SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the Quarterly Period Ended June 30, 2002
Commission File Number: 0-19471
SEARCHHOUND.COM, INC
(Exact name of registrant as specified in its charter)
Nevada 91-1942841
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 Main Street Suite 305
Kansas City, MO 64105
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (816) 960-3777 ext. 20
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No []
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date.
As of August 14, 2002, an aggregate of 30,603,209 shares of Common Stock were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes NO X
INDEX
PART I FINANCIAL INFORMATION..........................................1
Item 1. Financial Statements.....................................2
Consolidated Balance Sheets as of December 31, 2001 and
June 30, 2002 (unaudited) ...........2-3
Consolidated Statements of Operations for the quarter and six
months ended June 30, 2001 and June 30, 2002(unaudited).....3
Consolidated Statements of Cash Flows for the six
months ended June 30, 2001 and June 30, 2002 (unaudited)..3-4
Notes to Consolidated Financial Statements (unaudited)....4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................7-10
PART II OTHER INFORMATION............................................10
Items 1 Legal proceedings.......................................10
Items 2 Changes in securities and use of proceeds...............11
Items 3 Defaults Upon Senior Securities.........................11
Items 4 Submission of matters to a vote of security holders.....11
Items 5 Other information.......................................11
Items 6 Exhibits and reports on Form 8-K........................11
PART 1
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of the company required to be filed with
this 10-QSB Quarterly Report were prepared by management and commence on the
following page, together with related notes. In the opinion of management, the
consolidated financial statments present fairly the financial condition of the
company.
SEARCHHOUND.COM, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND JUNE 30, 2002 (unaudited)
DECEMBER 31, JUNE 30,
2001 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $102,163 $ 22,965
Marketable securities-available for sale - -
Accounts receivable (no reserve for doubtful
accounts considered necessary) 244,233 19,835
Related party receivables 10,183
Total current assets 356,579 42,800
FURNITURE, FIXTURES AND EQUIPMENT, net 171,272 120,219
INTANGIBLE ASSETS, net 3,844,719 3,300,000
INVESTMENT IN NONCONSOLIDATED SUBSIDIARY 803,320 0
OTHER ASSETS, net 794 794
TOTAL ASSETS $5,176,684 $3,463,813
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $448,799 $ 242,653
Note payable-related parties 432,053 316,229
Notes payable-current maturities 73,107 71,272
Other current liabilities 15,545 21,863
Total current liabilities 969,504 652,017
NOTES PAYABLE 3,683
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares
authorized; 30,619,826 and 46,894,826 issued,
respectively 30,620 46,895
Additional paid-in-capital 20,095,890 20,132,865
Accumulated deficit (15,852,767) (17,351,672)
Treasury stock (1,291,617 and 16,291,617 shares) (1,292) (16,292)
Accumulated other comprehensive income (loss) (68,954)
Total stockholders' equity 4,203,497 2,811,796
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,176,684 $3,463,813
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30,2001 and JUNE 30,2002 (unaudited)
THREE MONTHS ENDING SIX MONTHS ENDING
JUNE 30, JUNE 30,
2001 2002 2001 2002
Revenues $559,205 $ 15,632 $745,850 $171,846
Operating expenses:
Cost of services provided 158,636 27,025 158,636 141,180
General and administrative 455,345 296,000 750,819 445,010
Sales and marketing 26,216 316 58,975 491
Depreciation and amortization 966,551 157,515 1,845,522 313,696
Impairment charges 244,718 1,048,038
Total operating expenses 1,606,748 725,574 2,813,952 1,948,415
Operating loss (1,047,543) (709,942)(2,068,102)(1,776,569)
Other expense/income - interest (2,875) (3,168) ( 5,907) (6,317)
Impairment loss - marketable securities (68,953) (68,953)
Loss from continuing operations (1,050,418) (782,063)(2,074,009)(1,851,839)
Income from discontinued operations
(Including gain on disposition of $446,430) 404,763 352,936
Loss before income taxes $(1,050,418) (377,300)(2,074,009)(1,498,903)
Income taxes - - - -
Net loss $(1,050,418) $(377,300)$(2,074,009)$(1,498,903)
Basic and diluted net loss per share
Continuing operations $(0.04) $(0.02) $(0.08) $(0.06)
Discontinued operations $(0.00) $ 0.01 $(0.00) $ 0.01
Total $(0.04) $(0.01) $(0.08) $(0.05)
Basic and diluted weighted average
common shares outstanding 26,878,344 30,589,042 24,930,485 29,958,626
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30,2001 and JUNE 30,2002 (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES: 2001 2002
Net loss ($2,074,009) ($1,498,903)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,845,522 313,696
Impairment charges 1,048,039
Impairment loss on marketable securities 68,954
Gain on sale of assets (446,430)
Issuance of common stock for
services rendered 233,486 38,250
Bad debt write off 99,890
Changes in operating assets and liabilities
(exclusive of effects of acquisitions and dispositions):
Accounts receivable (114,041) 79,596
Accounts payable (18,048) 206,727
Other current assets 4,100
Related party accounts receivable 10,183
Other current liabilities 30,600 6,318
Net cash used in operating activities (92,390) (73,680)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for business acquisitions (11,174)
Fixed asset acquistions (20,033)
Security deposits 513
Net cash used in investing activities (30,694)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (5,518)
Cash acquired from business acquisitions 121,721
Cash proceeds from private placement of
common stock, net of costs 110,000
Net cash provided by (used in) financing activities 231,721 (5,518)
Net increase (decrease) in cash and cash equivalents 108,637 (79,198)
Cash and cash equivalents at beginning of period 58,686 102,163
Cash and cash equivalents at end of period $167,323 $ 22,965
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the six month period for:
Income taxes and interest $ - $ -
Noncash financing/investment activities:
Issuance of related party notes payable
in payment of accrued expenses $ - $316,206
Issuance of Treasury Stock $15,000
Transfer of assets and liabilities related
to business disposition:
Accounts receivable $44,910
Fixed assets net $37,357
Notes payable and accrued expenses $528,697
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.COM, INC. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,2001 and 2002
(unaudited)
1. Basis of presentation
The interim financial statements presented herein have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC").
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 pursuant to such
rules and regulations. The interim financial statements should be read in
conjunction with the Company's annual consolidated financial statements, notes
and accounting policies included in the Company's annual report on Form 10-KSB
for the year ended December 31, 2001 as filed with the SEC. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary to provide a fair presentation of financial position as of
June 30, 2002 and the related operating results and cash flows for the interim
period presented have been made. The results of operations for the period
presented are not necessarily indicative of the results to be expected for the
year.
2. Use of estimates
In preparing consolidated financial statements in conformity with accounting
priciples generally accepted in the United States of America, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consoildated financial statements, as well as the reported amounts of
revenue and expenses during the reporting period. Acutal results could differ
from those estimates.
3. Notes payable-related party
Notes payable-related party consist of the following as of December 31, 2001 and
June 30, 2002, respectively.
Note payable $ 30,000 $ 30,000
Consideration due related to SoloSearch acquisition 300,000 15,000
Dave L. Mullikin -0- 179,359
Note payable 102,053 91,847
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$ 432,053 $ 316,206
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The $30,000 note payable-related party represents unsecured loans incurred for
working capital purposes. The note was due on September 30, 2001 and bears
interest at 11.5%. Amounts due to related party in the amount of $15,000 as
of June 30, 2002 represents payments due to the previous owners of
SoloSearch relating to the cash consideration portion of the acquisition of
SoloSearch. Due to SearchHound's current working capital deficiencies, the
cash consideration was not paid at closing (July 11, 2000) and the previous
owners informally agreed to not demand payment or charge interest until
cash is available through operations or new capital is raised. The remaining
note to Officers totals $179,359 was issued on March 20, 2002 and is secured
by a pledge agreement backed by 15,000,000 shares issued during May 2002 in the
name of SearchHound.com, Inc. but held by the note holder. The Company issued
the demand promissory note to its executive officer as consideration for
accrued but unpaid wages as of that date. The $91,847 represents the current
balance remaining on a note between SoloSearch.com and Cohen Capital
Technologies assumed by SearchHound.com, Inc. upon the acquisition of
SoloSearch.com on July 11, 2000.
4. Shareholders equity
Common stock issuances
For the quarter ended June 30, 2002, the Company issued 16,275,000 shares of its
common stock as follows:
200,000 unregistered shares were issued to the Board of Directors
(50,000 shares to each of four Board members)
1,000,000 unregistered shares were issued to the Officers of the Company
(500,000 shares each)
75,000 unregistered shares were issued to employees and consultants of
the Company
15,000,000 unregistered shares were issued to SearchHound.com in the
form of Treasury Stock as collateral for a pledge Note agreement
5. Legal matters
The Company was sued by Brett Warner in the United States District Court
for the Western District of Missouri in Kansas City. A shareholder in the
Company by virtue of the Company's acquisition of JobBankUSA.com. Mr. Warner
claims that the Company has breached the JobBankUSA Stock Purchase Agreement
("SPA") by failing to provide certain additional shares in the Company. The
Company responded with a Counterclaim against Mr. Warner. In the Counterclaim,
the Company asserts that Mr. Warner has received all shares he is due pursuant
to the SPA and, consequently, that all shares of JobBankUSA.com, Inc. should be
transferred to the Company and that the transaction is complete. While it is
premature to predict the outcome of this litigation, certain outcomes are
possible that may have a negative or positive impact on the Company. Negative
outcomes include significant dilution of shareholder equity or an unwinding of
the acquisition of JobBankUSA.com, Inc. which would negatively impact the value
of the Company. Positive outcomes include completion of the JobBankUSA.com, Inc.
acquisition or continued ownership of a substantial share of JobBankUSA.com,
Inc. and the cash flow attendant to that ownership. The Company has reviewed
the carrying value of its investment in JobBankUSA as of March 31, 2002, and
given the unpredictable nature of any litigation has determined that it is
prudent and conservative to reduce the carrying value of its investment in
JobBankUSA.com to zero pending the outcome of this litigation. The resulting
impairment charge totaled $803,320 which was recorded during the three months
ended March 31, 2002. A mandatory mediation is scheduled on September 4, 2002 by
the United States District Court for the Western District of Missouri in Kansas
City.
Certain other claims, suits and complaints arising in the normal course with
respect to the Company's services may have been filed or are pending against the
Company and its subsidiaries. In the opinion of management, the resolution of
all such matters would not have a significant effect on the financial position,
results of operations or cash flows of the Company, if disposed of unfavorably.
6. Related Party Transactions
Effective January 1, 2002, the Company entered two separate lease agreements
with officers and directors of the Company to lease space to be utilized for
office purposes at a rate totaling $5,134 per month. The initial term of the
lease is one year with a two-year renewal option (at the Company's option) at a
rate totaling $10,000 per month. Rental expense totaled $28,397.00 for the
six months ended June 30, 2002. The agreement between the Company and Brad N.
Cohen was terminated effective with his resignation May 31, 2002.
On May 31, 2002 the Company entered into an asset sale agreement which sold
certain assets related directly with two of the Company's subsidiary operations
(Mesia.com and SpeakGlobally.com) to Bradley N. Cohen. Mr. Cohen is an officer
and director of SearchHound.com, Inc. The net book value of the net assets sold
to Mr. Cohen approximated $52,750 as of the date of sale. Pursuant to the asset
sale agreement the Company agreed to transfer such assets to Mr. Cohen in
settlement of the following:
1)an employment agreement with Mr. Cohen dated September 1, 2000, 2) all accrued
but unpaid compensation owed to Mr. Cohen which approximated $100,000 as of the
date of sale, and 3) a promissory note payable to Cohen Capital Technologies,
LLC. in the amount of $285,000 as of the date of sale.
In addition, SearchHound.com, Inc., agreed to pay Mr. Cohen $7,500 in cash, in
exchange for, and in sole consideration and settlement of any other liabilities
of SearcHound.com, Inc. to Mr. Cohen that may exist as of May 31, 2002,
including the liabilities that accrue pursuant to a Promissory Note to Mr. Cohen
with a principle amount of $147,030.41, dated March 20, 2002, and any liability
that may exist pursuant to the Employment Agreement between SearchHound.com,
Inc. and Mr. Cohen dated September 1, 2000.
Concurrent with the asset sale agreement with Mr. Cohen, Mr. Cohen tendered his
resignation from SearchHound.com, Inc. and as a member of the Board of
Directors.
7. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" ("SFAS 141"), and SFAS No. 142, "Goodwill And Other
Intangible Assets" ("SFAS 142"). SFAS 141 addresses the accounting for
acquisitions of businesses and is effective for acquisitions occurring on or
after July 1, 2001. SFAS 142 addresses the method of identifying and measuring
goodwill and other intangible assets acquired in a business combination,
eliminates further amortization of goodwill, and requires periodic evaluations
of impairment of goodwill balances. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. We amortize approximately $965,000 per
quarter of goodwill related to acquisitions of businesses that occurred in 2000
and 2001. This amortization will cease after December 31, 2001 and a new method
of testing goodwill for impairment has been adopted beginning January 1, 2002.
SFAS No.144. "Accounting for the Impairment or Disposal of Long-Lived Assets
("SFAS 144") addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS 144 supercedes SFAS No.121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
and is effective for financial statements issued for fiscal years beginning
after December 15, 2001. The effect of the adoption of these standards was the
cessation of amortization on goodwill arising from business combinations which
resulted in a reduction in amortization expense approximating $1,474,348 for
the six months ended June 30, 2002.
8. Going Concern
Management has initiated an overall plan of restructure and downsizing including
improving its balance sheet to be representative of minimal debt, current
accounts payable and receivables and continue as a timely and fully reporting
public entity with the SEC.
The Company is seeking a larger and more financially strong merger/acquisition
partner in order to implement this restructure plan on a timely basis, although
no potential merger/acquisition candidate has been identified at the current
time. Should an acceptable merger candidate pursue an equity relationship with
the company, the Board will likely only consider transactions that would result
in a beneficial outcome for the company shareholders. An offer to merge or be
acquired would have to be more advantageous for shareholders than continuation
of the current operating model to be acceptable to the Board. If such an offer
was received then the Board would conduct appropriate due diligence and make a
recommendation to shareholders.
The Company has incurred substantial operating losses, a working capital deficit
and is experiencing negative cash flows from operations. Current cash balances
and available credit are insufficient to fund the Company's cash flow needs for
the next year. As a result, there is uncertainty of future equity or debt
funding to fund the Company's upcoming cash flow needs, which raises substantial
doubt about the ability of the Company to continue as a going concern. The
Company has historically raised capital through external equity funding and
related party debt financing however there can be no assurance that such funding
will continue in the future. The Company anticipates that raising additional
working capital through private equity placement initiatives, the sale of
certain businesses/operations and improvements in current operations will enable
the Company to continue in existence for the upcoming year. However, no
assurance can be given that the Company will be successful in raising the
necessary capital to fund its operations in order to pay its obligations as they
become due and that ultimately it will be successful in implementing its
business plan. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This management's discussion and analysis of financial condition contains
forward-looking statements, the accuracy of which involves risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify forward-
looking statements. This management's discussion and analysis also contains
forward-looking statements attributed to certain third parties relating to their
estimates regarding the growth of the Internet, Internet advertising and online
commerce markets and spending. Readers should not place undue reliance on these
forward-looking statements, which apply only as of the date of this report. Our
actual results could differ materially from those anticipated in these forward-
looking statements for many reasons.
RESULTS OF OPERATIONS
The Company generated $171,846 in operating revenues for the six month period
ending June 30, 2002, and $15,632 in operating revenues for the three month
period ending June 30, 2002. The results of operations for the six month period
ending June 30, 2002, reflect an operating loss from continuing operations of
$1,776,569 as compared to an operating loss of $2,068,102 for the six month
period ending June 30, 2001. The results of operations for the three month
period ending June 30, 2002, reflect an operating loss from continuing
operations of $709,942 as compared to an operating loss of $1,047,543 for the
three month period ending June 30, 2001.
The operating losses were attributable to the Company's operating business units
generating lower revenue while certain fixed costs and minimum operating
expenses exceeded gross margins. The Company did not have sufficient capital to
fully deploy and invest in required sales and marketing for its business lines
during the period through June 30, 2002, which resulted in less than expected
revenue growth. In addition, revenue growth was less than expected because the
Company acquired 49% of JobBankUSA during 2001, but was unsucesful in
integrating this subsidiary into the company. As a result, the Company did not
consolidate JobBankUSA for 2002 and instead carried JobBankUSA as an investment
under the equity method of accounting as of December 31, 2001 and as of June 30,
2002.
REVENUE
Revenue from continuing operations for the six month period June 30, 2002
decreased to $171,846 compared to $745,850 for the same period in June 30, 2001.
Revenue from continuing operations for the three month period June 30, 2002
decreased to $15,632 compared to $559,205 for the same period in June 30,
2001.The decrease was primarily the result of decreased revenue from the
SearchHound.com search engine due to reduction in the number of active
advertiser accounts. This reduction was partially offset by an increase in
revenue from our third-party advertising to our opt-in email lists.
OPERATING EXPENSES
Cost of revenues of continuing operations. Cost of Revenues consists primarily
of costs associated with commissions paid for third-party list brokers. Cost of
revenues decreased to $141,180 for the six month period ended June 20, 2002
compared to $158,636 for the same period in 2001. Cost of revenues decreased to
$27,025 for the three month period ended June 20, 2002 compared to $158,636 for
the same period in 2001.The decrease was primarily the result of decreased
revenue from the SearchHound.com search engine due to reduction in the number of
active advertiser accounts.
General and administrative expenses for continuing operations consist primarily
of payroll and related expenses for executive and administrative personnel;
costs related to leasing, maintaining and operating our facilities; insurance;
recruiting fees; fees for professional services, including consulting, legal,
and accounting fees; expenses and fees associated with the reporting and other
obligations of a public company; travel and entertainment costs; depreciation of
furniture and equipment for non-technical employees; non-cash stock compensation
expense for the issuance of stock and stock options to non-employees, and other
general corporate expenses; as well as fees to affiliates which provide office
space and other general and administrative services. Additional costs related to
designing and maintaining our Web sites and providing the SearchHound.com
services, fees paid to outside service providers, credit card processing fees,
and fees paid to telecommunications carriers for Internet connectivity. Costs
associated with maintaining our Web sites include salaries of related personnel,
depreciation of Web site equipment, co-location charges for our Web site
equipment and software license fees. Costs associated with providing the keyword
bidding services and opt-in email lists include salaries of related personnel,
payments to consultants, General and administrative expenses were $445,010 for
the six month period ended June 30, 2002 compared with $750,819 for the six
month period ended June 30, 2001. General and administrative expenses were
$296,000 for the three month period ended June 30, 2002 compared with $455,345
for the three month period ended June 30, 2001. The decrease in general and
administrative expenses was primarily due to decreased professional, investor
relations, decrease in non-cash stock compensation expense, and lower legal and
accounting fees, lower travel and entertainment spending and a decrease in rent
and other office expenses and a reversal of commissions previously accrued for
EarlyBirdDomain registrations.
Sales and Marketing. Sales and marketing expenses consist primarily of
advertising expenditures for the SearchHound.com search engine advertising
campaigns and sponsorships, trade shows and telemarketing and other expenses to
attract advertisers to our services, 3) fees to marketing and public relations
firms, and 4) payroll and related expenses for personnel engaged in marketing,
customer service and sales functions. Almost all of our sales and marketing
expenses relate to third-party list brokers and promotion of the SearchHound.com
search engine. Our sales and marketing expense was $491 for the six month period
ended June 30, 2002 compared to $58,975 for the six month period ended June 30,
2001. Our sales and marketing expense was $316 for the three month period
ended June 30, 2002 compared to $26,216 for the three month period ended June
30, 2001. The decrease in sales and marketing expense was related primarily to
decreased amounts paid to distribution partners as a result of decreased revenue
derived from our contracts with these partners, along with a reduction in the
number of marketing, customer service, and sales employees.
Depreciation and Amortization and Impairment Expense. Depreciation and
Amortization expense recorded for the six month period ended June 30, 2002 was
$313,696 compared with $1,845,522 for the six month period ended June 30, 2001.
Depreciation and Amortization expense recorded for the three month period ended
June 30, 2002 was $157,515 compared with $966,551 for the three month period
ended June 30, 2001. The decrease was principally attributable to changes in
recording amortization of goodwill pursuant to SFAS Nos. 141 & 142. SFAS No.
141 & 142 was adopted by SearchHound on January 1, 2002 and required the Company
to cease amortization of goodwill arising from business combinations and replace
it with a periodic impairment review to determine the appropriate carrying value
of such goodwill. Accordingly, substantially all goodwill amortization ceased on
January 1, 2002 which served to reduce amortization expense for the six month
period ended June 30, 2002. Acquired intangibles such as the SearchHound
backbone architecture are still subject to amortization expense which resulted
in $300,000 of amortization during the six month period ended June 30, 2002 and
$150,000 of amortization during the three month period ended June 30, 2002. In
addition, the Company has reviewed the carrying value of its investment in
JobBankUSA as of June 30, 2002 under existing accounting guidance and determined
that an "other than temporary" decline in market value has occurred because of
the pending litigation. Management has determined that given the unpredictable
nature of any litigation that it is prudent and conservative to reduce the
carrying value of its investment in JobBankUSA.com to zero pending the outcome
of this litigation. At March 31, 2002 the Company recorded an impairment charge
of $802,320 related to its investment in JobBankUSA.com. Additionally, at June
30, 2002 the Company recorded an impairment charge of $245,718 related to its
investment in Godado, FreeAirMiles and MoneyMessage. These matters were the
primary reasons depreciation and amortization expense decreased significantly
during the six and three months ended June 30, 2002 as compared to 2001 and the
impairment charges increased during the respective periods.
DISCONTINUED OPERATIONS
On September 28, 2001, SearchHound acquired substantially all assets (exclusive
of accounts receivable) of Mesia.com, Inc.
On December 20, 2001, SearchHound acquired substantially all assets (exclusive
of cash and fixed assets) of Speak Globally, LLC.
On May 31, 2002 the Company entered into an asset sale agreement which sold
certain businesses including assets and receivables of Mesia.com and
SpeakGlobally.com to Bradley N. Cohen.
Net gain from these discontinued operations totaled $352,936 for the six month
period ended June 30, 2002 and $404,763 for the three month period ended June
30, 2002. Gain on sale of these assets is attributed to a reduction in accrued
and unpaid payroll to Brad N. Cohen as a result of forgiveness of certain
liabilities.
NET LOSS
As a result of the factors described above, the Company incurred a net loss of
$1,498,903 or ($0.05) per basic and diluted share for the six month period ended
June 30, 2002, compared to a net loss of $2,074,009 or ($0.04) per basic and
diluted share for the six month period ended June 30, 2001 and incurred a net
loss of $377,300 or ($0.01) per basic and diluted share for the three month
period ended June 30, 2002, compared to a net loss of $1,050,418 or ($0.04) per
basic and diluted share for the three month period ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
We have historically satisfied our cash requirements primarily through private
placements of restricted stock and the issuance of debt securities. Net cash
used in operating activities totaled $73,680 for the six month period ended June
30, 2002.
Management has initiated an overall plan of restructure including improving its
balance sheet to be representative of a minimal debt, current accounts payable
and receivables and continue as a timely and fully reporting public entity with
the SEC. The Company will likely seek a larger and more financially strong
merger/acquisition partner in order to implement this restructure plan on a
timely basis, although no potential merger/acquisition candidate has been
identified at the current time. Should an acceptable merger candidate pursue an
equity relationship with the company, the Board will only consider transactions
that would result in a beneficial outcome for the company shareholders. An offer
to merge or be acquired would have to be more advantageous for shareholders than
continuation of the current operating model to be acceptable to the Board. If
such an offer was received then the Board would conduct appropriate due
diligence and make a recommendation to shareholders.
The Company has incurred substantial operating losses, a working capital deficit
and is experiencing negative cash flows from operations. Current cash balances
and available credit are insufficient to fund the Company's cash flow needs for
the next year. As a result, there is uncertainty of future equity or debt
funding to fund the Company's upcoming cash flow needs, which raises substantial
doubt about the ability of the Company to continue as a going concern. The
Company has historically raised capital through external equity funding and
related party debt financing however there can be no assurance that such funding
will continue in the future. The Company anticipates that raising additional
working capital through private equity placement initiatives, the sale of
certain businesses/operations and improvements in current operations will enable
the Company to continue in existence for the upcoming year. However, no
assurance can be given that the Company will be successful in raising the
necessary capital to fund its operations in order to pay its obligations as they
become due and that ultimately it will be successful in implementing its
business plan. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Part 2 OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was sued by Brett Warner in the United States District Court
for the Western District of Missouri in Kansas City. A shareholder in the
Company by virtue of the Company's acquisition of JobBankUSA.com. Mr. Warner
claims that the Company has breached the JobBankUSA Stock Purchase Agreement
("SPA") by failing to provide certain additional shares in the Company. The
Company responded with a Counterclaim against Mr. Warner. In the Counterclaim,
the Company asserts that Mr. Warner has received all shares he is due pursuant
to the SPA and, consequently, that all shares of JobBankUSA.com, Inc. should be
transferred to the Company and that the transaction is complete. While it is
premature to predict the outcome of this litigation, certain outcomes are
possible that may have a negative or positive impact on the Company. Negative
outcomes include significant dilution of shareholder equity or an unwinding of
the acquisition of JobBankUSA.com, Inc. which would negatively impact the value
of the Company. Positive outcomes include completion of the JobBankUSA.com, Inc.
acquisition or continued ownership of a substantial share of JobBankUSA.com,
Inc. and the cash flow attendant to that ownership. The Company has reviewed
the carrying value of its investment in JobBankUSA as of March 31, 2002, and
given the unpredictable nature of any litigation has determined that it is
prudent and conservative to reduce the carrying value of its investment in
JobBankUSA.com to zero pending the outcome of this litigation. The resulting
impairment charge totaled $803,320 which was recorded during the three months
ended March 31, 2002. A mandatory mediation is scheduled on September 4, 2002 by
the United States District Court for the Western District of Missouri in Kansas
City.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a). None
(b). None
(c). On May 6th, 2002, the Company issued 15,000,000 shares of restricted
common stock as required under the Notes to Officers totaling $325,368 which was
issued on March 20, 2002. On May 31, 2002 under a termination and settlement
agreement with Brad N. Cohen the underlying note to Brad N. Cohen was
terminated. The remaining note for $179,356 with Dave L. Mullikin remains in
place and is collateralized by the 15,000,000 shares of restricted common stock.
These shares represent the underlying collateral of a pledge agreement and are
issued in the name of SearchHound.com, Inc. (treasury stock) but held by the
note holder.
(d). None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 30, 2002, the Company attempted to hold an annual Shareholders meeting
at its headquarter's operation only to find that the required quorum was not
present.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Exhibits.
Exhibit
Number Description
------ -----------
(3)(i) Articles of Incorporation *
(3)(ii) By Laws *
(b) The company filed a current report form 8K on May 24, 2002 with the
Securities and Exchange Commission regarding a change in Accountants
The company filed a current report form 8K on June 7, 2002 with the
Securities and Exchange Commission regarding an asset sale agreement
* Previously filed with the Commission
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
August 14, 2002
SEARCHHOUND.COM, INC.
A NEVADA CORPORATION
by
/S/ Dave Mullikin /S/ Dave Mullikin
------------------------------- -----------------------------------
Dave Mullikin Dave Mullikin
Agent on behalf of the Company President, CEO
/S/ Dave Mullikin
------------------------------
Dave Mullikin, Acting Secretary
Secretary/Treasurer