UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[x]THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to
_____________
Commission file number _________
SEARCHOUND.com, INC.
(Name of Small Business Issuer in Its Charter)
Commission File # 0-19471
NEVADA 91-1942841
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
12817 Woodson
Overland Park, Kansas
66209
__________________________
(Address of Principal or
Executive Offices)
(913) 568-8133
__________________________
(Issuer's Telephone
Number)
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date:
Date Class
Shares Outstanding
3/31/2003 Common stock - $ .001 par value
1,088,159
Transitional Small Business Disclosure Format (Check
one): Yes [_] No [X]
=========================================================
SEARCHOUND.com, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS: Page
Balance Sheets as of March 31, 2003 (unaudited) 1
and December 31, 2002
Statements of Operations for the three months 2
ended March 31, 2003 and 2002
Statements of Stockholders' Equity (Deficit) for
the three months ended March 31, 2003 (unaudited) 3
Statements of Cash Flows for the three months 4
ended March 31, 2003 and 2002 (unaudited)
Notes to Financial Statements 5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF 9
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 18
ITEM 2 - CHANGES IN SECURITIES AND USE OF 18
PROCEEDS
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF 19
SECURITY HOLDERS
ITEM 5 - OTHER INFORMATION 19
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 19
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS:
SEARCHHOUND.com, INC.
BALANCE SHEETS
March 31, 2003 (unaudited) and DECEMBER 31, 2002
ASSETS March 31,
2003 December 31,
(unaudited) 2002
CURRENT ASSETS:
Cash and cash equivalents $267 $ 14,790
Total current assets 267 14,790
ASSETS HELD FOR SALE - 8,000
TOTAL ASSETS $267 $ 22,790
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accrued wages $34,205 $122,000
Accounts payable 408 -
Accrued interest - 30,635
Note payable-related parties 30,795 316,229
Notes payable - 63,539
Total current liabilities 65,408 532,403
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value; 1,088 682
50,000,000 shares
authorized; 1,088,159 and 681,946
issued, respectively
Additional paid-in-capital 20,333,254 20,179,029
Accumulated deficit (20,399,483)(20,689,081)
Treasury stock (0 and 243,158 - (243)
shares, respectively)
Total stockholders' equity (65,141) (509,613)
(deficit)
TOTAL LIABILITIES AND STOCKHOLDERS' $ 267 $ 22,790
EQUITY (DEFICIT)
The accompanying notes are an integral part of these
financial statements.
SEARCHHOUND.com, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(unaudited)
Three months ended March 31,
2003 2002
Operating expenses:
General and administrative $ 80,725 $ 16,180
Operating loss (80,725) (16,180)
Other expense-interest expense (3,159) (3,159)
Gain on settlement of accounts 238,382 -
and notes payable
Income (loss) from continuing 154,498 (19,339)
operations
before income taxes
Income taxes - -
Income (loss) from continuing 154,498 (19,339)
operations
Discontinued operations:
Loss from operations, net - (1,102,264)
Gain from disposal, net 135,100 -
135,100 (1,102,264)
Net earnings (loss) $289,598 $(1,121,603)
Basic and diluted net earnings
(loss) per share:
Income (loss) from continuing $ 0.19 $ (0.04)
operations
Gain (loss) from discontinued 0.16 (2.41)
operations
Net earnings (loss) per share $ 0.35 $(2.45)
Basic and diluted weighted 824,847 457,012
average common shares
outstanding
The accompanying notes are an integral part of these
financial statements.
SEARCHHOUND.com, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
MARCH 31, 2003
(unaudited)
Total
Additional Stockholders
Common
Stock
Paid-in Accumul Treasu Equity Compreh
SharesAmountCapital Deficit Stock (Deficit) Income
Balance,
January 681,946 $682$20,179,029$(20,689,081)$(243) $(509,613)
1, 2003
Issuance
of 48,389 - 243 48,632
treasury
stock to
settle
notes and
accounts
payable
Issuance
of common 156,213 156 31,086 - - 31,242
stock to
settle
notes and
accounts
payable
Issuance
of common 250,000 250 74,750 - - 75,000
stock for
services
rendered
Net - - - 289,598 - 289,598 $298,598
income
Comprehen
sive $298,598
income
Balance,
March 31, 1,088,159 $1,088 $20,333,254 $(20,399,483) $- $(65,141)
2003
The accompanying notes are an integral part of these
financial statements.
SEARCHHOUND.com, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(unaudited)
Three months ended
March 31,
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $289,598 ($1,121,603)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization - 156,181
Goodwill impairment charge - 803,320
Issuance of common stock for services 75,000 -
rendered
Gain on settlement of accounts and (238,382) -
notes payable
Gain from disposal of discontinued (135,100) -
operations
Changes in operating assets and
liabilities
(exclusive of effects of acquisitions):
Accounts receivable - (29,610)
Accounts payable 408 119,479
Other current liabilities (6,047) 3,159
Net cash and cash equivalents used in
operating activities (14,523) (69,074)
CASH FLOWS FROM INVESTING ACTIVITIES: - -
CASH FLOWS FROM FINANCING ACTIVITIES: - -
Net increase (decrease) in cash and cash (14,523) (69,074)
equivalents
Cash and cash equivalents at beginning of 14,790 102,163
period
Cash and cash equivalents at end of period $ 267 $
33,089
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ - $
-
Income taxes $ - $
-
Non-cash investing and financing
activities:
Issuance of treasury stock to settle $ 48,632 $
notes and accounts payable -
Issuance of common stock to settle notes $ $
and accounts payable 31,242 -
Note payable-related party issued for $ $325,368
wages payable -
The accompanying notes are an integral part of these
financial statements.
SEARCHHOUND.com, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(unaudited)
1. Basis of presentation
The interim financial statements presented herein have
been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with
accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant
to such rules and regulations. The interim financial
statements should be read in conjunction with the
Company's annual financial statements, notes and
accounting policies included in the Company's annual
report on Form 10-KSB for the year ended December 31,
2002 as filed with the SEC. In the opinion of management,
all adjustments (consisting only of normal recurring
adjustments) which are necessary to provide a fair
presentation of financial position as of March 31, 2003
and the related operating results and cash flows for the
interim period presented have been made. The results of
operations for the period presented are not necessarily
indicative of the results to be expected for the year.
The Company has operated as a holding company for
internet-based assets/businesses, primarily through the
acquisitions of operating assets/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
assets/businesses and to seek a merger/acquisition
transaction with a Company having better financial
resources. As of March 31, 2003, the Company has
disposed of all of its operating assets/businesses and
ceased all operating activities. The accompanying
financial statements reflect the businesses sold as
discontinued operations. Revenues attributable to the
discontinued operations aggregated $0 and $166,887 for
the three months ended March 31, 2003 and 2002,
respectively.
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.
2. Use of estimates
In preparing 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 financial statements, as
well as the reported amounts of revenue and expenses
during the reporting period. Actual results could differ
from those estimates.
3. Notes payable:
Notes payable-related party: March
31, 2003 December
(unaudited) 31, 2002
Note payable $ 10,000 $ 30,000
Note payable 5,795 179,359
Consideration due related to 15,000 15,000
SoloSearch acquisition
Note payable - 91,870
Total notes payable-related party $ 30,795 $ 316,229
Notes payable
Note payable-trade creditor $ $
- 63,539
The $10,000 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. During January 2003, the Company partially
settled this note whereby it issued 14,621 shares of
common stock in consideration for a $20,000 reduction in
the principal balance (and related accrued interest).
The settlement of this note payable resulted in a gain of
$17,076 based upon the market value of the common stock
at the date issued and was classified as gain on
settlement of notes and accounts payable in the Statement
of Operations during the three months ended March 31,
2003.
The $5,795 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. During January 2003, the Company partially
settled this note whereby it issued 181,292 shares of
common stock in consideration for a $173,564 reduction in
the principal balance (and related accrued interest) and
the transfer of certain Company assets with a carrying
value of $8,000. The settlement of this note payable
resulted in a gain of $135,100 based upon the market
value of the common stock at the date issued and was
classified as gain on disposal of discontinued operations
in the Statement of Operations during the three months
ended March 31, 2003.
Concurrent with this transaction, the Company's president
also agreed accept the issuance of 42,589 of shares held
in treasury and 47,411 shares of common stock to settle
$72,795 of other wages payable to him. The settlement of
wages payable resulted in a gain of $54,795 based upon
the market value of the common stock at the date issued
and was classified as gain on settlement of notes and
accounts payable in the Statement of Operations during
the three months ended March 31, 2003.
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% at December 31, 2002) and was
due on demand. During January 2003, the Company settled
this note whereby it issued 80,619 shares of common stock
in consideration for the full and complete settlement of
the outstanding principal balance (and related accrued
interest aggregating $33,795). The settlement of this
note payable resulted in a gain of $109,541 based upon
the market value of the common stock at the date issued
and was classified as gain on settlement of notes and
accounts payable in the Statement of Operations during
the three months ended March 31, 2003.
The note payable-trade creditor bears interest at a
variable rate equivalent mid-term applicable Federal rate
(4.49% at December 31, 2002), and was due on demand.
During January 2003, the Company settled this note
whereby it issued 19,278 shares of common stock held in
treasury and 13,562 shares of common stock in
consideration for the full and complete settlement of the
outstanding note balance (and related accrued interest).
The settlement of this note payable resulted in a gain of
$56,970 based upon the market value of the common stock
at the date issued and was classified as gain on
settlement of notes and accounts payable in the Statement
of Operations during the three months ended March 31,
2003.
4. Stockholders' equity
For the three months ended March 31, 2003 the Company
issued 406,213 shares (excluding 243,158 treasury shares
issued) of its common stock as follows:
156,213 shares were issued to settle notes and
accounts payable of the Company
250,000 shares were issued to consultants to the
Company in lieu of cash compensation
243,158 shares of common stock held in treasury were
issued to settle outstanding notes and accounts payable
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.
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 250,000 shares to consultants for
administrative, accounting and public relations services
in lieu of cash compensation. The Company charged
$75,000 to operations as a result of the issuance of
these shares.
5. Related party transactions
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 a portion 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 (as described in
Note 3). The settlement of this note payable resulted in
a gain of $135,100 based upon the market value of the
common stock at the date issued and was classified as
gain on disposal of discontinued operations in the
Statement of Operations during the three months ended
March 31, 2003.
Concurrent with this transaction, the Company's president
also agreed accept the issuance of 42,589 of shares held
in treasury and 47,411 shares of common stock to settle
$72,795 of other wages payable to him. The settlement of
wages payable resulted in a gain of $54,795 based upon
the market value of the common stock at the date issued
and was classified as gain on settlement of notes and
accounts payable in the Statement of Operations during
the three months ended March 31, 2003.
In addition, Mr. Mullikin agreed to cancel the rental
payments owed to him by the Company for its use of
webhosting and office space.
6. Going Concern
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 disposed of all
of its operating assets/businesses at March 31, 2003.
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. Should management be
unsuccessful in consummating a merger transaction, the
Company will likely cease as a going concern. The
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
*********************************************************
FORWARD-LOOKING STATEMENTS
THIS FORM 10QSB CONTAINS FORWARD-LOOKING STATEMENTS
INVOLVING RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS IN THE FUTURE COULD DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED OR IMPLIED IN SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED, IN THE SECTION CAPTIONED "MANAGEMENT'S
DISCUSSION AND ANALYSIS" AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS FILING.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY OVERVIEW AND OVERALL BUSINESS STRATEGY
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.
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"). 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. 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.
On September 28, 2001, SearchHound acquired substantially
all assets (exclusive of accounts receivable) of
Mesia.com, Inc. Mesia.com, Inc. is based in Reston,
Virginia and is considered a leader in direct email
marketing via its websites; Mesia.com, Utiopad.com and
PortofOne.com.
On December 20, 2001, SearchHound acquired substantially
all assets (exclusive of cash and fixed assets) of Speak
Globally, LLC. 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. 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
acquiree 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 assets/businesses and to seek a
merger/acquisition transaction with a Company having
better financial resources. As of March 31, 2003, the
Company has disposed of all of its operating
assets/businesses and ceased all operating activities.
The financial statements reflect the businesses sold as
discontinued operations.
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
SearcHound.com, Inc. to Mr. Cohen that may exist as of
May 31, 2002, including the liabilities that accrue
pursuant to a Promissory Note to Mr. Cohen with a
principle amount of $147,030.41, dated March 20, 2002,
and any liability that may exist pursuant to the
Employment Agreement between SearchHound.com, Inc. and
Mr. Cohen dated September 1, 2000. The net effect of
the sale of these assets to Mr. Cohen was a gain of
$446,430. 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 benefit 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 a portion 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. The settlement of
this note payable resulted in a gain of $135,100 based
upon the market value of the common stock at the date
issued and was classified as gain on disposal of
discontinued operations in the Statement of Operations
during the three months ended March 31, 2003. Concurrent
with this transaction, the Company's president also
agreed accept the issuance of 42,589 of shares held in
treasury and 47,411 shares of common stock to settle
$72,795 of other wages payable to him. The settlement of
wages payable resulted in a gain of $54,795 based upon
the market value of the common stock at the date issued
and was classified as gain on settlement of notes and
accounts payable in the Statement of Operations during
the three months ended March 31, 2003.
In addition, Mr. Mullikin agreed to cancel the rental
payments owed to him by the Company for its use of
webhosting 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):
EarlyBirdDomain.com domain,
Database for EarlyBirdDomain.com including all
subscribers (active, inactive, and unsubscribed), and
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 financial
statements reflect this reverse stock split on
retroactive basis.
During January 2003, the Company partially settled a note
payable to a related party whereby it issued 14,621
shares of common stock in consideration for a $20,000
reduction in the principal balance (and related accrued
interest). The settlement of this note payable resulted
in a gain of $17,076 based upon the market value of the
common stock at the date issued and was classified as
gain on settlement of notes and accounts payable during
the three months ended March 31, 2003.
During January 2003, the Company settled a note payable
to a related party whereby it issued 80,619 shares of
common stock in consideration for the full and complete
settlement of the outstanding principal balance (and
related accrued interest aggregating $33,795). The
settlement of this note payable resulted in a gain of
$109,541 based upon the market value of the common stock
at the date issued and was classified as gain on
settlement of notes and accounts payable in the Statement
of Operations during the three months ended March 31,
2003.
During January 2003, the Company settled a note payable
to a trade creditor whereby it issued 19,278 shares of
common stock held in treasury and 13,562 shares of common
stock in consideration for the full and complete
settlement of the outstanding note balance (and related
accrued interest). The settlement of this note payable
resulted in a gain of $56,970 based upon the market value
of the common stock at the date issued and was classified
as gain on settlement of notes and accounts payable in
the Statement of Operations during the three months ended
March 31, 2003.
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. During
March 2003, the Company issued 250,000 shares to
consultants for administrative, accounting and public
relations services in lieu of cash compensation totaling
$75,000. The Company is attempting to conserve cash
resources by issuing stock for accounting and
administrative services.
The Company is currently seeking a merger partner and has
had discussions with several candidates but currently has
no formal 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.
MANAGEMENTS DISCUSSION AND ANALYSIS OF HISTORICAL
OPERATING RESULTS - THREE MONTHS ENDED MARCH 31 2003
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2002
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expense consists primarily of
legal, accounting and investor relation costs that are
associated with the Company continuing as a public
reporting entity. The increase in such costs ($64,545)
from $16,180 in 2002 as compared to $80,725 in 2003,
reflect the non-cash $75,000 expense related to the
issuance of common stock to consultants for accounting
and administrative services during the three months ended
March 31, 2003. Management is attempting to conserve
cash resources by issuing common stock for services
rendered and believes it will be able to continue this
strategy during 2003.
DISCONTINUED OPERATIONS
Loss from discontinued operations aggregated $1,102,264
in 2002 as compared to $0 in 2003, which represents the
operating results of the Company's operating businesses
that were disposed. All of the Company's operating
assets/businesses were disposed of as of January 3, 2003.
Such losses include goodwill amortization and impairment
charges totaling $803,320 in 2002 related to the write-
down of goodwill associated with the discontinued
businesses. In addition, depreciation and amortization
expenses totaled $156,181 in 2002 related to the
discontinued businesses. As of January 3, 2003 all
operating assets/businesses have been disposed, therefore
management does not expect any losses from discontinued
operations in 2003.
Gain from disposal of discontinued operations totaled
$135,100 in 2003, which resulted from the disposal of the
remaining operating assets/businesses to Solutions.com,
an entity controlled by David Mullikin. 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 a portion 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. The settlement of this note
payable resulted in a gain of $135,100 based upon the
market value of the common stock at the date issued and
was classified as gain on disposal of discontinued
operations in the Statement of Operations during the
three months ended March 31, 2003. All operating
assets/businesses have been disposed as of March 31,
2003, therefore, management does not expect any further
gains or losses from the disposal of discontinued
operations.
OTHER INCOME (EXPENSE)
Other income (expense) primarily consists of interest
expense, and gain on settlement of notes and accounts
payable. Interest expense remained consistent from
during 2003 as compared to 2002. The gain on settlement
of notes and accounts payable aggregating $238,382 during
2003 resulted from the issuance of common stock and
shares held in treasury for the full or partial
settlement of outstanding balances owed to related
parties and trade creditors. Management has attempted to
conserve cash resources by issuing common stock in
settlement of outstanding liabilities whenever possible.
Remaining liabilities at March 31, 2003 aggregate $65,408
and management believes that such liabilities will likely
require cash settlement in conjunction with a possible
future merger transaction.
NET EARNINGS (LOSS)
As a result of the factors described above, the Company
generated net earnings of $289,598 or $0.35 per basic and
diluted share for the three months ended March 31, 2003,
compared to a net loss of $1,121,603 or ($2.45) per basic
and diluted share for the three months ended March 31,
2002.
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 $14,523 for the three months
ended March 31, 2003.
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 disposed of all
of its operating assets/businesses at March 31, 2003.
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 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 has reached
no formal 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 for the Company's ongoing
administrative and reporting duties.
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 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 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer have concluded,
based on an evaluation conducted within 90 days prior to
the filing date of this Quarterly Report on Form 10-QSB,
that the Company's disclosure controls and procedures
have functioned effectively so as to provide those
officers the information necessary whether:
(i) this Quarterly Report on Form 10-QSB contains any
untrue statement of a material fact or omits 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 Quarterly Report on Form 10-QSB, and
(ii) the financial statements, and other financial
information included in this Quarterly Report on Form 10-
QSB, fairly present in all material respects the
financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in
this Quarterly Report on Form 10-QSB.
There have been no significant changes in the Company's
internal controls or in other factors since the date of
the Chief Executive Officer's evaluation that could
significantly affect these internal controls, including
any corrective actions with regards to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
For the three months ended March 31, 2003 the Company
issued 406,213 shares (excluding 243,158 treasury shares
issued) of its common stock as follows:
156,213 shares were issued to settle notes and
accounts payable of the Company
250,000 shares were issued to consultants to the
Company in lieu of cash compensation
243,158 shares of common stock held in treasury were
issued to settle outstanding notes and accounts payable
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.
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 250,000 shares to consultants for
administrative, accounting and public relations services
in lieu of cash compensation. The Company charged
$75,000 to operations as a result of the issuance of
these shares.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
---------- ---------------------------------------------
2.01* Sale agreement dated January 3, 2003 by and
between SearchHound.com, Inc. and
Solutions.com.
99.01 Certification of Chief Executive Officer
99.02 Certification of Chief Financial Officer
------------------
* Previously filed with the Securities and Exchange
Commission.
(b) Reports on Form 8-K
On January 3, 2003, the Board of Directors announced
the disposal of several operating assets/businesses to
Solutions.com, an entity controlled by David L. Mullikin.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SEARCHHOUND.com, INC.
April 25, 2003 /s/ David L. Mullikin
David L. Mullikin,
Acting President and
Chairman of the Board of
Directors
(PRINCIPAL EXECUTIVE
OFFICER)
April 25, 2003 /s/ David L. Mullikin
David L. Mullikin,
Acting Chief Financial
Officer, and Secretary
(PRINCIPAL ACCOUNTING
OFFICER)
Annex A
CERTIFICATIONS*
I, David L. Mullikin, Chief Executive Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-QSB
for the period ended March 31, 2003, of SearchHound.com,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
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 quarterly report;
4. The registrants 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 quarterly
report is being prepared;
b) evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of
registrants 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 registrants ability to record, process,
summarize and report financial data and have identified
for the registrants 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 registrants internal controls; and
6. The registrants other certifying officers and I have
indicated in this quarterly report whether 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 Chief Executive Officer
Date: April 25, 2003
CERTIFICATIONS*
I, David L. Mullikin, Acting Chief Financial Officer,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB
for the period ended March 31, 2003, of SearchHound.com,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
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 quarterly report;
4. The registrants 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 quarterly
report is being prepared;
b) evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of
registrants 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 registrants ability to record, process,
summarize and report financial data and have identified
for the registrants 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 registrants internal controls; and
6. The registrants other certifying officers and I have
indicated in this quarterly report whether 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 Chief Financial Officer
Date: April 25, 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-QSB for the quarter ended
March 31, 2003, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, David L.
Mullikin, the Acting 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-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
Acting President and Director (Principal Executive Officer)
April 25, 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-QSB for the quarter
ending March 31, 2003, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I,
David L. Mullikin, the Acting 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
Acting Chief Financial Officer (Principal
Accounting Officer
April 25, 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.