchange for 189,000 shares of common stock)
7 Accounts payable and accrued other liabilities 80,441
Additional paid-in capital 80,441
(Debt forgiveness of related parties)
8 Accounts payable and accrued other liabilities 10,000
Common stock 10
Additional paid-in capital 9,990
(To record fierman settlement, issuance of 10,000 of common)
9 Convertible note payable - related party (default) 100,000
Convertible notes payable - others (default) 30,000
Accounts payable and accrued other liabilities 36,921
Common stock 131
Additional paid-in capital 166,790
(To record conversion of debt to 131,000 shares of common)
Subtotal
10 Common stock 6,071
Additional paid-in capital 5,971
Preferred stock - Series B 100
(To record conversion of preferred to common)
Subtotal
11 Cash 404,555
Note payable 50,000
Due to stockholders 3,921
Due to third party 9,024
Accounts payable and accrued other liabilities 50,000
APIC - Closing costs 57,500
Common stock 575
Additional paid-in capital 574,425
(To record net proceeds from sale of private placement)
Grandtotal
12 Additional paid-in capital 23,681,081
Common stock 2,269
Deficit accumulated during the development stage 592,009
Accumulated deficit 23,091,341
(To account for recapitalization)
Proforma Balance Sheet Adjustments Shares
------------------------------------------------------
Preferred
------------------------------------------------------
J/E Account Common A B
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding 9/30/03 112,140,105.00 1,333,333.00
1 Due to stockholders
Preferred stock - Series A Cumulative Convertible - 2,106,666.00
Additional paid-in capital
(Amounts due stockholder converted into 2,106,666 shares of
class A preferred)
2 Additional paid-in capital
Common stock 85,000,000.00
Preferred stock - Series B 82,167.00
(Record Jade acquisition and issuance of 85,000,000 shares of common and
82167 sharse of series b preferred stock)
---------------------------------------------------------------------------------------------------------------------------------
Outstanding presplit 197,140,105.00 3,439,999.00 82,167.00
3 Common stock (196,154,404.00)
Additional paid-in capital
(To record common stock split one for two hundred)
---------------------------------------------------------
Outstanding post split 985,701.00 3,439,999.00 82,167.00
4 Additional paid-in capital
Preferred stock - Series B 17,833.00
(Record marketshare acquisition and issuance of 17833 shares of
class B preferred)
5 Common stock
Preferred stock - Series A Cumulative Convertible - 3,439,999.00 (3,439,999.00)
(To record conversion of preferred to common)
6 Convertible notes payable - others (default)
Accounts payable and accrued other liabilities
Common stock 189,000.00
Additional paid-in capital
(To record conversion of notes in exchange for 189,000 shares
of common stock)
7 Accounts payable and accrued other liabilities
Additional paid-in capital
(Debt forgiveness of related parties)
8 Accounts payable and accrued other liabilities
Common stock 10,000.00
Additional paid-in capital
(To record fierman settlement, issuance of 10,000 of common)
9 Convertible note payable - related party (default)
Convertible notes payable - others (default)
Accounts payable and accrued other liabilities
Common stock 131,000.00
Additional paid-in capital
(To record conversion of debt to 131,000 shares of common)
--------------------------------------------------------
Subtotal 4,755,700.00 - 100,000.00
10 Common stock
Additional paid-in capital
Preferred stock - Series B 6,071,050.00 (100,000.00)
(To record conversion of preferred to common)
--------------------------------------------------------
Subtotal 10,826,750.00 - -
11 Cash
Note payable
Due to stockholders
Due to third party
Accounts payable and accrued other liabilities
APIC - Closing costs
Common stock 575,000.00
Additional paid-in capital
(To record net proceeds from sale of private placement)
Grandtotal 11,401,750.00 - -
========================================================
Dominix, Inc and Subsidiary
Schedule 14/c
Information statement
Proforma Statement of Operations
------------------------------------------------------------------------------------------
For the Nine - Months Ended September 30, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Jade
Dominix, Inc Entertainment MarketShare Historica Pro forma Pro forma
Description and Subsidiary Group, Inc Recovery Inc. Combined Adjustments AJE Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE - NET - 5,708 594,545 600,253 600,253
COST OF REVENUE - 901 427,668 428,569 428,569
---------------------------------------------------- ------------------
GROSS PROFIT - 4,807 166,877 171,684 171,684
COSTS AND EXPENSES
Consulting fees 40,000 - - 40,000 40,000
Selling, general and administrative expenses 29,945 8,433 143,050 181,428 181,428
Compensatory element of stock issuances - - 1,964,739 1,964,739 1,964,739
Interest expense 23,297 - - 23,297 23,297
---------------------------------------------------- ------------------
TOTAL OPERATING EXPENSES 93,242 8,433 2,107,789 2,209,464 2,209,464
---------------------------------------------------- ------------------
OPERATING LOSS (93,242) (3,626) (1,940,912)(2,037,780) (2,037,780)
OTHER EXPENSES
Loss on sale of marketable securities - - (7,383) (7,383) (7,383)
---------------------------------------------------- ------------------
TOTAL OTHER EXPENSES - - (7,383) (7,383) (7,383)
---------------------------------------------------- ------------------
LOSS BEFORE INCOME TAXES (93,242) (3,626) (1,948,295)(2,045,163) (2,045,163)
PROVISION FOR INCOME TAXES - - 9,000 9,000 9,000
---------------------------------------------------- ------------------
NET LOSS (93,242) (3,626) (1,957,295)(2,054,163) (2,054,163)
==================================================== ==================
Dominix, Inc and Subsidiary
Schedule 14/c
Information statement
Proforma Statement of Operations
For the Year Ended December 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Jade
Dominix, Inc Entertainment MarketShare Historica Pro forma Pro forma
Description and Subsidiary Group, Inc Recovery Inc. Combined Adjustments AJE Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE - NET - 12,595 308,317 320,912 320,912
COST OF REVENUE - 9,336 234,929 244,265 244,265
-------------------------------------------------- ------------
GROSS PROFIT - 3,259 73,388 76,647 76,647
COSTS AND EXPENSES
Consulting fees 104,300 - - 104,300 104,300
Selling, general and administrative expenses 94,500 110,815 71,553 276,868 276,868
Compensatory element of stock issuances 127,266 - - 127,266 127,266
Depreciation 12,179 - - 12,179 12,179
Debt conversion expense 397,500 - - 397,500 397,500
Loss on disposal of equipment 26,777 - - 26,777 26,777
Litigation reversal (300,000) - - (300,000) (300,000)
Reversal of accrued occupancy and professional
expenses (217,000) - - (217,000) (217,000)
Interest expense 30,149 - - 30,149 30,149
-------------------------------------------------- ------------
TOTAL OPERATING EXPENSES 275,671 110,815 71,553 458,039 458,039
-------------------------------------------------- ------------
OPERATING LOSS (275,671) (107,556) 1,835 (381,392) (381,392)
OTHER EXPENSES
Loss on sale of marketable securities - - - - -
-------------------------------------------------- ------------
TOTAL OTHER EXPENSES - - - - -
-------------------------------------------------- ------------
(LOSS) INCOME BEFORE INCOME TAXES (275,671) (107,556) 1,835 (381,392) (381,392)
PROVISION FOR INCOME TAXES - - 1,567 1,567 1,567
-------------------------------------------------- ------------
(LOSS) INCOME FROM CONTINUING OPERATIONS (275,671) (107,556) 268 (382,959) (382,959)
LOSS FROM DISCONTINUED OPERATIONS (223,096) - - (223,096) (223,096)
-------------------------------------------------- ------------
NET (LOSS) INCOME (498,767) (107,556) 268 (606,055) (606,055)
================================================== ============