SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 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 Identification No.)
incorporation or organization)
12817 Woodson
Overland Park, Kansas 66209
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (913) 568-8133
Securities registered pursuant to Section 12(b) of the Act:None.
Securities registered pursuant to Section 12(g) of the Act:Common Stock,
50,000,000 shares
authorized:$.001 par
value per share,
681,946 shares issued
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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Total revenues for the fiscal period ended December 31, 2002 was $257,927
As of December 31, 2002, the aggregate number of shares of Common Stock held by
non-affiliates was 417,478 shares
As of December 31, 2002, the aggregate number of shares outstanding of the
registrant's Common Stock was 681,946 since December 31, 2002 the registrant's
Common Stock has traded regularly with the lowest closing price of $0.20)
representing a $136,390 market value to a high closing of $0.51 representing a
$347,790 market valuation. See Item 5.
Documents incorporated by reference: SEE EXHIBIT SCHEDULE
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Description of Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Matters
PART III
Item 9. Directors, Executive Officers, promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13 Exhibits and Reports on Form 8-K
Item 14 Controls and procedures
PART I
CAVEAT PERTAINING TO FORWARD LOOKING STATEMENTS & CONTEXT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain of the statements contained herein,
which are not historical facts, are forward-looking statements with respect to
events, the occurrence of which involve risks and uncertainties. These forward-
looking statements may be impacted, either positively or negatively, by various
factors. Information concerning potential factors that could affect our company
is detailed from time to time in our company's reports filed with the
Commission. This Report contains "forward looking statements" relating to our
company's current expectations and beliefs. These include statements concerning
operations, performance, financial condition, anticipated acquisitions and
anticipated growth. For this purpose, any statements contained in this Report or
the Form 10-KSB, Forms 10-QSB, Forms 8-K, and the Information Statement referred
to herein that are not statements of historical fact are forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may", "will", "would", "expect", "believe", "anticipate", "intend", "could",
"estimate", or "continue", or the negative or other variation thereof or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
which are beyond our company's control. Should one or more of these risks or
uncertainties materialize or should our company's underlying assumptions prove
incorrect, actual outcomes and results could differ materially from those
indicated in the forward-looking statements.
The information in this Report is qualified in its entirety by reference to the
entire Report; consequently, this Report must be read in its entirety.
Information may not be considered or quoted out of context or without
referencing other information contained in this Report necessary to make
the information considered, not misleading.
ITEM 1. BUSINESS
SearchHound.com, Inc. is the result of the June 1, 2000 merger of Pan
International Gaming, Inc. ("Pan International") and Searchound.com 2000 Ltd.
This transaction was treated as a "reverse merger" for financial
accounting and reporting purposes. Specifically, SearchHound.com 2000, Ltd. was
treated as the acquirer of Pan International due to the fact that the
shareholders of Searchound.com 2000, Ltd. received 70.3% of the total shares
outstanding upon consummation of the merger. Accordingly, the focus of this
report is solely on the ongoing business of SearchHound.com, Inc. (prior to the
name change - Searchound.com 2000 Ltd.).
Prior to the reverse merger, the Registrant (PAN International Gaming) spent
considerable effort and specifically during the period between January 1, 2000
through May 31, 2000 pursuing a reverse merger transaction with Searchound.com
2000 Ltd., and the acquisition of SoloSearch.com, Inc.
The "reverse merger" with Searchound.com 2000 Ltd. was consummated on June 1,
2000. In fiscal 2000 and prior to June 1, 2000, Pan International was not
engaged in operating activities and there were no revenues or business
operations. Immediately following the reverse merger with PAN International
Gaming the Company changed its name to SearchHound.com, Inc. effective June 6,
2000.
Searchound.com 2000, Ltd. was formed on April 11, 2000 to affect the purchase of
the intellectual property and website assets representing the Searchound.com
backbone architecture. The shareholders of Searchound.com 2000, Ltd. completed
the purchase of these intangible assets on June 1, 2000 for total cash
consideration of $3,000,000 and simultaneously contributed the assets to
SearchHound.com 2000, Ltd. in exchange for 70.3% of Searchound.com 2000,
Ltd., common stock.
Effective July 11, 2000, pursuant to a Stock Purchase Agreement dated as of May
4, 2000, SearchHound purchased all of the issued and outstanding capital stock
of SoloSearch.com, Inc., a Missouri corporation ("SoloSearch"), from Cohen
Capital Technologies, L.L.C., Kirk C. Reivich, and October Capital, L.L.C., for
an aggregate of 72,388 shares of restricted common stock and $300,000 cash.
Total consideration paid was $14,699,650 based on the market price of
SearchHound (closing price on May 3, 2000) and the $300,000 cash consideration.
Subsequent to the transaction, SoloSearch became a wholly owned subsidiary of
SearchHound. Founded in 1999, Kansas City-based SoloSearch.com is an
intelligent Internet search and content management tool.
The new management team devoted significant resources to building the management
team, integrating the two businesses, and developing revenue streams during the
periods of July 2000 through September 2000. Operating revenues began in
September 2000. SearchHound.com, Inc. (the "Company" or "SearchHound") operated
an online technology based enterprise business that is a destination for
Webmasters and small business owners who want to make their Website more
accessible to Internet users. SearchHound has its principal offices located in
Overland Park, Kansas and serves as a holding company for various internet-based
businesses.
During 2001, management devoted substantial attention to growing revenues
through acquisitions and in that respect, completed six separate acquisitions
during the year ended December 31, 2001:
On February 9, 2001, SearchHound acquired all of the issued and outstanding
shares of capital stock of Godado UK, Ltd. ("Godado") for total consideration
consisting of 3,731 unregistered shares of SearchHound common stock. Godado is
located in the United Kingdom and operates a "pay-per-click" search engine
throughout Europe.
On March 15, 2001, SearchHound acquired all of the issued and outstanding shares
of capital stock of FreeAirMiles, Inc. for total consideration consisting of
18,433 unregistered shares of SearchHound common stock. FreeAirMiles, Inc. is an
interactive web surfing and research tool, which provides members with the
incentive of earning free air miles for visiting participating websites.
On June 30, 2001, SearchHound acquired all of the issued and outstanding shares
of capital stock of MoneyMessage,LLC,FastCashOffers.com and EarlyBirdDomain.com
for total consideration consisting of a warrant to purchase 2,239 unregistered
shares of SearchHound common stock and an earn-out agreement for a period of 24
months following closing. The earn-out is equal to 10% of the net income
recorded and collected over the first 18 months and reducing to 5% for the
remaining 6 months.The warrant price is set at $14.07 per share which was
equivalent to average trading price over the last 30 days prior to closing.
The warrant carries a two-year term commencing on the June 30, 2001 closing
date.
On September 28, 2001, SearchHound acquired substantially all assets (exclusive
of accounts receivable) of Mesia.com, Inc. for total consideration consisting of
the following: 1) a warrant to purchase 5,224 unregistered shares of SearchHound
common stock at a price of $10.05 per share and a term of two years, 2) 1,716
unregistered shares of common stock, and 3) an earn-out agreement equal to one
share and one warrant (based on the average trading price at date earned)
awarded for each $1 dollar of revenue generated for the 18-month period
subsequent to the acquisition from the acquired entities existing revenue
streams.Such warrants contain a strike price equivalent to market at the date
granted.Mesia.com, Inc. is based in Reston, Virginia and is considered a leader
in direct email marketing via its websites; Mesia.com, Utopiad and
PortofOne.com.
On December 20, 2001, SearchHound acquired substantially all assets (exclusive
of cash and fixed assets) of SpeakGlobally, LLC for total consideration
consisting of the following: 1) a warrant to purchase 1,493 unregistered
shares of SearchHound common stock at a price of $2.68 per share and a term of
two years, 2) 1,493 unregistered shares of common stock, and 3)an earn-out
agreement equal to one share and one warrant (based on the average trading price
at date earned) awarded for each $1 dollar of revenue generated for the 12-month
period subsequent to the acquisition from the acquired entities existing revenue
streams. Such warrants contain a strike price equivalent to market at the
date granted. Speak Globally, LLC is based in Kalamazoo, Michigan and St.
Petersburg, Russia and operates as an internet-based web development company.
On March 28, 2001, SearchHound acquired 49% of the issued and outstanding shares
of capital stock of JobBank USA, Inc. ("JobBank") and agreed to acquire the
remaining 51% on March 28, 2002, for total consideration consisting of 29,851
(subject to adjustment, as defined) unregistered shares of SearchHound common
stock. The number of shares issued in consideration was subject to adjustment
based on the share price of SearchHound reaching and closing above $2 per share
within a specified period and JobBank maintaining minimum revenues prior to
March 28, 2002. Total consideration was not to exceed 59,702 shares nor less
than 29,851 regardless of the conditions. JobBank is located in Florida and is
a national online recruiting and employment network that provides a wide range
of career-related services to job candidates, employers and recruitment firms.
The Company and the Seller did not agree as to the adjustment provisions
of the contract due to the Company not attaining the required share price levels
nor the acquired reaching the minimum revenue levels specified in the contract.
The Seller filed a lawsuit relative to this transaction during 2002. The Company
and the Seller entered into a settlement agreement on September 17, 2002, which
effectively rescinded the purchase transaction and the 29,851 shares of Company
stock issued in the transaction was returned to the Company in consideration for
the return of the JobBank USA, Inc. stock. In addition, the Seller was required
to pay the Company $1,056 to reimburse the Company for health insurance provided
and $10,000 for use of the Company's marketing database.
During 2002, the Company's Board of Directors changed its strategy due to poor
operating conditions and operating results in its primary businesses coupled
with difficulties in raising capital through debt and equity sources. The
Board of Directors adopted the new strategy during 2002, which committed to the
disposal of all of its current businesses and to seek a merger/acquisition
transaction with a Company having better financial resources. As of December
31, 2002, the Company has disposed of most of its operating businesses and
ceased all operating activities. The businesses that have not been disposed of
at December 31, 2002, have been reduced to their estimated fair value. The
consolidated financial statements reflect the businesses sold or to be sold as
discontinued operations. Revenues attributable to the discontinued operations
aggregated $1,103,041 and $257,927 for the years ended December 31,
2001 and 2002, respectively. Net losses attributable to the discontinued
operations aggregated $13,499,302 and $4,616,499 for the years ended December
31, 2001 and 2002, respectively. During January 2003, all remaining businesses
have been disposed.
The Company consummated the following transactions in order to implement the
Board of Director's committed plan to restructure the Company and seek a merger
candidate:
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 Brad Cohen. Mr. Cohen was an officer
and director of SearchHound.com, Inc. prior to the sale. 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 SearchHound.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. The net effect of the sale of these
assets to Mr. Cohen was a gain of $446,430, which was classified as a gain from
disposal of discontinued operations in the Statement of Operations for the year
ended December 31, 2002.
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.
During 2002, the Board terminated the employment contract of Dave L. Mullikin.
Under the settlement Mr. Mullikin's salary ceased accruing on August 15, 2002
and the severance provision was forgiven. It was replaced with a consulting
agreement between the Company and Mr. Mullikin whereby Mullikin will continue in
his position as acting chief executive officer of the Company. The agreement
calls for Mr. Mullikin to 1) contract outsourced services to maintain
selected ongoing operations of the Company, 2) attempt to sell the assets of the
Company and 3) focus on a merger opportunity for SearchHound. The terms of the
Consulting agreement include the following provisions: Mr. Mullikin agreed to
remain on the Board and Mr. Mullikin would receive a monthly compensation of
$1.00 and health benefits.
As of November 14, 2002, Mr. Mullikin agreed to amend his Consulting Agreement
and extend its term indefinitely, retaining the monthly compensation of $1.00,
but discontinuing the health benefits provision.
On January 3, 2003 the Company entered into an asset sale agreement, which sold
the following assets of the Company to Solutions.com, LLC, an entity controlled
by David L. Mullikin :
a. Certain domains including: www.searchhound.com, www.solosearch.com,
www.godado.co.uk, www.freeairmiles.com, and www.moneymessage.com ,
b. Customer lists, email names and addresses (for each domain)
c. Software, programming code, intellectual property (for each domain)
d. Certain computer and office equipment
Mr. Mullikin is a director of SearchHound.com, Inc. and is its acting Chief
Executive Officer. The net book value of the net assets sold to Mr. Mullikin
approximated $8,000 as of the date of sale. Pursuant to the asset sale agreement
the Company agreed to transfer such assets to Mr. Mullikin in settlement of the
remaining outstanding principal balance owed by the company to Mr. Mullikin
pursuant to a certain Promissory Note dated July 11, 2000 with a principle
balance of $179,359 together with all accrued but unpaid interest. Previously,
the Company had made partial reductions to the unpaid note balance by the
issuance of 181,292 shares of SearchHound.com, Inc. common stock and a cash
payment of $7,500.
In addition, Mr. Mullikin agreed to cancel the rental payments owed to him by
the Company for its use of web hosting and office space.
On January 3, 2003 the Company also entered into an asset sale agreement, which
sold the following assets of the Company to Summit Ridge Technologies Group, LLC
(an unaffiliated entity):
a. EarlyBirdDomain.com domain,
b. Database for EarlyBirdDomain.com including all subscribers (active,
inactive, and unsubscribed), and
c. EarlyBirdDomain clients, customers
The net book value of the net assets sold approximated $0 as of the date of
sale. Pursuant to the asset sale agreement the Company agreed to transfer such
assets in exchange for nominal cash consideration.
The Company's Board of Directors approved a one for sixty-seven share reverse
stock split. The split is for shareholders of record on December 27, 2002 and
was effective on December 30, 2002. The consolidated financial statements
reflect this reverse stock split on retroactive basis.
During January 2003, the Company issued an aggregate of 380,094 shares of common
stock in consideration for the cancellation of outstanding notes payable
approximating $175,000, accrued interest approximating $22,850 and accrued
wages payable of $114,500.
On March 3, 2003, the Company filed Amendment No. 3 to its Registration
Statement on Form S-8, which increased the shares available to be issued by
250,000. The Form S-8 Registration Statement provides the Company common stock
for issuance to employees, consultants and Board Members for services rendered
to the Company. The Form S-8 authorizes the issuance of common stock for
services, provides for a grant of incentive stock options, non-qualified stock
options, restricted stock, performance grants and other types of awards to
officers, key employees, board members, consultants and independent contractors
of the Company. During March 2003, the Company issued 225,000 shares to
consultants for administrative, accounting and public relations services in lieu
of cash compensation aggregating $63,000.
PLAN OF OPERATION
During 2002, the Company's Board of Directors changed its strategy due to poor
operating conditions and results in its primary businesses coupled with
difficulties in raising capital through debt and equity sources. The Board of
Directors adopted the new strategy during 2002, which committed to the disposal
of all of its current businesses and to seek a merger/acquisition transaction
with a Company having better financial resources. As of December 31, 2002,
the Company has disposed of most of its operating businesses and ceased all
operating activities. The businesses that have not been disposed of at December
31, 2002, have been reduced to their estimated fair value. The accompanying
financial statements reflect the businesses sold or to be sold as discontinued
operations. Revenues attributable to the discontinued operations aggregated
$1,103,041 and $257,927 for the years ended December 31, 2001 and 2002,
respectively. Net losses attributable to the discontinued operations aggregated
$13,499,302 and $4,616,499 for the years ended December 31, 2001 and 2002,
respectively. During January 2003, all remaining businesses have been disposed.
In recent years the Company has incurred substantial operating losses, a working
capital deficit and experienced 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. The Company has ceased all operations and has
or is in the process of disposing of all of its operating businesses at December
31, 2002. Management is currently seeking a merger and/or acquisition partner
that has greater financial resources in order for the Company to continue
operations. These factors raise substantial doubt about the ability of the
Company to continue as a going concern. Management believes that it has reduced
ongoing operating expenses to a level that can be sustained until such time as a
suitable merger/acquisition partner is identified and a transaction is
consummated. However, no assurance can be given that the Company will be
successful in consummating a merger/acquisition transaction or that it will be
able to fund its ongoing operations until a merger/acquisition transaction can
be accomplished. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The Company is currently seeking a merger partner and has had discussions with
several candidates but have no formal or informal agreements or understandings
with respect to a potential merger transaction. After completing the January
2003 disposal and share issuance transactions, management believes that it has
reduced outstanding debt and ongoing operating costs to a level that will
provide the Company adequate time to pursue and complete a merger transaction
although, there is no assurance that the Company will be able to complete these
plans. Should Management be unsuccessful in consummating a merger transaction,
the Company will likely cease as a going concern.
ITEM 2. DESCRIPTION OF PROPERTIES
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 was 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 for the year
ended December 31, 2002. The agreement between the Company and Brad Cohen was
terminated effective with his resignation on May 31, 2002. The agreement between
the Company and Mr. Mullikin was terminated on January 3, 2003.
ITEM 3. LEGAL PROCEEDINGS
On March 28, 2001, SearchHound acquired 49% of the issued and outstanding shares
of capital stock of JobBank USA, Inc. ("JobBank") and agreed to acquire the
remaining 51% on March 28, 2002, for total consideration consisting of 29,851
(subject to adjustment, as defined) unregistered shares of SearchHound common
stock. The number of shares issued in consideration was subject to adjustment
based on the share price of SearchHound reaching and closing above $2 per share
within a specified period and JobBank maintaining minimum revenues prior to
March 28, 2002. Total consideration was not to exceed 59,702 shares nor less
than 29,851 regardless of the conditions. The Company and the Seller did not
agree as to the adjustment provisions of the contract due to the Company not
attaining the required share price levels nor the acquired reaching the minimum
revenue levels specified in the contract. The Seller filed a lawsuit relative to
this transaction during 2002. The Company and the Seller entered into a
settlement agreement on September 17, 2002, which effectively rescinded the
purchase transaction and the 29,851 shares of Company stock issued in the
transaction was returned to the Company in consideration for the return of
the JobBank USA, Inc. stock. In addition, the Seller was required to pay the
Company $1,056 to reimburse the Company for health insurance provided and
$10,000 for use of the Company's marketing database.
Certain claims, suits and complaints arising in the normal course with respect
to the Company's services have been filed or are pending against the Company
including its subsidiaries. Generally, these matters are all covered by a
general liability insurance policy. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 2002, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock is quoted on the NASD's OTC Bulletin Board electronic
system under the ticker symbol SHND.
The following table sets forth the quarterly high and low bid prices for the
Company's Common Stock during the years ended December 31, 2001 and 2002. These
prices have been adjusted to reflect the1 for 67 reverse stock split which
was effective on December 30, 2002. Quotations set forth below reflect inter-
dealer prices, without retail mark-up, markdown or commission, and may not
represent actual transactions.
Quarter Year High Low
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Jan-Mar 2001 $54.27 $10.05
Apr-Jun 2001 50.25 10.72
Jul-Sep 2001 16.08 6.03
Oct-Dec 2001 8.04 2.07
Jan-Mar 2002 3.55 1.41
Apr-Jun 2002 2.35 0.34
Oct-Dec 2002 0.67 0.10
As of December 31, 2002 there were approximately 500 holders of record of the
Registrant's common stock.
During the years ended December 31, 2001 and 2002; the Registrant did not
declare or pay any cash dividends. Management and the Board of Directors do not
anticipate the payment of cash dividends within the foreseeable future. The
Company's Board of Directors approved a one for sixty-seven share reverse stock
split for shareholders of record on December 27, 2002 and was effective on
December 30, 2002. The accompanying financial statements and related
disclosures reflect this reverse stock split on retroactive basis.
For the year ended December 31, 2002, the Company issued 254,850 shares of its
common stock as follows:
1,492 unregistered shares were issued to members of the Board of Directors
(746 shares to each of 2 members) for services rendered
16,418 shares were issued to the officers of the Company in lieu of cash
compensation
1,120 unregistered shares were issued to employees and consultants of the
Company in lieu of cash compensation
223,880 shares of common stock were issued to treasury and serve as
collateral for Note payable to a related party.
11,940 shares were issued to a law firm as compensation for legal services
performed on behalf of the Company
A total of 29,851 shares of common stock was returned and cancelled during 2002,
pursuant to the settlement agreement with Brett Warner relative to a lawsuit
involving the Company's investment in JobBankUSA.
For the year ended December 31, 2001, the Company issued 126,317 shares of its
common stock as follows:
25,373 unregistered shares were issued to shareholders of Godado UK, Ltd.,
FreeAirMiles, Inc., MoneyMessage, LLC, FastCashOffers.com and
EarlyBirdDomain.com, Mesia.com, Inc. and Speak Globally, LLC in connection
with their acquisition.
29,851 shares were issued to the shareholder of JobBank USA, Inc. for the
acquisition of 49% of its common stock.
8,458 unregistered shares were issued pursuant to a Private Placement
memorandum. Such common shares were issued for cash consideration of
$114,900. Certain of the purchasers also received detachable common stock
purchase warrants.
43,357 shares of common stock registered pursuant to a Form S-8 during the
period ended December 31, 2001. The Form S-8 authorizes the grant of
incentive stock options, non-qualified stock options, restricted stock,
performance grants and other types of awards to officers, key employees,
board members, consultants and independent contractors of the Company.
19,278 shares of common stock were issued as treasury stock and serves as
collateral for a note payable to a creditor.
For the period ended December 31, 2000, the Company issued 378,815 shares of its
common stock as follows:
201,492 unregistered shares were issued to former shareholders of
SearchHound.com 2000 Ltd. In connection with the reverse acquisition dated
June 1, 2000.
81,891 shares were outstanding as of the merger date (June 1, 2000) with Pan
International in connection with the reverse acquisition.
72,388 unregistered shares were issued to the shareholders of SoloSearch on
July 11, 2000.
93,860 unregistered shares were issued pursuant to a Private Placement
memorandum. Such common shares were issued for cash consideration. Certain
of the purchasers also received detachable common stock purchase warrants.
13,661 shares of common stock were issued and registered pursuant to a
Registration Statement on Form S-8.
ITEM 6. 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 regarding management's ability to consummate a merger
transaction. 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
During 2002, the Board of Directors approved a change in the Company's strategic
direction, because of significant operating losses, continued cash flow
challenges, its depressed stock price and difficulties raising debt/equity
capital faced by all companies and specifically the high technology industry. In
principal, the Board committed the Company to plan which would include the
disposal of all operating businesses, the reduction of cash operating costs,
the reduction of outstanding debt through the exchange of stock or other
nonmonetary assets, and to seek a merger opportunity with another company with
more financial resources than the Company currently has available. As of
December 31, 2002, the Company has disposed of most of its operating businesses
and ceased all operating activities. The businesses that have not been disposed
of at December 31, 2002, have been reduced to their estimated fair value.
The consolidated financial statements reflect the businesses sold or to be sold
as discontinued operations as of December 31, 2002 and retroactively for the
year ended December 31, 2001. Revenues attributable to the discontinued
operations aggregated $1,103,041 and $257,927 for the years ended
December 31, 2001 and 2002, respectively. Net losses attributable to the
discontinued operations aggregated $13,499,302 and $4,616,499 for the years
ended December 31, 2001 and 2002, respectively. During January 2003, all
remaining businesses have been disposed.
The Company consummated the following transactions in order to implement the
Board of Director's committed plan to restructure the Company and seek a merger
candidate:
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 Brad Cohen. Mr. Cohen was an officer
and director of SearchHound.com, Inc. prior to the sale. 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 SearchHound.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. The net effect of the sale of these
assets to Mr. Cohen was a gain of $446,430, which was classified as a gain from
disposal of discontinued operations in the Statement of Operations for the year
ended December 31, 2002.
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.
During 2002, the Board terminated the employment contract of Dave L. Mullikin.
Under the settlement Mr. Mullikin's salary ceased accruing on August 15, 2002
and the severance provision was forgiven. It was replaced with a consulting
agreement between the Company and Mr. Mullikin whereby Mullikin will continue in
his position as acting chief executive officer of the Company. The agreement
calls for Mr. Mullikin to 1) contract outsourced services to maintain
selected ongoing operations of the Company, 2) attempt to sell the assets of the
Company and 3) focus on a merger opportunity for SearchHound. The terms of the
Consulting agreement include the following provisions: Mr. Mullikin
agreed to remain on the Board and Mr. Mullikin would receive a monthly
compensation of $1.00 and health benefits.
As of November 14, 2002, Mr. Mullikin agreed to amend his Consulting Agreement
and extend its term indefinitely, retaining the monthly compensation of $1.00,
but discontinuing the health benefits provision.
On January 3, 2003 the Company entered into an asset sale agreement, which sold
the following assets of the Company to Solutions.com, LLC, an entity controlled
by David L. Mullikin :
a. Certain domains including: www.searchhound.com, www.solosearch.com,
www.godado.co.uk, www.freeairmiles.com, and www.moneymessage.com ,
b. Customer lists, email names and addresses (for each domain)
c. Software, programming code, intellectual property (for each domain)
d. Certain computer and office equipment
Mr. Mullikin is a director of SearchHound.com, Inc. and is its acting Chief
Executive Officer. The net book value of the net assets sold to Mr. Mullikin
approximated $8,000 as of the date of sale. Pursuant to the asset sale agreement
the Company agreed to transfer such assets to Mr. Mullikin in settlement of the
remaining outstanding principal balance owed by the company to Mr. Mullikin
pursuant to a certain Promissory Note dated July 11, 2000 with a principle
balance of $179,359 together with all accrued but unpaid interest.
Previously, the Company had made partial reductions to the unpaid note balance
by the issuance of 181,292 shares of SearchHound.com, Inc. common stock and a
cash payment of $7,500.
In addition, Mr. Mullikin agreed to cancel the rental payments owed to him by
the Company for its use of web hosting and office space.
On January 3, 2003 the Company also entered into an asset sale agreement, which
sold the following assets of the Company to Summit Ridge Technologies Group, LLC
(an unaffiliated entity):
a. EarlyBirdDomain.com domain,
b. Database for EarlyBirdDomain.com including all subscribers (active, inactive,
and unsubscribed), and
c. EarlyBirdDomain clients, customers
The net book value of the net assets sold approximated $0 as of the date of
sale. Pursuant to the asset sale agreement the Company agreed to transfer such
assets in exchange for nominal cash consideration.
The Company's Board of Directors approved a one for sixty-seven share reverse
stock split. The split is for shareholders of record on December 27, 2002 and
was effective on December 30, 2002. The consolidated financial statements
reflect this reverse stock split on retroactive basis.
During January 2003, the Company issued an aggregate of 380,094 shares of common
stock in consideration for the cancellation of outstanding notes payable
approximating $175,000, accrued interest approximating $22,850 and accrued
wages payable of $114,500.
On March 3, 2003, the Company filed Amendment No. 3 to its Registration
Statement on Form S-8, which increased the shares available to be issued by
250,000. The Form S-8 Registration Statement provides the Company common stock
for issuance to employees, consultants and Board Members for services rendered
to the Company. The Form S-8 authorizes the issuance of common stock for
services, provides for a grant of incentive stock options, non-qualified stock
options, restricted stock, performance grants and other types of awards to
officers, key employees, board members, consultants and independent contractors
of the Company. During March 2003, the Company issued 225,000 shares to
consultants for administrative, accounting and public relations services in lieu
of cash compensation aggregating $63,000.
The Company is currently seeking a merger partner and has had discussions with
several candidates but have no formal or informal agreement or understandings
with respect to a potential merger transaction. After completing the January
2003 disposal and share issuance transactions, management believes that it has
reduced outstanding debt and ongoing operating costs to a level that will
provide the Company adequate time to pursue and complete a merger transaction
although, there is no assurance that the Company will be able to complete these
plans. Should Management be unsuccessful in consummating a merger transaction,
the Company will likely cease as a going concern.
OPERATING EXPENSES
Operating expenses consists primarily of legal, accounting and investor
relations costs that are associated with the company continuing as a public
reporting entity. The increase in such costs ($41,974) from 2001 as compared to
2002, reflect the legal costs associated with the JobBankUSA litigation and the
Company's proxy costs in 2002. Management believes such costs will be minimal in
2003 as a result of the Company's disposal of its operating businesses
and lack of litigation.
DISCONTINUED OPERATIONS
Loss from discontinued operations aggregated $5,062,929 in 2002 as compared to
$13,499,302 in 2001, which represents the operating results of the Company's
operating businesses. Such losses include impairment charges totaling $4,304,078
in 2002 and $8,672,493 in 2001 related to the write-down of goodwill associated
with the discontinued businesses. In addition, depreciation and amortization
expenses totaled $469,877 in 2002 and $4,073,668 in 2001 related to the
discontinued businesses. Net assets held for sale have been reduced to their
estimated net realizable value at December 31, 2002. As of January 3, 2003, all
operating businesses have been disposed, therefore management does not expect
any losses from discontinued operations in 2003.
Gain from disposal of discontinued operations totaled $446,430 in 2002, which
resulted from the disposal of Mesia.com and SpeakGlobally.com on May 31, 2002 to
Brad Cohen. In exchange for these operating businesses and $7,500 cash, Mr.
Cohen agreed to cancel: 1)his employment agreement, 2) all accrued but unpaid
compensation approximating $100,000, 3) a promissory note with an outstanding
principal balance of $285,000 together with accrued but unpaid interest and 4) a
promissory note with an outstanding principal balance of $147,030 together with
accrued but unpaid interest. The net effect of this transaction was classified
as a gain from disposal of discontinued operations of $446,430 during 2002.
Management believes that the net result of the January 3, 2003 disposal all
remaining businesses will also result in a net gain form disposal of
discontinued operations during 2003.
OTHER INCOME (EXPENSE)
Other income (expense) primarily consists of interest expense, impairment loss
on marketable securities and equity in income of nonconsolidated subsidiary.
Interest expense declined $2,762 during 2002 as compared to 2001, which is
attributable to the cancellation of notes as a result of the sale of Mesia.com
and SpeakGlobally.com to Brad Cohen, which occurred May 31, 2002. During 2002,
the Company recorded a permanent impairment with respect to Globalnet
Financial.com, Inc. common stock, which was its only marketable security and
recorded a loss of $68,954 in the year ended December 31, 2002. The equity in
earnings of nonconsolidated subsidiary represents the Company's investment in
JobBankUSA, Inc., which was terminated during 2002 as a result of the settlement
of a lawsuit between the Company and the Brett Warner. Management believes that
the Company will reduce its interest and other expenses in 2003 as a result of
the sale of operating businesses on January 3, 2003 and the issuance of common
stock in exchange for the cancellation of outstanding debt. In addition, the
Company's investment in marketable securities has been reduced to zero at
December 31, 2002 as a result of the impairment loss recognized in 2002.
NET LOSS
As a result of the factors described above, the Company incurred a net loss of
$4,836,314 or ($10.69) per basic and diluted share for the year ended December
31, 2002, compared to a net loss of $13,601,330 or ($34.35) per basic and
diluted share for year ended December 31, 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 $81,622 for the year ended December 31,
2002.
In recent years the Company has incurred substantial operating losses, a working
capital deficit and experienced 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. The Company has ceased all operations and has
or is in the process of disposing of all of its operating businesses at December
31, 2002. Management is currently seeking a merger and/or acquisition
partner that has greater financial resources in order for the Company to
continue operations. These factors raise substantial doubt about the ability of
the Company to continue as a going concern. Management believes that it
has reduced ongoing operating expenses to a level that can be sustained until
such time as a suitable merger/acquisition partner is identified and a
transaction is consummated. However, no assurance can be given that the
Company will be successful in consummating a merger/acquisition transaction or
that it will be able to fund its ongoing operations until a merger/acquisition
transaction can be accomplished. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The Company is currently seeking a merger partner and has had discussions with
several candidates but have no formal or informal agreement or understandings
with respect to a potential merger transaction. After completing the January
2003 disposal and share issuance transactions, management believes that it has
reduced outstanding debt and ongoing operating costs to a level that will
provide the Company adequate time to pursue and complete a merger transaction
although, there is no assurance that the Company will be able to complete these
plans. Should Management be unsuccessful in consummating a merger transaction,
the Company will likely cease as a going concern.
The Company has historically issued stock in lieu of cash compensation, which
has helped reduce the Company's cash needs. Management will try to maintain the
Company in its current operating form through the issuance of common stock
to consultants that will handle the Company's ongoing administrative and
reporting duties. In addition, Management will attempt to exchange common stock
in exchange for the cancellation of outstanding indebtedness. As a
result, Management expects that a substantial number of common shares will be
issued in order to achieve these results.
During January 2003, the Company issued an aggregate of 380,094 shares of common
stock in consideration for the cancellation of outstanding notes payable
approximating $175,000, accrued interest approximating $22,850 and accrued
wages payable of $114,500. In addition, during March 2003, the Company issued
225,000 shares to consultants for administrative, accounting and public
relations services in lieu of cash compensation aggregating $63,000.
ACCOUNTING POLICIES SUBJECT TO ESTIMATION AND JUDGMENT
Management's Discussion and Analysis of 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. When preparing our consolidated financial statements, we make
estimates and judgments that affect the reported amounts on our balance sheets
and income statements, and our related disclosure about contingent
assets and liabilities. We continually evaluate our estimates, including those
related to revenue, allowance for doubtful accounts, reserves for income taxes,
and litigation. We base our estimates on historical experience and on various
other assumptions, which we believe to be reasonable in order to form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily ascertained from other sources. Actual results may deviate from
these estimates if alternative assumptions or condition are used.
ITEM 7. FINANCIAL STATEMENTS
Attached hereto and incorporated herein by this reference are the Company's
audited consolidated financial statements as of December 31, 2002 and for the
years ended December 31, 2001 and 2002.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 22, 2002, the Audit Committee of the Board of Directors of
SearchHound.com, Inc. (the "Company") was notified by Clevenger & Haywood, CPA,
PC, the Company's independent auditor, that it would decline to stand for
reelection as the Company's independent auditor for the year ending December 31,
2002.
On May 24, 2002, the Board of Directors of SearchHound.com, upon the
recommendation of the Company's Audit Committee, approved a resolution to engage
Pickett, Chaney & McMullen, LLP as the Company's independent auditor.
The reports of Clevenger & Haywood CPA, PC ("Clevenger & Haywood") on the
consolidated financial statements of the Company for the year ended December 31,
2001 and for the period from inception (April 11, 2000) to December 31, 2000
did not contain any adverse opinion or disclaimer of opinion, nor were such
reports qualified or modified as to audit scope or accounting principles.
Clevenger & Haywood's audit report on the consolidated financial statements of
the Company for the year ended December 31, 2001 and for the period from
inception (April 11, 2000) to December 31, 2000 included an explanatory
paragraph concerning the Company's ability to continue as a going concern.
During the year ended December 31, 2001 and for the period from inception (April
11, 2000) to December 31, 2000, and any subsequent interim period preceding May
22, 2002, there were no disagreements between the Company and Clevenger &
Haywood on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which would have caused Clevenger &
Haywood, if not resolved to the satisfaction of Clevenger & Haywood, to make a
reference to the subject matter of the disagreements in connection with its
reports.
During the year ended December 31, 2001 and for the period from inception (April
11, 2000) to December 31, 2000, and any subsequent interim period preceding May
22, 2002, the Company did not consult with Pickett, Chaney & McMullen, LLP with
regard to any matter concerning the application of accounting principles to any
specific transactions, either completed or proposed, the type of audit opinion
that might be rendered with respect to the Company's financial statements, or
any matter that was the subject of a disagreement or a reportable event.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors, Executive Officers, Promoters and Control Persons
The directors and executive officers of the Company as of December 31, 2002 were
as follows:
Name Age Position
---- --- --------
Dave L. Mullikin 48 President, CEO, Director
Dave L. Mullikin was appointed and placed under employment contract as President
and Chief Executive Officer of Searchound.com 2000, Ltd. effective April 27,
2000. The Board adopted Mr. Mullikin's contract on July 12, 2000, and he became
the President and Chief Executive Officer of SearchHound.com, Inc. and a member
of the Board of Directors for the Company. Mr. Mullikin has held a variety of
executive positions within the healthcare, finance and consumer goods and
services industries and is an active board member in a variety of professional
and non-profit organizations. Most recently, Mullikin was named vice-president
Customer Relations for FirstGuard Health Plan. Mullikin is the co-founder and
managing partner of Solutions.com, LLC, a start-up consulting service business
that focused on business plan development, process improvement, market and
competitive assessment, e-commerce business development and organizational
structure. Prior to starting his own business, he was COO and a board member at
HealthCore Medical Solutions, a publicly held NASDAQ small cap company
marketing healthcare services through brokers and e-commerce. At HealthCore
Medical Solutions, he managed all SEC reporting and compliance requirements,
investor relations, repositioned the product, and introduced an e-commerce
distribution channel linking vendors, customers and marketers through its Web
site strategy. He began his career in healthcare management as a senior
executive with Blue Cross Blue Shield of Kansas City, where he was responsible
for all operations related to its 700,000 members. Later he was the CEO- Blue
Advantage Plus, which is the Medicaid HMO for the plan in both Kansas and
Missouri. Mr. Mullikin also served as a corporate officer and vice president of
Sales and Operations with Transamerica Insurance Finance, where he oversaw
sales, operations,systems, and customer service.
Upon graduation from Oklahoma City University, Mullikin joined the General
Electric Management Development Program.During his fifteen years with GE and
GE Capital. Mr. Mullikin held progressively more responsible positions in
finance, operations, customer service, and management, eventually become an
Executive Band with the company.Additionally, he graduated from GE's Financial
Management Program, a 30-month academic program for senior managers. He
also traveled on GE Company's Corporate Audit Staff, participated in many
executive level training programs at GE's Crotonville campus, and attended The
Wharton School for Sales Force Management including a European market study
involving early stage e-commerce initiatives. During 2002, the Board terminated
the employment contract of Dave L. Mullikin. Under the settlement Mr. Mullikin's
salary ceased accruing on August 15, 2002 and the severance provision was
forgiven. It was replaced with a consulting agreement between the Company and
Mr. Mullikin whereby Mullikin will continue in his position as acting chief
executive officer of the Company. The agreement calls for Mr. Mullikin to 1)
contract outsourced services to maintain selected ongoing operations of the
Company, 2) attempt to sell the assets of the Company and 3) focus on a merger
opportunity for SearchHound.
The terms of the Consulting agreement include the following provisions: Mr.
Mullikin agreed to remain on the Board and Mr. Mullikin would receive a monthly
compensation of $1.00 and health benefits.
As of November 14, 2002, Mr. Mullikin agreed to amend his Consulting Agreement
and extend its term indefinitely, retaining the monthly compensation of $1.00,
but discontinuing the health benefits provision.
Compliance with Section 16(a) of the Exchange Act
Based solely on review of the copies of the forms furnished to the Company, or
written representations that no Forms 5 were required, the Company believes that
during the fiscal year ended December 31, 2002 all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
During the year ended December 31, 2002 and 2001 and the fiscal period from
inception (April 11, 2000) to December 31, 2000, executive compensation was as
follows:
SUMMARY COMPENSATION TABLE
Name and
Principal LT/Options/ All other
position Year Salary /Stock Bonus Compensation
--------- -------- ---------- ----------------- ------------
Dave Mullikin (d) 2002 $130,000 - $20,068(b)
President/CEO 2001 $233,910 $6,309 (a) -
2000 $130,325 - -
Brad Cohen (c) 2002 $104,167 - $ 9,800(b)
EVP 2001 $212,500 $4,842 (a) -
2000 $141,667 - -
(a)- The Registrant issued pursuant to authorized and in force employment
agreements, 1,493 shares of Common Stock to Brad Cohen and 1,493 shares of
Common Stock to Dave Mullikin.
(b)- 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 was one year with a two-year renewal option (at the
Company's option) at a rate totaling $10,000 per month. Rental expense totaled
$29,868 for the year ended December 31, 2002. The agreement between the Company
and Brad Cohen was terminated effective with his resignation on May 31,
2002. The agreement between the Company and Mr. Mullikin was terminated on
January 3, 2003.
(c) - Mr. Cohen resigned as an officer and a director of the Company on May 31,
2002.
(d)- During 2002, the Board terminated the employment contract of Dave L.
Mullikin. Under the settlement Mr. Mullikin's salary ceased accruing on August
15, 2002 and the severance provision was forgiven. It was replaced with a
consulting agreement between the Company and Mr. Mullikin whereby Mullikin will
continue in his position as acting chief executive officer of the Company. The
agreement calls for Mr. Mullikin to 1) contract outsourced services to
maintain selected ongoing operations of the Company, 2) attempt to sell the
assets of the Company and 3) focus on a merger opportunity for SearchHound. The
terms of the Consulting agreement include the following provisions: Mr.
Mullikin agreed to remain on the Board and Mr. Mullikin would receive a monthly
compensation of $1.00 and health benefits. As of November 14, 2002, Mr.
Mullikin agreed to amend his Consulting Agreement and extend its term
indefinitely, retaining the monthly compensation of $1.00, but discontinuing the
health benefits provision.
Because no options, stock appreciation rights or Long-Term Incentive Plans have
been granted to any of the executive officers as of December 31, 2001, the
information and tables otherwise required by this Item, which relate to such
forms of compensation has been omitted. The above noted table reflects
compensation received by officers in the form of registered S-8 stock.
BOARD OF DIRECTORS COMPENSATION:
Board of Director duties includes monthly telephone Board calls are held monthly
or less often as needed to review operations, financial performance, and Board
relevant issues. In addition, non-scheduled telephone conferences are called, as
necessary. Quarterly Board telephone meetings are scheduled for as much as one-
half day.
EXTERNAL BOARD MEMBERS
Initial Appointment: 25,000 Shares (restricted) and 50,000 Shares (S-8
unrestricted) during years 2000 and 2001.
Annually: 25,000 shares (restricted) per quarter issued annually in December
prorated for the current year. Each Director receives $500 cash (or S-8 stock if
cash flows preclude cash payment) for each Quarterly "in person" Board meeting.
Actual out-of-pocket travel expenses related to Board activity are reimbursed.
INTERNAL BOARD MEMBERS
Initial appointment: 25,000 Shares (restricted) and 50,000 Shares (S-8
unrestricted) during years 2000 and 2001. No additional compensation.
Annually: 25,000 shares (restricted).
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2002, the beneficial
ownership of Common Stock of all directors of the Company, all directors and
officers of the Company as a group, and each person who is known to the Company
to own beneficially more than 5% of the Company's Common Stock.
Name Amount / Nature Percent
of Beneficial Owner of Ownership (1) of Class
------------------- ---------------- --------
Dave L. Mullikin 16,633 2.44%
Cohen Capital Technologies 68,647 10.07%
Directors/Officers as a group (1) 16,633 2.44%
Addresses of beneficial owners are on record with the company and are available
by written request.
(1) Pursuant to applicable rules of the Securities and Exchange Commission,
"beneficial ownership" as used in this table means the sole or shared power to
vote shares (voting power) or the sole or shared power to dispose of shares
(investment power). Unless otherwise indicated, the named individual has sole
voting and investment power with respect to the shares shown as beneficially
owned. In addition, a person is deemed the beneficial owner of those securities
not outstanding which are subject to options, warrants, rights or conversion
privileges if that person has the right to acquire beneficial ownership within
sixty days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective July 11, 2000, pursuant to a Stock Purchase Agreement dated as of May
4, 2000, SearchHound purchased all of the issued and outstanding capital stock
of SoloSearch.com, Inc., a Missouri corporation ("SoloSearch"),from Cohen
Capital Technologies, L.L.C., a Missouri limited liability company, Kirk C.
Reivich, an individual, and October Capital, L.L.C., a Missouri limited
Liability Company, for an aggregate of 72,388 shares of restricted
common stock and $300,000 cash. Total consideration paid was $14,699,650 based
on the market price of SearchHound(closing price on May 3, 2000) and the
$300,000 cash consideration. Subsequent to the transaction, SoloSearch
became a wholly owned subsidiary of SearchHound. Mr. Brad Cohen was an officer
and Director of the Company (subsequent to the acquisition) and also was an
officer and partial owner of Cohen Capital Technologies, L.L.C. at the time of
the acquisition.
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.
On March 20, 2002, the Company issued demand promissory notes to its two
executive officers with a principal balance aggregating $326,377 representing
accrued but unpaid wages as of that date. Interest on the notes accrues at a
rate equal to the mid-term applicable rate (4.49% and 4.2% as of December 31,
2001 and 2002, respectively). The Company has pledged 223,880 shares of common
stock (issued and held in treasury) as collateral for the payment of these
promissory notes.
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 Brad Cohen. Mr. Cohen was an officer
and director of SearchHound.com, Inc. prior to the sale. 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 SearchHound.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. The net effect of
the sale of these assets to Mr. Cohen was a gain of $446,430, which was
classified as a gain from disposal of discontinued operations in the Statement
of Operations for the year ended December 31, 2002.
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.
During 2002, the Board terminated the employment contract of Dave L. Mullikin.
Under the settlement Mr. Mullikin's salary ceased accruing on August 15, 2002
and the severance provision was forgiven. It was replaced with a consulting
agreement between the Company and Mr. Mullikin whereby Mullikin will continue in
his position as acting chief executive officer of the Company. The agreement
calls for Mr. Mullikin to 1) contract outsourced services to maintain
selected ongoing operations of the Company, 2) attempt to sell the assets of the
Company and 3) focus on a merger opportunity for SearchHound. The terms of the
Consulting agreement include the following provisions: Mr. Mullikin agreed to
remain on the Board and Mr. Mullikin would receive a monthly compensation of
$1.00 and health benefits.
As of November 14, 2002, Mr. Mullikin agreed to amend his Consulting Agreement
and extend its term indefinitely, retaining the monthly compensation of $1.00,
but discontinuing the health benefits provision.
On January 3, 2003 the Company entered into an asset sale agreement, which sold
the following assets of the Company to Solutions.com, LLC, an entity controlled
by David L. Mullikin:
a. Certain domains including: www.searchhound.com, www.solosearch.com,
www.godado.co.uk, www.freeairmiles.com, and www.moneymessage.com ,
b. Customer lists, email names and addresses (for each domain)
c. Software, programming code, intellectual property (for each domain)
d. Certain computer and office equipment
Mr. Mullikin is a director of SearchHound.com, Inc. and is its acting Chief
Executive Officer. The net book value of the net assets sold to Mr. Mullikin
approximated $8,000 as of the date of sale. Pursuant to the asset sale agreement
the Company agreed to transfer such assets to Mr. Mullikin in settlement of the
remaining outstanding principal balance owed by the company to Mr. Mullikin
pursuant to a certain Promissory Note dated July 11, 2000 with a principle
balance of $179,359 together with all accrued but unpaid interest.
Previously, the Company had made partial reductions to the unpaid note balance
by the issuance of 181,292 shares of SearchHound.com, Inc. common stock and a
cash payment of $7,500.
In addition, Mr. Mullikin agreed to cancel the rental payments owed to him by
the Company for its use of web hosting and office space.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Exhibits.
Exhibit
Number Description
------ --------------------------------------------------------------
..1* Asset Sale Agreement by and between SearchHound.com, Inc. and
Bradley N. Cohen.
3.1* Articles of Incorporation
3.2* By-laws
16.1* Letter on change in certifying accountant, as previously filed
21.1* Subsidiaries of the Registrant,
23.1 Consent of Pickett, Chaney & McMullen LLP
99.1 Certification of David L. Mullikin
99.2 Certification of David L. Mullikin
_______________________________________
* Previously filed with the Commission
(2) Certifications of David L. Mullikin.
(3) Audited Financial Statements as of December 31, 2002 and
for the years ended December 31, 2001 and 2002.
(b) The Company filed the following Current Report on Form
8-K during the quarter ended December 31, 2002.
Dated December 27, 2002 announcing that its Board of Directors had approved
a one for sixty-seven share reverse stock split. The split is for
shareholders of record on December 27, 2002 and will be effective on
December 30,2002. In connection with this stock split, the Company's ticker
symbol will change to SHND also effective on December 30, 2002.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The company maintains
controls and procedures designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. Based upon their evaluation of those controls and procedures
performed within 90 days of the filing date of this report, the Chief
Executive and Chief Financial officers of the Company concluded that the
Company's disclosure controls and procedures were adequate.
(b) Changes in internal controls. The Company made no significant changes in its
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls
by the Chief Executive and Chief Financial officers.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form
10-KSB Report for the year ended December 31, 2002, has been signed below by the
following persons on behalf of the Registrant and in the capacity and on the
date indicated.
March 31, 2003
SEARCHHOUND.COM, INC.
A NEVADA CORPORATION
by
/S/ Dave Mullikin /S/ Dave Mullikin
------------------------------- -----------------------------------
Dave Mullikin Dave Mullikin
Agent on behalf of the Company Acting President, CEO
March 31, 2003 March 31, 2003
CERTIFICATIONS
I, David L. Mullikin, certify that:
1. I have reviewed this annual report on Form 10-KSB of SearchHound.com, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ DAVID L. MULLIKIN
-----------------------------------
David L. Mullikin, Acting President and Chief Financial Officer
March 31, 2003
SEARCHHOUND.com, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 and 2002
CONTENTS
INDEPENDENT AUDITOR'S REPORT F-2
INDEPENDENT AUDITOR'S REPORT F-3
CONSOLIDATED BALANCE SHEET
December 31, 2002 F-4
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2001 and 2002 F-5
CONSOLIDATED STATEMENT OF STOCHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 2001 and 2002 F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001 and 2002 F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001 and 2002 F-9
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of SearchHound.com, Inc.
We have audited the accompanying consolidated balance sheet of SearchHound.com,
Inc. and subsidiaries as of December 31, 2002 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. 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 audit.
We conducted our audit 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 audit provides 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
SearchHound.com, Inc. and subsidiaries as of December 31, 2002 and the
consolidated results of its operations and cash flows for the year then ended 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 described in note 12 to
the consolidated financial statements, the Company has incurred substantial
operating losses in 2002, has ceased operations as of December 31, 2002 and
existing cash balances and available credit are not sufficient to fund the
company's cash flow needs for the next year. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 12 to the
consolidated financial statements. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Pickett, Chaney & McMullen LLP
Overland Park, Kansas
March 26, 2003
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of SearchHound.com, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year ended December 31,
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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of its operations and
cash flows for the year ended December 31, 2001 in accordance 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 described in note 12 to
the consolidated financial statements, the Company has incurred substantial
operating losses, has ceased operations, and existing cash balances and
available credit are not sufficient to fund the company's cash flow needs for
the next year. These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 12 to the consolidated financial
statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Gregg M. Haywood CPA, P.C.
Overland Park, Kansas
April 4, 2002
SEARCHHOUND.com, INC.
and subsidiaries
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,790
Total current assets 14,790
ASSETS HELD FOR SALE 8,000
TOTAL ASSETS $ 22,790
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accrued wages $122,000
Accrued interest 30,635
Note payable-related parties 316,229
Notes payable 63,539
Total current liabilities 532,403
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value; 50,000,000 shares 682
authorized; 681,946 issued
Additional paid-in-capital 20,179,029
Accumulated deficit (20,689,081)
Treasury stock (243,158 shares) (243)
Total stockholders' equity (deficit) (509,613)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (deficit) $ 22,790
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.com, INC.
and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001 AND 2002
Year ended December 31,
2001 2002
Operating expenses:
General and administrative $ 97,230 $ 139,204
Operating loss (97,230) (139,204)
Other expense-interest expense (10,083) (15,090)
Other income-interest income 285 -
Impairment loss - marketable securities - (68,854)
Other income - JobBankUSA, Inc. 5,000 3,333
Loss from continuing operations (102,028) (219,815)
before income taxes
Income taxes - -
Loss from continuing operations (102,028) (219,815)
Discontinued operations:
Loss from operations, net (13,499,302) (5,062,929)
Gain from disposal, net - 446,430
(13,499,302) (4,616,499)
Net loss $(13,601,330) $(4,836,314)
Basic and diluted net loss per share:
Loss from continuing operations $ (0.26) $ (0.49)
Loss from discontinued operations (34.09) (10.20)
Net loss per share $(34.35) $(10.69)
Basic and diluted weighted 396,007 452,357
average common shares
outstanding
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.com, INC.
and subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 2001 AND 2002
(continued)
Accumulated Total
Common Additional Other Stockholder's
Stock Paid-in Accumulated Comprehensive Treasury Equity Comprehensive
Shares Amount Capital Deficit Income Stock (Deficit)Income/Loss
Balance,January 1, 2001
330,630 $331 $17,742,357$(2,251,437)$(63,954) $- $15,427,297
Issuance of common stock and warrants for acquisitions
55,224 55 1,829,720 - - - 1,829,775
Issuance of common stock and warrants in Private Placements
8,458 9 114,891 - - - 114,900
Issuance of common stock for services rendered
43,357 43 437,812 - - - 437,855
Issuance of common stock and held in treasury
19,278 19 - - - (19) -
Marketable securities valuation on adjustment
- - _ _ (5,000) - (5,000) $(5,000)
Net Loss
- - - (13,601,330) - - (13,601,330)(13,601,330)
Comprehensive loss $(13,606,330)
Balance December 31, 2001
456,947 $457 $20,124,780 $(15,852,767) $(68,954) $(19) $4,203,497
CONTINUED
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.com, INC.
and subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 2001 AND 2002
(concluded)
Accumulated Total
Common Additional Other Stockholder's
Stock Paid-in Accumulated Comprehensive Treasury Equity Comprehensive
Shares Amount Capital Deficit Income Stock (Deficit)Income/Loss
Balance,December 31, 2001
456,947 $457 $20,124,780$(15,852,767)$(68,954) $(19) $4,203,497
Return and cancellation of common stock
(29,851) (30) 30 - - - -
Issuance of common stock for services rendered
30,970 31 54,219 - - - 54,250
Issuance of common stock held in treasury
223,880 224 - - - - 437,855
Issuance of common stock and held in treasury
19,278 19 - - - (224) -
Marketable securities permanent impairment
- - - - 68,954 - 68,954 68,954
Net Loss
- - _ _ (4,836,314) - (4,836,314)(4,836,314)
Comprehensive loss $(4,767,360)
Balance December 31, 2001
681,946 $682 $20,179,029 $(20,689,081) $- $(243) $509,613
CONCLUDED
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.com, INC.
and subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001 AND 2002
Year ended December 31,
2001 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($13,601,330)($4,836,314)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,076,168 469,885
Goodwill impairment charge 8,672,493 4,304,078
Issuance of common stock for services 437,855 54,250
rendered
Provision for bad debts 62,628 -
Equity in earnings of nonconsolidated (5,000) -
subsidiary
Impairment loss - marketable - 68,954
securities
Gain from disposal of discontinued - (446,430)
operations
Changes in operating assets and
liabilities
(exclusive of effects of acquisitions):
Accounts receivable (20,508) 191,813
Related party receivables (5,750) 10,183
Other current assets 34,489 794
Accounts payable 330,144 (28,425)
Deferred revenue (140,000) -
Other current liabilities (16,619) 129,590
Net cash and cash equivalents used in
operating activities (175,430) (81,622)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash (11,174) -
acquired
Purchases of furniture, fixtures & (15,835) -
equipment
Net cash and cash equivalents used in
investing activities (27,009) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement of common 114,900 -
stock
Proceeds from notes payable 63,539 -
Payments on notes payable (14,432) (13,251)
Cash acquired in acquisitions 81,909 -
Net cash and cash equivalents provided by
(used in) financing activities 245,916 (13,251)
Net increase (decrease) in cash and cash 43,477 (94,873)
equivalents
Cash and cash equivalents at beginning of 58,686 102,163
period
Cash and cash equivalents at end of period $102,163 $7,290
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $2,918 $ -
Income taxes - -
Non-cash investing and financing
activities:
Unrealized loss on marketable equity $5,000 $ -
securities
Issuance of common stock and held in $ 19 $224
treasury
Return/cancellation of stock $ - $ 30
Stock issued in acquisitions and $1,829,775 $ -
investments
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.com, INC.
and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2002
1. Significant accounting policies
Organization and Basis of Accounting
SearchHound.com 2000, Ltd was formed as a Nevada corporation on April 11, 2000,
and was merged into Pan International Gaming, Inc. ("Pan International") on June
1, 2000. Pan International, the legal surviving entity of the merger, was
incorporated under the laws of the State of Nevada. As a result of the merger,
Pan International changed its name to SearchHound.com, Inc. ("SearchHound" or
the "Company"). The accounting treatment for this transaction was a "reverse
acquisition" (the "Reverse Acquisition"). For accounting purposes, the
merger/acquisition has been treated as an acquisition of Pan International by
SearchHound.com 2000, Ltd., and as a recapitalization of SearchHound.com 2000,
Ltd. The historical financial statements prior to June 1, 2000 are those of
SearchHound.com 2000, Ltd. The acquisition of Pan International has been
recorded based on the fair value of Pan International's net tangible assets,
which were negligible as of the merger date.
The Company has operated as a holding company for internet-based businesses
since the reverse acquisition, primarily through the acquisitions of operating
businesses through the issuance of common stock. The Company acquired multiple
businesses during 2000 and 2001 in this manner. During 2002, the Company's
Board of Directors changed its strategy due to poor operating conditions and
results in its primary businesses coupled with difficulties in raising capital
through debt and equity sources. The Board of Directors adopted the new strategy
during 2002, which committed to the disposal of all of its current businesses
and to seek a merger/acquisition transaction with a Company having better
financial resources. As of December 31, 2002, the Company has disposed of most
of its operating businesses and ceased all operating activities. The businesses
that have not been disposed of at December 31, 2002, have been reduced to their
estimated fair value. The accompanying financial statements reflect the
businesses sold or to be sold as discontinued operations. Revenues attributable
to the discontinued operations aggregated $1,103,041 and $257,927 for the years
ended December 31, 2001 and 2002, respectively. Net losses attributable to the
discontinued operations aggregated $13,499,302 and $4,616,499 for the years
ended December 31, 2001 and 2002, respectively. During January 2003, all
remaining businesses have been disposed.
The Company's Board of Directors approved a one for sixty-seven share reverse
stock split. The split is for shareholders of record on December 27, 2002 and
was effective on December 30, 2002. The accompanying financial statements
reflect this reverse stock split on retroactive basis.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries; SoloSearch.com, Inc., SearchHound.com 2000, Ltd.,
MoneyMessage, LLC, FastCashOffers.com, EarlyBirdDomain.com, FreeAirmiles, Inc.
and GoDado UK, Ltd. All significant intercompany transactions and balances have
been eliminated in consolidation.
Use of Estimates
In preparing consolidated financial statements in conformity with accounting
principles 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 consolidated financial statements, as well as the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Marketable Securities
The Company's marketable securities are classified as available-for-sale and are
reported at fair value, with unrealized gains and losses, net of tax, recorded
in stockholders' equity. Realized gains or losses and permanent declines in
value, if any, on available-for-sale securities are reported in other income or
expensed as incurred.
During 2002, the Company recorded a permanent impairment with respect to
Globalnet Financial.com, Inc. common stock, which was its only marketable
security and recorded a loss of $68,954 in the year ended December 31, 2002.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Costs assigned to
property and equipment of the acquired business was based on estimated fair
value at the date of acquisition. Depreciation is provided on furniture and
fixtures and equipment over their estimated lives, ranging from 5 to 7 years,
using the straight-line method. Leasehold improvements are amortized over the
lesser of the term of the respective lease or the useful lives of the
related assets. Expenditures for maintenance and repairs are charged to expense
as incurred. Expenditures determined to represent additions and improvements
are capitalized.
All fixed assets have been reduced to their net realizable value at December 31,
2002 and classified as assets held for sale in the accompanying balance sheet.
Intangible assets and Impairment of Long-lived Assets
Intangible assets consist of intangible assets acquired in connection with the
Company's acquisitions and the intellectual property purchased related to the
SearchHound.com architecture backbone.
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 January 1, 2002.
Amortization of goodwill ceased after December 31, 2001 and a new method of
testing goodwill for impairment was adopted beginning January 1, 2002.
In August 2001, the FASB issued FAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets." This statement established a single accounting
model for long-lived assets to be disposed of by sale and provides additional
implementation guidance for assets to be held and used and assets to be disposed
of other than by sale. The statement supersedes FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" and amends the accounting and reporting provisions of Accounting Principles
Board ("APB") Opinion No. 30 related to the disposal of a segment of a business.
The statement was effective beginning January 1, 2002.
The Company reviews its long-lived assets, including software development costs,
intangible assets and furniture, fixtures and equipment, for impairment whenever
events or changes in circumstances indicate that the carrying amount
of the assets may not be fully recoverable. To determine recoverability of its
long-lived assets, the Company evaluates the probability that future
undiscounted net cash flows, without interest charges, will be less than the
carrying amount of the assets. As of December 31, 2002, all intangible assets
have been charged off as impaired (including goodwill) and other long-
lived assets including fixed assets have been reduced to their net realizable
value of $8,000 and reported as assets held for sale in the accompanying balance
sheet.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset
and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted tax
rates and laws. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be
realized. The Company has significant net operating loss carryforwards
as of December 31, 2002. Management estimates that the net operating loss
carryforward available to the Company at December 31, 2002 exceeds $4.1 million.
A substantial portion of these carryforward losses will not be available
to the Company to offset future taxable income because of the "over 50% change"
in ownership of the Company that occurred in fiscal 2000 (and the change that is
expected to occur), which significantly restricts their usage. In
addition, all potential deferred tax assets related to the carryforwards and
other tax-deferred items have been offset by a valuation allowance at December
31, 2002 due to the Company's operating losses and uncertain future operating
results.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation."Under APB No. 25,
compensation cost is recognized over the vesting period based on the difference,
if any, on the date of grant between the fair value of the Company's stock and
the amount an employee must pay to acquire the stock.
Basic and Diluted Net Income (Loss) per Share
Basic net income (loss) per share is computed using the weighted average number
of common shares outstanding during the period. Diluted net income (loss) per
share is computed using the weighted average number of common and, if
dilutive, common equivalent shares outstanding during the period. Common
equivalent shares consist of the incremental common shares issuable upon the
exercise of stock options and warrants (using the treasury stock method).
Outstanding stock purchase warrants have not been considered in the computation
of diluted per share amounts, since the effect of their inclusion would be
antidilutive. Accordingly, basic and diluted earnings per share amounts
are identical during the years ended December 31, 2001 and 2002.
Concentrations and Fair Value of Financial Instruments
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash investments. At December 31, 2002, the
Company's cash investments are held at primarily one financial institution.
In addition, the Company's notes payable represents a financial instrument.
Unless otherwise disclosed, the fair value of financial instruments approximates
their recorded values.
Comprehensive Income
Comprehensive income as defined, includes all changes in equity (net assets)
during a period from non-owner sources. Accumulated other comprehensive income,
as presented on the accompanying consolidated balance sheets, consists of the
net unrealized loss on available-for-sale securities adjustment.
Prior year reclassifications
Certain amounts and balances included in prior year financial statements have
been reclassified to conform to their current year presentation. These
reclassifications were primarily attributable to the presentation of
discontinued operations in the Statement of Operations.
Accounting pronouncements
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations" was
issued. SFAS No. 143 addresses accounting and reporting obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs and is effective for fiscal years beginning after June 15,
2002. Management does not expect the adoption of this new standard to have a
material impact on our operations, financial position or cash flows.
In July 2001, SFAS No. 144, "Impairment or Disposal of Long-Lived Assets," was
issued and is effective for fiscal years beginning after December 15, 2001. The
provisions of this statement provide a single accounting model for impairment
of long-lived assets. Management does not expect the adoption of this standard
to have a material impact on our results of operations, financial position or
cash flows.
2. ACQUISITIONS
On February 9, 2001, SearchHound acquired all of the issued and outstanding
shares of capital stock of Godado UK, Ltd. ("Godado") for total consideration
consisting of 3,731 unregistered shares of SearchHound common stock. Godado is
located in the United Kingdom and operates a "pay-per-click" search engine
throughout Europe.
On March 15, 2001, SearchHound acquired all of the issued and outstanding shares
of capital stock of FreeAirMiles, Inc. for total consideration consisting of
18,433 unregistered shares of SearchHound common stock. FreeAirMiles, Inc. is an
interactive web surfing and research tool, which provides members with the
incentive of earning free air miles for visiting participating websites.
On June 30, 2001, SearchHound acquired all of the issued and outstanding shares
of capital stock of MoneyMessage, LLC,FastCashOffers.com and EarlyBirdDomain.
com for total consideration consisting of a warrant to purchase 2,239
unregistered shares of SearchHound common stock and an earn-out agreement for a
period of 24 months following closing. The earn-out is equal to 10% of the net
income recorded and collected over the first 18 months and reducing to 5% for
the remaining 6 months. The warrant price is set at $14.07 per share which was
equivalent to average trading price over the last 30 days prior to closing. The
warrant carries a two-year term commencing on the June 30, 2001 closing date.
On September 28, 2001, SearchHound acquired substantially all assets (exclusive
of accounts receivable) of Mesia.com, Inc. for total consideration consisting of
the following: 1) a warrant to purchase 5,224 unregistered shares of
SearchHound common stock at a price of $10.05 per share and a term of two years,
2) 1,716 unregistered shares of common stock, and 3) an earn-out agreement equal
to one share and one warrant (based on the average trading price at date earned)
awarded for each $1 dollar of revenue generated for the 18-month period
subsequent to the acquisition from the acquired entities existing revenue
streams. Such warrants contain a strike price equivalent to market at the date
granted. Mesia.com, Inc. is based in Reston, Virginia and is considered a leader
in direct email marketing via its websites; Mesia.com, Utopiad and
PortofOne.com.
On December 20, 2001, SearchHound acquired substantially all assets (exclusive
of cash and fixed assets) of SpeakGlobally, LLC for total consideration
consisting of the following: 1) a warrant to purchase 1,493 unregistered
shares of SearchHound common stock at a price of $2.68 per share and a term of
two years, 2) 1,493 unregistered shares of common stock, and 3)an earn-out
agreement equal to one share and one warrant (based on the average trading price
at date earned) awarded for each $1 dollar of revenue generated for the 12-month
period subsequent to the acquisition from the acquired entities existing revenue
streams. Such warrants contain a strike price equivalent to market at the
date granted. Speak Globally, LLC is based in Kalamazoo, Michigan and St.
Petersburg, Russia and operates as an internet-based web development company.
These acquisitions were recorded under the purchase method of accounting and,
accordingly, the accompanying statements of operations include the operations of
the acquired entities from the date of acquisition. An allocation of the
purchase price to the fair value of the assets acquired and liabilities assumed
in these acquisitions follows:
An allocation of the purchase price to the fair value of the assets acquired and
liabilities assumed for all 2001 acquisitions on a combined basis (no
acquisition was individually significant) is as follows:
Purchase price:
SearchHound common stock issued (25,373 $502,775
shares at market value on date of issuance)
SearchHound common stock purchase 67,000
warrants issued
(8,955 shares at estimated fair value
on date of issuance)
Earn-out agreements -
Acquisition costs 6,174
Total purchase price $575,949
Allocation of purchase price:
Fair value of tangible assets and liabilities:
Cash acquired $ 81,909
Accounts receivable 79,524
Fixed assets 131,938
Accounts payable (20,577)
Notes payable (27,683)
245,111
Intangible assets acquired 330,838
$575,949
As of December 31, 2002, there were no amounts due and payable relative to the
acquisition earn-out agreements. Additional consideration relative to the earn-
out agreements will be recorded at the time the amounts are earned.
3. INVESTMENT IN NONCONSOLIDATED SUBSIDIARY
On March 28, 2001, SearchHound acquired 49% of the issued and outstanding shares
of capital stock of JobBank USA, Inc. ("JobBank") and agreed to acquire the
remaining 51% on March 28, 2002, for total consideration consisting of 29,851
(subject to adjustment, as defined) unregistered shares of SearchHound common
stock. The number of shares issued in consideration was subject to adjustment
based on the share price of SearchHound reaching and closing above $2 per share
within a specified period and JobBank maintaining minimum revenues prior to
March 28, 2002. Total consideration was not to exceed 59,702 shares nor less
than 29,851 regardless of the conditions. JobBank is located in Florida and is
a national online recruiting and employment network that provides a wide range
of career-related services to job candidates, employers and recruitment firms.
The Company and JobBank did not agree as to the adjustment provisions of the
contract due to the Company not attaining the required share price levels nor
the acquired reaching the minimum revenue levels specified in the contract.
JobBank filed a lawsuit relative to this transaction during 2002. The Company
and JobBank entered into a settlement agreement on September 17, 2002, which
effectively rescinded the purchase transaction and the 29,851 shares of Company
stock issued in the transaction was returned to the Company in consideration for
the return of JobBank stock. In addition, JobBank was required to pay the
Company $1,056 to reimburse the Company for health insurance provided and
$10,000 for use of the Company's marketing database.
4. NOTES PAYABLE
Notes payable-related party: December 31, 2002
Note payable $ 30,000
Note payable 179,359
Consideration due related to 15,000
SoloSearch acquisition
Note payable 91,870
Total notes payable-related party $ 316,229
Notes payable
Note payable-trade creditor $ 63,539
The $30,000 note payable-related party represents unsecured loans incurred for
working capital purposes and bears interest at 11.5%. The original maturity
date of the note was September 30, 2001 and is now on a demand basis.
The $179,359 note payable-related party represents loans incurred for unpaid
wages due to the Company's president.The note is due on a demand basis and is
non-interest bearing. The Note is secured by a pledge agreement backed
by 223,880 shares of Company stock held in treasury.
Amounts due to related party in the amount of $15,000 as of December 31, 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 have informally
agreed to not demand payment or charge interest until cash is available through
the sale of assets or a merger occurs.
The $91,870 note payable is secured by substantially all assets of the Company,
bears a variable interest rate equivalent to prime (6.5% and 4.25% at December
31, 2001 and 2002, respectively) and is due on demand.
The note payable-trade creditor bears interest at a variable rate equivalent
mid-term applicable Federal rate (4.49% and 4.2% at December 31, 2001 and 2002,
respectively), and is due on demand. The Company issued 19,278 shares of
restricted common stock as collateral for the note, which are held in treasury
at December 31, 2002.
5. STOCKHOLDERS' EQUITY
Common stock issuances
For the year ended December 31, 2002, the Company issued 254,850 shares of its
common stock as follows:
1,492 unregistered shares were issued to members of the Board of Directors
(746 shares to each of 2 members) for services rendered
16,418 shares were issued to the officers of the Company in lieu of cash
compensation.
1,120 unregistered shares were issued to employees and consultants of the
Company in lieu of cash compensation
223,880 shares of common stock were issued to treasury and serve as
collateral for Note payable to a related party.
11,940 shares were issued to a law firm as compensation for legal services
performed on behalf of the Company.
For the year ended December 31, 2001, the Company issued 126,317 shares of its
common stock as follows:
25,373 unregistered shares were issued to shareholders of Godado UK, Ltd.,
FreeAirMiles, Inc., MoneyMessage, LLC, FastCashOffers.com and
EarlyBirdDomain.com, Mesia.com, Inc. and Speak Globally, LLC in connection
with their acquisition as described in Note 3 to the consolidated financial
statements.
29,851 shares were issued to the shareholder of JobBank USA, Inc. for the
acquisition of 49% of its common stock as described in Note 3 to the
consolidated financial statements.
8,458 unregistered shares were issued pursuant to a Private Placement
memorandum during the year ended December 31, 2001. Such common shares were
issued for cash consideration of $114,900. Certain of the purchasers also
received detachable common stock purchase warrants as further described in
Note 6 to the consolidated financial statements.
43,357 shares of common stock registered pursuant to a Form S-8 during the
period ended December 31, 2001. The Form S-8 authorizes the grant of
incentive stock options, non-qualified stock options, restricted stock,
performance grants and other types of awards to officers, key employees,
board members, consultants and independent contractors of the Company.
19,278 shares of common stock were issued as treasury stock and serves as
collateral for a note payable to a creditor as described in Note 4 to the
consolidated financial statements.
Other changes to Common stock
A total of 29,851 shares of common stock were returned and cancelled during
2002, pursuant to the settlement agreement relative to a lawsuit involving the
Company's investment in JobBankUSA as described in Note 3.
The Company's Board of Directors approved a one for sixty-seven share reverse
stock split. The split is for shareholders of record on December 27, 2002, and
was effective on December 30, 2002. The accompanying financial statements
reflect this reverse stock split on retroactive basis.
6. COMMON STOCK PURCHASE WARRANTS
During 2001 and 2000, the Company, in conjunction with the private placement of
common stock, granted detachable warrants to purchase shares of its common
stock. In addition, during 2001, the Company granted warrants to purchase shares
of its stock in connection with the acquisition of certain businesses (see Note
4). All warrants are exercisable at December 31, 2002. The following table
summarizes activity about all of the Company's warrants outstanding at December
31, 2002:
Warrant Outstanding Outstanding
exercise Expiration December December
price date 31, 2001 Issued Exercised Expired 31, 2002
$39.53 August 2003 252 - - - 252
$35.51 September 2003 141 - - - 141
$36.85 August 2003 407 - - - 407
$32.16 September 2003 622 - - - 622
$20.10 September 2003 2,388 - - - 2,388
$16.75 March 2004 1,327 - - - 1,327
$24.79 March 2004 807 - - - 807
$14.07 June 2003 2,238 - - - 2,238
$10.05 September 2003 5,224 - - - 5,224
$2.68 December 2003 1,493 - - - 1,493
Total 14,899 - - - 14,899
7. INCOME TAXES
The income tax provision for the periods ended December
31, 2001 and 2002 consists of the following:
2001 2002
Continuing
operations:
Current $ - $ -
Deferred - -
Income tax provision $ - $ -
Discontinued
operations:
Current $ - $ -
Deferred - -
Income tax provision $ - $ -
Total income tax $ - $ -
provision
The following table summarizes the significant differences
between the Federal statutory tax rate and the Company's
effective tax rate for financial reporting purposes:
2001 2002
Federal statutory tax rate (34.0)% (34.0)%
State and local taxes net of (5.8) (6.0)
Federal tax effect
Intangible assets 10.1 3.2
amortization
Intangible asset charge-off 21.7 30.3
Valuation allowance on 8.0 6.5
deferred tax asset
Effective tax rate - % - %
The tax effects of temporary differences and carry
forwards that give rise to deferred tax assets or
liabilities are summarized as follows:
2001 2002
Net operating loss carryforward $1,755,000 $1,589,000
Valuation allowance on net
deferred tax asset (1,755,000) (1,589,000)
Deferred tax asset, net $ - $ -
The Company has provided for full valuation allowances on the net deferred
tax assets due to the uncertainty of whether the Company will generate
sufficient future taxable income and the restriction on the usage of pre-merger
net operating loss carryforwards. The Company has decreased its valuation
allowance on deferred tax assets by $166,000 during 2002.
At December 31, 2002, the Company has estimated net tax operating loss
carryforwards in excess of $4,181,500 available, subject to certain
restrictions, to offset future income tax liabilities, if any. The carryforward
losses expire in years 2011 through 2017 and have not been recognized in the
accompanying consolidated financial statements as a result of a valuation of the
total potential tax asset. Substantially all of these carryforwards are subject
to significant restriction pursuant to the Internal Revenue Code whenever a
more than 50% change in ownership has occurred.
8. RELATED PARTY TRANSACTIONS
The Company has incurred interest expense aggregating $10,083 and $15,090 during
the periods ended December 31, 2001 and 2002, respectively, in connection with
obligations to related parties as described in Note 4 to the consolidated
financial statements.
Effective January 1, 2002, the Company entered two separate lease agreements
with two officers/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 was one year with a two-year renewal option (at the Company's option) at
a rate totaling $10,000 per month.Rental expense totaled $29,868 for the year
ended December 31, 2002. The agreement between the Company and one
officer/director was terminated effective with his resignation on May 31, 2002.
The agreement between the Company and the other officer/director was terminated
on January 3, 2003.
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 Brad Cohen. Mr. Cohen was an officer and
director of SearchHound.com, Inc. prior to the sale. 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 SearchHound.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. The net effect of the sale of these
assets to Mr. Cohen was a gain of $446,430, which was classified as a gain from
disposal of discontinued operations in the Statement of Operations for the
year ended December 31, 2002.
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.
During 2002, the Board terminated the employment contract of Dave L. Mullikin.
Under the settlement Mr. Mullikin's salary ceased accruing on August 15, 2002,
and the severance provision was forgiven. It was replaced with a consulting
agreement between the Company and Mr. Mullikin whereby Mr. Mullikin will
continue in his position as acting chief executive officer of the Company. The
agreement calls for Mr. Mullikin to 1) contract outsourced services to maintain
selected ongoing operations of the Company, 2) attempt to sell the assets of the
Company and 3) focus on a merger opportunity for SearchHound. The terms of
the Consulting agreement provided for Mr. Mullikin agreeing to remain on the
Board and would receive a monthly compensation of $1.00 and health benefits. As
of November 14, 2002, Mr. Mullikin agreed to amend his Consulting Agreement and
extend its term indefinitely, retaining the monthly compensation of $1.00, but
discontinuing the health benefits provision.
On January 3, 2003, the Company entered into an asset sale agreement, which sold
the following assets of the Company to Solutions.com, LLC, an entity controlled
by David L.Mullikin:
a. Certain domains including: www.searchhound.com, www.solosearch.com,
www.godado.co.uk, www.freeairmiles.com, and www.moneymessage.com ,
b. Customer lists, email names and addresses (for each domain)
c. Software, programming code, intellectual property (for each domain)
d. Certain computer and office equipment
Mr. Mullikin is a director of SearchHound.com, Inc. and is its acting Chief
Executive Officer. The net book value of the net assets sold to Mr. Mullikin
approximated $8,000 as of the date of sale. Pursuant to the asset sale agreement
the Company agreed to transfer such assets to Mr. Mullikin in settlement of the
remaining outstanding principal balance owed by the company
to Mr. Mullikin pursuant to a certain Promissory Note dated July 11, 2000 with a
principle balance of $179,359 together with all accrued but unpaid interest.
Previously, the Company had made partial reductions to the unpaid note balance
by the issuance of 181,292 shares of SearchHound.com, Inc. common stock and a
cash payment of $7,500. In addition, Mr. Mullikin agreed to cancel the rental
payments owed to him by the Company for its use of web hosting and office space.
9. GOODWILL IMPAIRMENT CHARGES
In conjunction with the company's review of its businesses (and relative to the
Company's decision to dispose of substantially all of its operating businesses),
certain assets (including goodwill) are reviewed for impairment. As a result of
this review, a goodwill impairment charge of $8,672,493 was recorded during 2001
and $4,304,078 during 2002, related primarily to goodwill recorded when the
Company acquired businesses for common stock. These impairment charges are
included in loss from discontinued operations in the accompanying Statement of
Operations.
As of December 31, 2002, all intangible assets have been charged off as
impaired (including goodwill) and other long-lived assets including fixed assets
have been reduced to their net realizable value of $8,000 and reported as
assets held for sale in the accompanying balance sheet.
10. COMMITMENTS AND CONTINGENCIES
Certain claims, suits and complaints arising in the normal course with respect
to the Company's services are pending against the Company including its
subsidiaries and Pan International. 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.
11. SUBSEQUENT EVENTS
On January 3, 2003, the Company entered into an asset sale agreement, which sold
certain assets to Solutions.com, LLC, as described in Note 8 to the financial
statements On January 3,2003, the Company also entered into an asset sale
agreement, which sold the following assets of the Company to Summit Ridge
Technologies Group, LLC (an unaffiliated entity):
a. EarlyBirdDomain.com domain,
b. Database for EarlyBirdDomain.com including all subscribers (active,
inactive,and unsubscribed), and
c. EarlyBirdDomain.com clients, customers
The net book value of the net assets sold approximated $0 as of the date of
sale. Pursuant to the asset sale agreement the Company agreed to transfer such
assets in exchange for nominal cash consideration.
During January 2003, the Company issued an aggregate of 380,094 shares of common
stock in consideration for the cancellation of outstanding notes payable
approximating $175,000,accrued interest approximating $22,850 and accrued
wages payable of $114,500.
On March 3, 2003, the Company filed Amendment No. 3 to its Registration
Statement on Form S-8,which increased the shares available to be issued by
250,000. The Form S-8 Registration Statementprovides the Company common stock
for issuance to employees, consultants and Board Members for services rendered
to the Company. The Form S-8 authorizes the issuance of common stock for
services, provides for a grant of incentive stock options, non-qualified stock
options, restricted stock, performance grants and other types of awards to
officers, key employees, board members, consultants and independent contractors
of the Company. During March 2003, the Company issued 225,000 shares to
consultants for administrative, accounting and public relations services in lieu
of cash compensation and valued at approximately $63,000.
12. GOING CONCERN AND MANAGEMENT'S PLAN
In recent years the Company has incurred substantial operating losses, a working
capital deficit and experienced 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. The Company has ceased all operations and has or
is in the process of disposing of all of its operating businesses at December
31, 2002. Management is currently seeking a merger and/or acquisition
partner that has greater financial resources in order for the Company to
continue operations. These factors raise substantial doubt about the ability of
the Company to continue as a going concern. Management believes that it has
reduced ongoing operating expenses to a level that can be sustained
until such time as a suitable merger/acquisition partner is identified and a
transaction is consummated. However, no assurance can be given that the Company
will be successful in consummating a merger/acquisition transaction or that it
will be able to fund its ongoing operations until a merger/acquisition
transaction can be accomplished. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
*************************
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-52404 of SearchHound.com, Inc. on Form S-8 of our report dated March 26,
2003 (which report expresses an unqualified opinion and includes an explanatory
paragraph relating to going concern uncertainty), appearing in this Annual
Report on Form 10-KSB of SearchHound.com, Inc. for the year ended December 31,
2002.
/s/ Pickett, Chaney &
McMullen LLP
----------------------------
--------
Pickett, Chaney & McMullen
LLP
Overland Park, Kansas
March 26, 2003
EXHIBIT 99.1
SEARCHHOUND.com, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of SearchHound.com, Inc. (the "Company") on
Form 10-KSB for the year ended December 31, 2002, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, David L. Mullikin,
the President and Director of the Company,hereby certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-OxleyAct of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ DAVID L. MULLIKIN
David L. Mullikin
Acting President and Director (Principal
Executive Officer)
March 31, 2003
EXHIBIT 99.2
SEARCHHOUND.com, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of SearchHound.com, Inc.,. (the "Company")
on Form 10-KSB for the period ending December 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, David
L. Mullikin, the Chief Financial Officer and Director of the Company, hereby
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ DAVID L. MULLIKIN
--------------------------------------------
---------
David L. Mullikin
Chief Financial Officer (Principal
Accounting Officer
March 31, 2003
The foregoing certifications are made solely for the purpose of 18 U.S.C.
Section 1350, subject to the knowledge standard contained therein, and not for
any other purpose.