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 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 2001
Commission File Number: 0-19471
SEARCHHOUND.COM, INC
(Exact name of registrant as specified in its charter)
Nevada 91-1942841
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 Main Street
Kansas City, MO 64105
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (816) 960-3777
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 par value
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, 2001 was $1,103,041
As of December 31, 2001, the aggregate number of shares of Common Stock held by
non-affiliates was 26,191,770 shares
As of December 31, 2001, the aggregate number of shares outstanding of the
registrant's Common Stock was 30,619,826 since December 31, 2001 the
registrant's Common Stock has traded regularly with the lowest closing price of
$0.025 representing a $765,495.65 market value to a high closing of $0.040
representing a $1,224,793.00 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
PART I
ITEM 1. BUSINESS
General
2001 represented a year that the company pursued its business model of growing
core business operations while seeking acquisition candidates, which met three
guiding principles: 1) revenue, 2) technology synergies with SearchHound.com,
Inc., and 3) would be stronger if combined with SearchHound.com, Inc. by
integrating operations, technology, and management. During 2001, the Company
completed six acquisitions, which management and the board of Directors believed
met this criteria.
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 13,500,000 shares or 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.). For a historical perspective
regarding Pan International Gaming, Inc. (OTC BB: PANE) refer to by way of
reference previous 10-QSB and 10-KSB filings.
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 note
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 13,500,000 shares of Searchound.com
2000, Ltd., 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., 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 4,850,000 shares of restricted common
stock and $300,000 cash. Total consideration paid was $14,699,650 based on the
market price of SearchHound ($2.969 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. Significant revenues began in
September 2000. SearchHound.com, Inc. (the "Company" or "SearchHound") operates
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 Kansas City, Missouri and is an
Internet property that provides a content filtering search engine for the
Internet under the trade name of SearchHound.com. SearchHound focuses on
providing Websites and Webmasters relevant marketing tools, products and
services. The site maintains a targeted email-based member community of more
than 1,000,000 Webmasters and a search engine, which provides real-time relevant
results. The search engine scours the Internet, other major search engines, as
well as the multi-million URLs that have been registered directly with
SearchHound.com.
As an outcome of Search Hound's acquisition of SoloSearch.com on July 11, 2000,
SearchHound.com has developed an integrated site with a keyword-bidding feature
for sponsored search results to be listed on the top half of the site, while
real-time results that are ranked by relevance are listed on the second half of
the site. SearchHound is known for developing strong revenue-sharing Affiliate
Programs; a newsletter, "HOWL," delivering discounted marketing tools, products
and services to its members; and a customizable intelligent search engine
software package.
SearchHound facilitates this process by offering a search engine technology
through a multi-featured search process whereby Webmasters and business owners
register their URL (Internet domains). This allows users of the Internet to
conduct a search via SearchHound.com to locate, identify, and direct customer
traffic to the Webmaster's site for e-commerce activity. SearchHound has
developed multiple other revenue streams necessary to be competitive and
profitable in the Internet and e-commerce industry. In additions to a no-charge
listing service available SearchHound has been a pioneer in developing a "pay-
per-click" revenue model. This "pay-per-click" model allows advertisers to bid
in an ongoing auction for priority placement in our search results. Priority
placement means that the search results returned appear on the page ranked in
descending order based on the bid amount, with the highest bidder ranked first.
Each advertiser determines how much they are willing to pay to have the user
"click" on their URL and be transferred to their home page or website.
Advertisers pay SearchHound for each click-through, so advertisers bid only on
keywords relevant to the products, services, or information that they offer. As
a result of the Advertiser managing their individual account and determining how
much they wish to bid thus controlling their placement in the ranking system,
SearchHound believes it is providing advertisers a cost-effective and creative
way to target consumers to find and access their products, services and
information.
At the time that Webmasters or business owners register their URL with
SearchHound an online bidding account is created. The account holder determines
if they wish to activate the "keyword bidding" by depositing monies into the
account for bidding purposes. The minimum amount to activate an account is
$25.00 while many new accounts begin with a $100 balance. Also, at the time that
Webmasters or business owners register their free URL with SearchHound they are
prompted to join SearchHound.com, Inc.'s weekly electronic newsletter "HOWL" and
to accept direct email solicitations for relevant products and services. Both of
these selections are voluntary and require the subscriber to "opt-in" to receive
such correspondence.
The "HOWL" newsletter is sent twice monthly to more than 500,000 recipients.
"HOWL" is a content focused creator of e-magazines and e-newsletters.
SearchHound receives revenue from advertising earned through agreements and
relationships it has with third party advertising brokers and traditional banner
advertising. Direct email correspondence to the "opt-in" list is managed
directly by SearchHound sending ads to more than one million users. Revenue is
generated from advertisers who wish to reach this targeted demographic audience
of Webmasters, business owners, and technology oriented group. Approximately 15%
of this list is based outside the United States.
SearchHound has enhanced its reputation as a destination for Webmasters by
creating affiliate relationships to bring relevant products and services to its
registered users and visitors to Searchhound.com. SearchHound has entered into
agreements with multiple Internet based businesses that offer critical products
and services which are intended to assist the Webmaster or business owner
enhance their business model, reach more customers, and improve their likelihood
of success. SearchHound resells these products and services either as an
affiliate or through a co-branded or private-label agreement. SearchHound incurs
little implementation cost and benefits from a revenue sharing partnership.
While the SearchHound.com keyword-bidding model continued to be the company's
core business unit the reduction in advertising revenue and traffic of visitors
actively utilizing the services management aggressively pursued partnerships and
acquisitions.
SearchHound had three fulltime employees, two part-time employees and eleven
contract employees as of December 31, 2001. Employee positions represent two
senior management, one senior technical, one senior marketing director, and one
financial controller. Additional resources such as network administrator/design,
customer service, and software programmers are utilized through contract
agreements, consulting agreements, and outsource partnerships. SearchHound.com,
Inc. maintains a 49% equity position and the option of converting to 100%
ownership in JobBankUSA, which has six employees located in Amelia Island, FL.
SearchHound's losses for the year ended December 31, 2001, were approximately
$13.6 million of which $12.7 million was non-cash depreciation, amortization and
goodwill impairment charges (primarily goodwill associated with the SoloSearch
acquisition) and $0.2 million was in common stock issued for services.
Therefore, net cash used in operating activities only totaled $175,430 for the
year ended December 31, 2001 compared with $263,996 for the year ended December
31, 2000.
Management has devoted substantial attention to growing revenues through
acquisitions and in that respect has completed six separate acquisitions during
the year ended December 31, 2001:
On January 31, 2001, SearchHound acquired all of the issued and outstanding
shares of capital stock of Godado.UK, Ltd. ("Godado") for total consideration
consisting of 250,000 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
1,235,000 unregistered shares of SearchHound common stock and $60,000 cash
payable ratably over four months beginning April 2001. 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 March 28, 2001, SearchHound acquired all of the issued and outstanding shares
of capital stock of JobBankUSA, Inc. ("JobBank") for total consideration
consisting of 2,000,000 (subject to adjustment, as defined) unregistered shares
of SearchHound common stock. The number of shares issued in consideration is
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. Total consideration will not exceed 4,000,000 shares nor be
less than 2,000,000 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.
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
150,000 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 $0.21
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 350,000 unregistered shares of
SearchHound common stock at a price of $0.15 per share and a term of two years,
2) 115,000 unregistered shares of common stock, and 3)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, Utiopad.com and
PortalofOne.com.
On December 20, 2001, SearchHound acquired substantially all assets (exclusive
of cash and fixed assets) of Speak Globally, LLC for total consideration
consisting of the following: 1)a warrant to purchase 100,000 unregistered shares
of SearchHound common stock at a price of $0.04 per share and a term of two
years, 2) 100,000 unregistered shares of common stock, and 3)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 web development company.
Management intends to continue this strategy of growing the company through
acquisitions as well as increasing revenues of existing businesses during 2002.
However, management has initiated an overall plan of restructure including
improving its balance sheet to be representative of a strong working capital
position, minimal debt, current accounts payable and receivables and continue as
a timely and fully reporting public entity with the SEC. The Company will
likely seek a larger and more financially strong merger/acquisition partner in
order to implement this restructure plan on a timely basis, although no
potential merger/acquisition candidate has been identified at the current time.
Should an acceptable merger candidate pursue an equity relationship with the
company, the Board will only consider transactions that would result in a
beneficial outcome for the company shareholders. An offer to merge or be
acquired would have to be more advantageous for shareholders than continuation
of the current operating model to be acceptable to the Board. If such an offer
was received then the Board would conduct appropriate due diligence and make a
recommendation to shareholders.
In compliance with standards issued on June 30, 2001 by the Financial Accounting
Standards Board ("FASB") the valuation process was dramatically rewritten
regarding the rules of accounting for business combinations. While it had been
known for some time that the pooling of interests accounting treatment for
mergers and acquisitions would be eliminated (Statement of Financial Accounting
Standards ("SFAS") 141), the Standards also included wholesale modifications to
the accounting for goodwill associated with acquisitions under the purchase
method of accounting (SFAS 142). SFAS 142 prescribes an impairment review to
assess the fair value of goodwill and appropriately adjust the valuation of
goodwill if impaired. If reported shareholders' equity exceeds fair value, then
further impairment testing must occur that will measure the implied fair value
of goodwill.
The FASB noted that goodwill cannot be measured directly, instead, it is a
residual amount. In accounting terms, the approach follows the purchase price
allocation process used in transactions accounted for under the purchase method.
To determine the implied fair value of goodwill, an entity subtracts the fair
value of net assets (fair value of all assets minus the fair value of
liabilities) from the fair value of the reporting unit. An entity must recognize
an impairment loss when the carrying value of the goodwill exceeds its fair
value.
Fair value is defined in the Standards as "the amount at which an asset (or
liability) could be bought (or incurred) or sold (or settled) in a current
transaction between willing parties, that is, other than in a forced liquidation
or sale."
As such, management has determined to take immediate action to come into
compliance with these new standards and bring goodwill to the appropriate levels
based on an impairment review as of December 31, 2001. As a result, the Company
charged off $8,672,493 of goodwill as of December 31, 2001 that it considered
"impaired" under existing accounting guidance. Effective January 1, 2002,
regular amortization of goodwill will cease and will be replaced by regular
"impairment" review and challenge. Unless it is viewed by management that the
goodwill needs to be adjusted based on impairment the financials will not
receive the historical charge to operations for goodwill amortization subsequent
to January 1, 2001. Therefore, the financials will more appropriately reflect
the ongoing business operations based on revenue and operating expenses.
Furthermore, management has elected to initiate a consolidated restructure of
all of its wholly owned subsidiaries integrating necessary enhanced
technological improvements, fully functional online capability, necessary
marketing development, improved website presence. Once completed, the business
is prepared to 1) continue managing and operating each consolidated business
unit for the good of the corporation, 2) seek acquisitions that have synergistic
business applications which would result in a stronger business model with
exponential revenue opportunities, and 3) market the unit to be purchased by a
third party.
Such potential sale of any of the businesses operating units is consistent with
the Company's business strategy of acquiring undervalued businesses, adding
value through integration and management ingenuity, with the goal of increasing
significant revenue and or selling such business units generating cash flow to
support ongoing business operations.
PLAN OF OPERATION
The Company proposes a restructure comprising of submitting a name change to
shareholders of record from SearchHound.com, Inc. to I2 Global, Inc., which
better reflects its corporate image of adding value through integration and
ingenuity (thus 1 squared) and global which represents the scope of business
operations. While the search engine business unit is still an important
subsidiary and critical to the businesses overall success it no longer defines
the Company and therefore should not be its named entity. Furthermore, the new
name of I2 Global eliminates the dot-com element of the Companies name. While
the Company continues to operate on an Internet platform it is not limited to
that medium and as such discontinuing such reference in its corporate name is
appropriate.
SearchHound's core operating business continues as an online enterprise that
provides a search engine to the Internet under the trade name of
SearchHound.com. SearchHound focuses on providing Websites and Webmasters
relevant marketing tools, products and services. The site maintains a targeted
email-based member community of more than 1,000,000 Webmasters and a search
engine, which provides real-time relevant results. The search engine scours the
Internet, other major search engines, as well as the multi-million URLs that
have been registered directly with SearchHound.com. Marketing to and contracting
with third-party advertisers sending email advertisements to its "opt-in"
subscribers continues to be a focus.
During 2001 the company completed the following acquisitions:
On January 31, 2001, SearchHound acquired all of the issued and outstanding
shares of capital stock of Godado.UK, Ltd. ("Godado") for total consideration
consisting of 250,000 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
1,235,000 unregistered shares of SearchHound common stock and $60,000 cash
payable ratably over four months beginning April 2001. 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 March 28, 2001, SearchHound acquired all of the issued and outstanding shares
of capital stock of JobBankUSA, Inc. ("JobBank") for total consideration
consisting of 2,000,000 (subject to adjustment, as defined) unregistered shares
of SearchHound common stock. The number of shares issued in consideration is
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. Total consideration will not exceed 4,000,000 shares nor be
less than 2,000,000 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.
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
150,000 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 $0.21
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 350,000 unregistered shares of
SearchHound common stock at a price of $0.15 per share and a term of two years,
2) 115,000 unregistered shares of common stock, and 3)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, Utiopad.com and
PortofOne.com.
On December 20, 2001, SearchHound acquired substantially all assets (exclusive
of cash and fixed assets) of Speak Globally, LLC for total consideration
consisting of the following: 1)a warrant to purchase 100,000 unregistered shares
of SearchHound common stock at a price of $0.04 per share and a term of two
years, 2) 100,000 unregistered shares of common stock, and 3)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 web development company.
The Registrant anticipates substantial increases in operating revenues for
fiscal 2002 due to growth in existing businesses and from the recent
acquisitions described above. Furthermore, management plans to continue its
strategy of growing revenue through acquisitions in the foreseeable future. The
Company believes that current growth in existing businesses and considering the
effects of such recent acquisitions that revenues for 2001 are substantially
increasing and are in-line with operating costs. The Company attempts to
utilize its common stock as consideration for making acquisitions and plans to
continue this practice in order to minimize cash outlays. However, there can be
no assurance that the Company can continue to locate and negotiate acquisitions
meeting its overall business plan on a cost effective basis and utilizing stock
as consideration.
The Company proposes a restructure comprising of the following divisions:
I2 Global, Inc (proposed name change) will represent the parent company under
which there will be nine independent operating units (divisions). You can reach
I2 Global at i2global.com.
Media Data Plus, Inc. is in the business of targeted online marketing. Media
Data Plus is comprised of multiple, independent, and interchangeable databases
commonly known as "lists". These "lists" represent Internet based email
addresses and extended demographics from which advertisers can select potential
customers to promote their products and services to in the hopes that they will
preview and purchase from them. Media Data Plus works on a basis of "opt-in"
participation. Customers whose data and information has been provided to Media
Data Plus for the purpose of advertising. Privacy policies are in place and
strictly adhered to. Media Data Plus is comprised of 1) direct mail, 2) list
acquisition, 3) broker, and 4) list management products. Specific list names
include SearchHound, Utopiad, Blue Marlin Mail, FreeAirMiles, "HOWL",
FastCashOffers, and MoneyMessage. In addition, Media Data Plus has exclusive
rights to market lists for MoonFruit.com and StudentMarkets. Media Data Plus
continues to seek additional clients, partners, and customers. In addition, the
Company is prepared to market this operating unit to interested acquisition
companies who might value purchasing this operating unit and/or assets.
Media Enabled Software and Internet Advertising, Inc. (MESIA) is in the online
email campaign manager and list management software business. Mesia.com is a
developer and provider of online relationship management solutions for companies
designed to increase both internal and external competitiveness. The Company's
core capabilities include automated email marketing management, employee
relationship management, and internal technical asset management. Mesia can be
reached at mesia.com. Mesia's Portal of One Customer Marketing Management (CMM)
software solutions enable companies to target the right customers through a
variety of communication channels, manage email-marketing communications through
CampaignManager software, and data-mine the demographic, personal interest, and
online behavior of their customers all in real time. Mesia's Portal of One
Enterprise Resource Management (ERM) software solutions provides "internal
marketing" capabilities to companies that wish to promote more efficient and
effective channels of communication between employees across the entire
organization, as well as advanced technical inventory management and reporting
solutions to promote operational efficiency. MESIA is client friendly software
management tool that can be licensed, contracted, or outsourced to and for
companies who wish to reach customers with online marketing ads. MESIA is a
fully operational business unit and can be reached at http://www.mesia.com.
MESIA continues to seek additional clients, partners, and customers. In
addition, the Company is prepared to market this operating unit to interested
acquisition companies who might value purchasing this operating unit and/or
assets.
e-Media Publishing, Inc. e-Media is where the business unit where the "HOWL"
newsletter software, publishing tools, database access tools, HTML development
reside. E-Media includes all aspects of the "HOWL" online publishing system as
well as the "HOWL" "opt-in" database of subscribers of more than 500,000
recipients. E-Media is a fully operational business unit and can be reached at
howl.searchhound.com. E-Media continues to seek additional clients, partners,
and advertisers. New subscribers continue to enroll everyday. Options to
unsubscribe are available and specific privacy policies are in place and
strictly adhered to. In addition, the Company is prepared to market this
operating unit to interested acquisition companies who might value purchasing
this operating unit and/or assets.
SpeakGlobally, Inc. ("SG") SG is the web development, graphic design, data base
management business located in St Petersburg, Russia. In addition, SG provides a
full service outsource for language translation. The office, located in St.
Petersburg, Russia maintains eight full-time staff and are skilled in all
aspects of software development, data design, graphics design, data base
management, and Internet deliverables. SG can be reached at speakglobally.com.
SpeakGlobally is a fully operational business unit with current and ongoing
client agreements. SpeakGlobally continues to seek additional clients, partners,
and customers. In addition, the Company is prepared to market this operating
unit to interested acquisition companies who might value purchasing this
operating unit and/or assets.
Searchound.com 2000 Ltd. Searchound.com represents the original business unit
acquired in the reverse merger in June 2000. Searchound.com is a search engine
based on a keyword bidding methodology for generating revenue. Searchound.com
has been reengineered with new software code, functionality, the
intelligent search capability of real-time, relevant results from the SoloSearch
Technology business. Searchound.com 2000 Ltd. is a fully operational business
unit with current and ongoing operations and revenue streams. Searchound.com
continues to seek additional clients, partners, and customers. In addition, the
Company is prepared to market this operating unit to interested acquisition
companies who might value purchasing this operating unit and/or assets.
SoloSearch Technology, Inc. SoloSearch represents the original business unit
acquired following the reverse merger with Searchound.com 2000 Ltd. SoloSearch
Technology is the intelligent software, which generates an improved and
unmatched search for real-time relevant search results. Refer to Business
Operations in Section 1 for more information. SoloSearch Technology is a fully
developed application, which can be integrated, customized, and installed as a
stand-alone application. SoloSearch Technology continues to seek additional
clients, partners, and customers. In addition, the Company is prepared to market
this operating unit to interested acquisition companies who might value
purchasing this operating unit and/or assets.
Godado.uk.co (Godado). Godado is a United Kingdom based search engine. Godado is
an online search engine that has been totally upgraded and enhanced with the
SoloSearch Technology for real-time relevant searches as well as integrated with
the SearchHound.com "keyword bidding" functionality. Godado can be reached at
http://godado.uk.co. Godado is a fully operational business unit with current
and ongoing operations and revenue streams. Godado continues to seek additional
clients, partners, and customers. In addition, the Company is prepared to market
this operating unit to interested acquisition companies who might value
purchasing this operating unit and/or assets.
Consumer Division. The Company's consumer division is comprised of four (4)
distinctly different yet synergistic consumer focused website businesses. Each
operating unit has a complete business model, website, revenue model, and
operating experience. FreeAirMiles (freeairmiles.com) is a fully functioning
search engine whereby registered users earn travel credits as an incentive for
conducting searches with advertisers who have agreements to pay FreeAirMiles
when customers affect direct links to their respective sites. Utopiad
(utopiad.com) is an online ecommerce site, specializing in integrated
advertising solutions, constructs customized opt-in email campaigns.
FastCashOffers (fastcashoffers.com) and MoneyMessage (moneymessage.com) are
developmental web properties designed to provide services and products to
consumers supported by targeted advertisers.
JobBankUSA and ResumeBroadcaster (JobBank). JobBank represents an investment by
the Company to enter the recruiting business whereby it serves the individual
job seeker, the recruiter who relies on accessing a database of potential
candidates, and employers who desire access a database of candidates. JobBankUSA
can be reached at jobbankusa.com and ResumeBroadcaster at resumebroadcaster.com.
JobBankUSA.com was developed as a lower cost alternative to traditional means of
staffing, recruiting and employee development. All candidates are given access
to tools designed to help put together an effective resume and to mount an
efficient search for a desired position. Employers are guaranteed a more
targeted, less time-consuming search for qualified candidates, thereby saving
the employer time and money. Headquartered in Fernandina Beach, Florida,
JobBankUSA.com has grown to be one of the Internet's largest and best-known
online recruiting site. Since 1995, JobBankUSA.com has provided services to over
5 million job seekers, hiring managers, recruiters and human resource
professionals. ResumeBroadcaster provides a marketing vehicle for job candidates
to deliver their resume to highly targeted lists of employers and recruiters. As
a job candidate, you are able to select from a detailed list of geographical
areas and industry classifications that suit your background and requirements.
Your resume is then delivered to employers via email according to the selections
you have chosen. Employers and recruiters contact you directly according to your
instructions. As an employer, you are able to receive resumes by filling out a
company profile and selecting the geographical areas and industry
classifications in which you wish to receive resumes. Upon submission, you will
begin receiving resumes as they are processed according to your selection
criteria.
The Company purchased 100% of JobBankUSA and ResumeBroadcaster on March 28, 2001
taking an initial 49% position with a condition on valuation and a subsequent
closure to be determined. The Company is considering its position for the
balance of JobBankUSA and ResumeBroadcaster including its interest in the
businesses. The Company is prepared to market this operating unit to interested
acquisition companies who might value purchasing this operating unit and/or
assets.
THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM
10-KSB CONTAIN FORWARD-LOOKING STATEMENTS WHICH MAY INVOLVE RISKS AND
UNCERTAINTIES OR DEAL WITH POTENTIAL FUTURE CIRCUMSTANCES AND DEVELOPMENTS.
THE COMPANY'S ACTUAL RESULTS OR FUTURE EXPERIENCE MAY DIFFER SIGNIFICANTLY
FROM THE RESULTS OR POTENTIAL DEVELOPMENTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. THE COMPANY HAS ATTEMPTED TO IDENTIFY CERTAIN OF THE FACTORS
THAT IT CURRENTLY BELIEVES MAY CAUSE ACTUAL FUTURE EXPERIENCE AND RESULTS TO
DIFFER FROM ITS CURRENT EXPECTATIONS REGARDING THE RELEVANT MATTER OR SUBJECT
AREA. FACTORS THAT MIGHT CAUSE THIS DIFFERENCE INCLUDE, BUT ARE NOT LIMITED
TO, THOSE FACTORS DISCUSSED IN THIS BUSINESS SECTION INCLUDING "ADDITIONAL
RISK FACTORS AFFECTING FUTURE PERFORMANCE" AND "MANAGEMENT'S DISCUSSION AND
ANALYSIS."
ITEM 2. DESCRIPTION OF PROPERTIES
SearchHound rents approximately 1,500 square feet of office space for its
headquarter operations in Kansas City, Missouri. SearchHound intends to relocate
its headquarter staff to remote and/or at home offices and to co-locate its
computer hardware at more cost effective locations in the Kansas City, Missouri
metropolitan area during 2002. Management believes this approach is appropriate,
cost effective and will sustain the anticipated business needs related to
headcount and equipment for the next fiscal year.
ITEM 3. LEGAL PROCEEDINGS
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
generalliability 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 2001, 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 SRHN since its name change on June 6, 2000. Prior
to that date it traded under Pan International Gaming, Inc. as PANE. In
addition, the Common Stock is subject to "penny stock" rules that impose
restrictive sales practice and market making requirements on broker-dealers who
sell and/or make a market in the Common Stock. This may affect the willingness
of broker-dealers to sell and/or make a market in the Common Stock as well as
the ability of shareholders to sell the Common Stock in the secondary market.
The following table sets forth the quarterly high and low bid prices for the
Company's Common Stock during the period of June 6, 2000 through December 31,
2000 and for the year ended December 31, 2001. Quotations set forth below
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
Quarter Year High Low
------- ---- ---- ---
June 2000 1.656 1.281
Jul-Sep 2000 1.50 .30
Oct-Dec 2000 .45 .16
Jan-Mar 2001 .81 .15
Apr-Jun 2001 .75 .16
Jul-Sep 2001 .24 .09
Oct-Dec 2001 .12 .031
As of December 31, 2001 there were approximately 950 holders of record of the
Registrant's common stock.
During the period ended December 31, 2000 and the year ended December 31, 2001;
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.
For the period ended December 31, 2001, the Company issued 8,463,205 shares as
follows:
- 1,700,000 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.
- 2,000,000 shares were issued to the shareholder of JobBank USA, Inc. for
the acquisition of 49% of its common stock as described in Note 5 to the
consolidated financial statements.
- 566,658 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
9 to the consolidated financial statements.
- 2,694,940 shares of common stock registered pursuant to a Form S-8
during the period ended December 31, 2001. During 2001, the Company filed
amendments to its Form S-8 Registration Statement with the Securities and
Exchange Commission wherein it registered an additional 4,500,000 shares of the
Company's common stock for issuance to employees, consultants and Board Members
for services rendered to the Company. The Form S-8, as amended, authorizes the
issuance of a maximum of 6,000,000 shares of common stock as of December 31,
2001, 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.
- 1,291,617 shares of common stock were issued as treasury stock and
serves as collateral for a note payable to a creditor as described in Note 7 to
the consolidated financial statements.
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected consolidated statements of operations data for the year
ended December 31, 2001 and for the period ended December 31, 2000 are derived
from our consolidated financial statements and related notes included elsewhere
in this Form 10-KSB.
Period from
inception
Year ended (April 11, 2000)
December 31, 2001 to December 31,
2000
Revenues $1,103,041 $211,164
Operating expenses:
Cost of services provided 423,234 -
General and administrative 1,425,431 694,221
Sales and marketing 42,129 3,791
Bad debt expense 62,628 -
Depreciation and amortization 4,073,668 1,759,033
Goodwill impairment charge 8,672,493 -
14,699,583 2,457,045
Operating loss (13,596,542) (2,245,881)
Other expense-interest expense (10,083) (5,556)
Other income-interest income 295 -
Equity in earnings of nonconsolidated
subsidiary 5,000 -
Loss before income taxes (13,601,330) (2,251,437)
Income taxes - -
Net loss $(13,601,330) $(2,251,437)
Basic and diluted net loss per share $(0.51) $(0.12)
Basic and diluted weighted average common
shares outstanding 26,532,463 18,122,312
This management's discussion and analysis of financial condition contains
forward-looking statements, the accuracy of which involves risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify forward-
looking statements. This management's discussion and analysis also contains
forward-looking statements attributed to certain third parties relating to their
estimates regarding the growth of the Internet, Internet advertising and online
commerce markets and spending. Readers should not place undue reliance on these
forward-looking statements, which apply only as of the date of this report. Our
actual results could differ materially from those anticipated in these forward-
looking statements for many reasons.
RESULTS OF OPERATIONS
The Company generated $1,103,041 of operating revenues during the year ended
December 31, 2001. The results of operations for the year ending December 31,
2001 reflect an operating loss of $13,601,330. Included in the loss were
$12,746,161 in non-cash depreciation, amortization and goodwill impairment
charges (primarily related to the goodwill resulting from the SoloSearch
acquisition), and $437,855 in non-cash Common Stock issued for services.
Therefore, the cash portion of the year's loss was only $175,430 (as reflected
in the Statement of Cash Flows).
The operating losses were attributable to the Company's core business revenue
sources and business lines being developed late in fiscal 2000 and early 2001
requiring ongoing investment in technology and deployment. The Company did not
have sufficient capital to fully deploy its business lines in 2001, which
resulted in less than expected revenue growth. In addition, revenue growth was
less than expected because the Company acquired 49% of JobBankUSA during 2001
and was not able to finalize the remaining 51% acquisition as of December 31,
2001. As a result, the Company did not consolidate JobBankUSA for 2001 and
instead carried JobBankUSA as an investment under the equity method of
accounting as of December 31, 2001.
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 2,000,000
(subject to adjustment, as defined) unregistered shares of SearchHound common
stock. The number of shares issued in consideration is 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 will not exceed 4,000,000 shares nor be
less than 2,000,000 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.
Currently, the Company and the Seller do 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. Currently, there is uncertainty as to whether the acquisition of
the remaining 51% will occur as scheduled, will occur at all and whether the
Company will retain its 49% interest in JobBank USA, Inc. Accordingly, the
Company has recorded its investment in JobBank USA, Inc. under the equity method
of accounting as of December 31, 2001 as follows:
Acquisition price (2,000,000 shares at $0.63 per share) $1,260,000
Acquisition costs 5,000
Total consideration paid 1,265,000
Amortization of related goodwill (over 5 years) (466,680)
Equity in earnings of JobBank USA, Inc. 5,000
Investment in nonconsolidated subsidiary at December 31, 2001 $803,320
Following is summarized financial information extracted from the JobBank USA,
Inc. unaudited internal financial statements:
(Unaudited)
Revenues for the period from March 31, 2001
to December 31, 2001 $497,000
Total assets as of December 31, 2001 $132,952
Total equity as of December 31, 2001 $44,822
Additional acquisitions completed during 2001 required considerable cash
commitments and management attention. Such revenues were not consistently
sufficient to cover the Company's operating costs. Cash operating costs were
primarily salary and wage related, which is expected to continue.
REVENUE
Revenue for the year ended December 31, 2001 increased to $1,103,041 compared to
$222,164 for the year ended December 31, 2000. The increase was primarily the
result of increased revenue from the SearchHound.com search engine due to
increases in the number of active advertiser accounts. We also had an increase
in revenue from our third-party advertising to our opt-in email lists.
OPERATING EXPENSES
Cost of revenues. Cost of Revenues consists primarily of costs associated with
and Web site domain registration expenses for clients and related refunds.
Cost of revenues increased to $423,234 for the year ended December 31, 2001. The
increase was primarily due to the expansion of the SearchHound.com search
engine, increased costs related to our keyword bidding service, and domain
registration costs for customers of EarlyBirdDomain.com domain registration
service. We anticipate cost of revenues will continue to increase
as our traffic, revenue, number of advertisers, and transactions related to
domain registration and accessing our opt-in email lists increase.
Sales and Marketing. Sales and marketing expenses consist primarily of 1)
payments for a percentage of our revenue from paid click-throughs to our
distribution partners as a commission, 2) advertising expenditures for the
SearchHound.com search engine advertising campaigns and sponsorships, trade
shows and telemarketing and other expenses to attract advertisers to our
services, 3) fees to marketing and public relations firms, and 4) payroll and
related expenses for personnel engaged in marketing, customer service and sales
functions. Almost all of our sales and marketing expenses relate to the
SearchHound.com search engine. Our sales and marketing expense was $42,129 for
the year ended December 31, 2001 compared to $3,791 for the year ended December
31, 2000. The increase in sales and marketing expense was related primarily to
increased amounts paid to distribution partners as a result of increased revenue
derived from our contracts with these partners, along with expanding the number
of marketing, customer service, and sales employees, and non-cash stock
compensation.
General and administrative expenses consist primarily of payroll and related
expenses for executive and administrative personnel; costs related to leasing,
maintaining and operating our facilities; insurance; recruiting fees; ; fees for
professional services, including consulting, legal, and accounting fees;
expenses and fees associated with the reporting and other obligations of a
public company; travel and entertainment costs; depreciation of furniture and
equipment for non-technical employees; non-cash stock compensation expense for
the issuance of stock and stock options to non-employees, and other general
corporate expenses; as well as fees to affiliates which provide office space and
other general and administrative services. Additional costs related to designing
and maintaining our Web sites and providing the SearchHound.com services, fees
paid to outside service providers, credit card processing fees,and fees paid to
telecommunications carriers for Internet connectivity. Costs associated with
maintaining our Web sites include salaries of related personnel,
depreciation of Web site equipment, co-location charges for our Web site
equipment and software license fees. Costs associated with providing the keyword
bidding services and opt-in email lists include salaries of related personnel,
payments to consultants, General and administrative expenses were $1,425,431 for
the year ended December 31, 2001 compared with $694,221 for
the year ended December 31, 2000. The increase in general and administrative
expenses was primarily due to increased professional, investor relations,
increase in non-cash stock compensation expense, and higher legal and accounting
fees partially offset with lower travel and entertainment spending and a
decrease in rent and other office expenses. We expect general and administrative
expenses to remain at this level and could increase in the future as we expand
our staff and incur additional costs related to the growth of our business.
Bad debt expense. Bad Debt expenses were $62,628 for the year ended December 31,
2001 compared with $-0- for the year ended December 31, 2000. The increase was
principally attributable to uncollectible receivables related to the
FreeAirMiles and Mesia acquisitions during 2001.
Depreciation and Amortization and Goodwill Impairment Expense. Depreciation and
Amortization expense recorded for the year ended December 31, 2001 was
$4,073,668 compared with $1,759,033 for the year ended December 31, 2000. The
increase was principally attributable to depreciation of goodwill related to the
acquisition of SoloSearch in June 2000 with 2000 representing a partial year and
a full year in 2001. At December 31, 2001 the Company performed an impairment
review under existing accounting rules, of all its intangible assets (in
particular goodwill) which resulted in an impairment charge to operations of
$8,672,493.
Effective January 1, 2002, the Company must implement the new accounting
standard, which requires a periodic impairment review on its intangible assets
rather than traditional amortization of goodwill. In June 2001, the Financial
Accounting Standards Board issued SFAS No. 141, "Business Combinations" ("SFAS
141"), and SFAS No. 142, "Goodwill And Other Intangible Assets" ("SFAS 142").
SFAS 141 addresses the accounting for acquisitions of businesses and is
effective for acquisitions occurring on or after July 1, 2001. SFAS 142
addresses the method of identifying and measuring goodwill and other intangible
assets acquired in a business combination, eliminates further amortization of
goodwill, and requires periodic evaluations of impairment of goodwill balances.
SFAS 142 is effective for fiscal years beginning after December 15, 2001.
Amortization of goodwill will cease after December 31, 2001 and a new method of
testing goodwill for impairment will be 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 is effective for fiscal years beginning after December 15, 2001. In
management's opinion, due to the substantial amount of goodwill and other
intangible assets the Company carries on its books, the adoption of these
standards will have a significant effect on our financial position and results
of operations. However, our cash flows should not be affected.
NET LOSS
As a result of the factors described above, we incurred a net loss of
$13,601,330 or ($0.51) per basic and diluted share for the year ended December
31, 2001, compared to a net loss of $2,251,437 or ($0.12) per basic and diluted
share for the year ended December 31, 2000.
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 $175,430 for the year ended December 31,
2001. The net cash used was based on a net loss of $13,601,330 which was offset,
primarily by noncash depreciation, amortization and goodwill impairment charges
of $12,746,661, noncash stock issuances in lieu of compensation totaling
$437,855 and a net decrease in operating assets/liabilities of $181,756.Cash
used in operating activities improved by $88,566 when compared to net cash used
in operating activities of $263,996 for 2000.
Net cash used in investing activities totaled $27,009 for the year ended
December 31, 2001. In 2001, the Company completed acquisitions, which required
$11,174 in cash payments primarily for costs of transactions. In addition, we
made capital expenditures for equipment totaling $15,835.
Net cash provided by financing activities totaled $245,916 for the year ended
December 31, 2001. In 2001, the Company completed a private placement of our
common stock with accredited investors. The Company issued 566,658 shares of
common stock for gross cash proceeds of $114,900. We also issued the investors
142,942 warrants to purchase our common stock at exercise prices ranging from
$0.25 to $0.37 per share. In addition, we received financing cash flows from
the issuance of debt $63,539 and cash acquired from acquisitions totaled $81,909
during 2001. Our principal sources of future liquidity will likely be cash
flow from operations because the Company's current low common stock market price
renders it difficult to raise funds through the issuance of common stock and
debt financing will be difficult given the company's current environment for
technology companies.
The Company is engaged in new operations and is attempting to implement its
business plan, which includes rapid growth requiring external sources of equity
or debt funding to meet its current and anticipated obligations. In addition,
the Company has incurred substantial operating losses, a working capital deficit
and is experiencing negative cash flows from operations. Current cash balances
and available credit are insufficient to fund the Company's cash flow needs for
the next year. As a result, there is uncertainty of future equity or debt
funding to fund the Company's upcoming cash flow needs, which raises substantial
doubt about the ability of the Company to continue as a going concern. The
Company has historically raised capital through external equity funding and
related party debt financing however there can be no assurance that such funding
will continue in the future. The Company anticipates that raising additional
working capital through private equity placement initiatives, the sale of
certain businesses/operations and improvements in current operations will enable
the Company to continue in existence for the upcoming year. However, no
assurance can be given that the Company will be successful in raising the
necessary capital to fund its operations in order to pay its obligations as they
become due and that ultimately it will be successful in implementing its
business plan. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
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, 2001 and 2000 and
for the year ended December 31, 2001 and for the period from inception (April
11, 2000) to December 31, 2000.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 16, 2001 SearchHound.com, Inc. dismissed William L. Butcher as its
independent accountants. The reports of William L. Butcher on the financial
statements for the past two fiscal years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. In the connection with its audits for the
two most recent fiscal years and through March 16, 2001, there have been no
disagreements with William L. Butcher on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of William L. Butcher
would have caused them to make reference thereto in their report on the
financial statements for such years. During the two most recent fiscal years and
through December 31, 2001, there have been no reportable events.
The Registrant engaged Clevenger and Haywood CPA, P.C. as its new independent
accountants as of March 16, 2001. During the two most recent fiscal years and
through March 16, 2001, the Registrant has not consulted with Clevenger and
Haywood, CPA, P.C. on any maters and specifically with regard to any items,
which concerned the subject matter of a disagreement or reportable event with
the former auditor.
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,
2001 were as follows:
Name Age Position
---- --- --------
Dave L. Mullikin 47 President, CEO, Director
Brad N. Cohen 31 Executive Vice President,
Secretary, Director
John Flanders 33 Director
Art Fillmore 54 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 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. Under his
guidance, he recruited a management team, successfully 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.
Brad N. Cohen was appointed to the Board of Directors of the Company on July 12,
2000. Mr. Cohen was appointed and placed under employment contract as Executive
Vice President of the Company on September 1, 2000. Mr. Cohen was the Co-founder
of SoloSearch.com, Inc., which was acquired by SearchHound.com, Inc. on July 11,
2000 and acted in a senior management position of SoloSearch.com, Inc. and
assisting in the transition of Searchound.com 2000, Ltd. until his appointment
September 1, 2000.
Mr. Cohen brings a wealth of technology and entrepreneurial experience to his
leadership role with the company and was the co-founder of SoloSearch.com. An
entrepreneur since college, Mr. Cohen has founded and managed more than five
successful technology ventures over the past seven years and has a deep
understanding of the Internet start-up marketplace. In 1998, Cohen co-found
Cohen Capital Technologies (CCT) to invest in innovative Internet technologies
and to create commercial enterprises around these technologies. Under Mr.
Cohen's management, Cohen Capital Technologies founded Neural Technologies, LLC,
a software development company based on the only known Instantaneously Trained
Neural Network Algorithm. This company also developed the artificial
intelligence that powers SearchHound.com's search technology. CCT is currently a
holding company for strategic investments. Prior to CCT, Cohen launched Real
Information Systems (RIS), one of the nation's first web development companies
focused on resort markets in North America. RIS developed several high profile
web sites, including the official web site for Pope John Paul II during his
visit to the U.S. in 1995. In 1995, RIS merged with another company to create
Real Education, one of the first companies to offer online/distance education
programs. As president of the newly merged company, Cohen managed all
software/web development, and business operations.
Real Education, now called eCollege (NASDAQ: ECLG), was an innovator in offering
accredited four-year college degrees, doctoral degrees, master's degrees, and
continuing education for Realtors and dentists over the Internet. While with
Real Education, he acquired and ran Colorado.Net (http://www.colorado.net),
building it into the largest Internet service provider on the Western Slope of
Colorado. He also built CUOnline.edu (http://www.cuonline.edu), the University
of Colorado's portal for all of its online degree programs. Mr. Cohen started
his first company, Trident Industries, while in college. The company
manufactured blank sportswear apparel for the screen-printing and embroidery
industry and worked with contract plants in India, Nepal, Bangladesh and China.
The company was sold to his partner and is still a successfully operating
company based in Kansas City. Mr. Cohen received a BA from the University of
Missouri in Marketing and Political Science.
John C. Flanders, Jr. was elected to the Board effective July 12, 2000. Mr.
Flanders serves as the Chief Executive Officer and Director of Digital Bridge,
Inc. following the acquisition by Digital of 24x7. Mr. Flanders is a recognized
leader in new media technologies. He was formerly President and Chief Executive
Officer of 24x7. Prior to May 31, 2000, Mr. Flanders was the Chief Technology
Officer for GlobalNet Financial.com for over 18 months. Prior to joining
GlobalNet, Mr. Flanders was founder and Chief Executive Officer of a leading,
nationwide developer network, CyberJunction.com Online, Inc. Prior to launching
CyberJunction, he served as Vice President Sales and Marketing at eMergingMedia,
Inc., a San Francisco based interactive agency. He also served in a management
capacity at NETCOM Online Communications Services and THOR24. Before joining the
technology industry, he was President and Chief Operating Officer of Flanders,
Brunetti and Flanders Investment
Management, Inc. Mr. Flanders currently serves on the Boards of Directors of M&A
West, Inc., WiseCapital.com, Inc., and StoreChoice.com, Inc., a convenience-
shopping portal.
Arthur Fillmore, after receiving his B.A. in Political Science with Honors,
1968, and his J.D. in 1975, from University of Missouri in Columbia, was
admitted to practice law in the state of Missouri, the United States District
Court for the Western District of Missouri, and United States Tax Court. Mr.
Fillmore has practiced at such prestigious firms as Craft Fridkin & Rhyne,
Fillmore & Griffin, Perry, Hammill & Fillmore, Condon & Fillmore, and Gage &
Tucker. Mr. Fillmore's current practice focuses on mergers and acquisitions,
corporate and commercial transactions, securities laws, and international trade.
In addition to representing numerous closely held and publicly traded
corporations, he also represents numerous technology companies in the start-up
and growth stages, negotiating capital infusions from investment banking and
venture capital firms.
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, 2001 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, 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
position Year Salary LT/Option Agreement/Stock Bonus
--------- -------- ---------- --------------------------------
Dave Mullikin 2000 $130,325.00 -(a)
President/CEO 2001 $233,910.25 $6,309.95
Brad Cohen 2000 $141,667.00 -(b)
EVP 2001 212,500.00 $4,842.27
(a)- The Registrant has determined to delay its intent to implement a Stock
Option Plan (the "Plan"), but if such a Plan is pursued it must be approved by
the Board and the Shareholders of the Company. The Board has approved the
resolution to implement such a plan. It will still require the approval of the
Shareholders. It was the intention of the Registrant that Mr. Mullikin shall
receive an option to purchase 500,000 shares of Employer common stock at an
exercise price equal to the closing price as of December 31, 2001, which was
$0.1875, which upon shareholder approval will be the date of grant. The Option
was intended to vest in accordance with the following schedule: 125,000 shares
on each of February 28, 2001, September 1, 2001, February 28, 2002 and September
1, 2002 (provided Executive remains employed hereunder).
(b)- The Registrant has determined to delay its intent to implement a Stock
Option Plan (the "Plan"), but if such a Plan is pursued it must be approved by
the Board and the Shareholders of Employer. The Board has approved the company
to implement such a plan. It will still require the approval of the
Shareholders. It was the intention of the Registrant that Mr. Cohen will receive
an option to purchase 500,000 shares of Employer common stock at an exercise
price equal to the closing price as of December 31, 2001, which was $0.1875,
which upon approval of the shareholders will be the date of grant. The Option
was intended to vest in accordance with the following schedule: 125,000 shares
on each of October 31, 2000, April 30, 2002, October 31, 2001 and April 30, 2002
(provided Executive remains employed hereunder).
In addition the Company issued pursuant to authorized and in force employment
agreements, 100,000 shares of Common Stock to Brad Cohen and 100,000 shares of
Common Stock to Dave Mullikin.
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. Board compensation beginning 2002 has
increased to 50,000 Shares (restricted) per quarter.
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). Board compensation beginning 2002 has
increased to 50,000 Shares (restricted) per quarter.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2001, 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 1,070,065 3.49%
Brad N. Cohen -a) 712,991 2.33%
Cohen Capital Technologies 4,850,000 15.84%
John C. Flanders, Jr. 110,000 .36%
Art Fillmore, II 110,000 .36%
Brett Warner 2,000,000 6.53%
Directors/Officers as a group (4) 2,003,056 6.54%
(a- Brad N. Cohen is a 50% beneficial owner of Cohen Capital Technologies
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 4,850,000 shares of restricted common
stock and $300,000 cash. Total consideration paid was $14,699,650 based on the
market price of SearchHound ($2.969 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 is 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 accrue at a
rate equal to the mid-term applicable rate (4.49% as of December 31, 2001). The
Company has pledged 19,366,365 shares of common stock (issued and held in
treasury) as collateral for the payment of these promissory notes.
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
------ -----------
2.1* Stock Purchase Agreement dated January 31, 2001 by and between
SearchHound.com and Godado.UK, Ltd.
2.2* Stock Purchase Agreement dated March 15, 2001 by and between
SearchHound.com and FreeAirMiles, Inc.
2.3* Stock Purchase Agreement dated March 28, 2001 by and between
SearchHound.com and JobBankUSA.com, Inc.
2.4 Stock Purchase Agreement dated June 30, 2001 by and between
SearchHound.com and MoneyMessage, LLC, FastCashOffers.com, LLC, and
EarlyBirdDomain.com, LLC.
2.5 Asset Purchase Agreement dated September 28, 2001 by and between
SearchHound.com and the owners of Mesia.com, Inc.
2.6 Asset Purchase Agreement dated December 20, 2001 by and between
SearchHound.com and the owners of Speak Globally, LLC.
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 Clevenger & Haywood CPA, P.C.
_______________________________________
* Previously filed with the Commission
(2) Audited Financial Statements as of December 31, 2001 and 2000 and for
the year ended December 31, 2001 and for the period from inception
(April 11, 2000) to December 31, 2000.
(b) The Company did not file any Current Reports on Form 8-K during the quarter
ended December 31, 2001.
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2.1* Stock Purchase Agreement dated January 31, 2001 by and between
SearchHound.com and Godado.UK, Ltd.
2.2* Stock Purchase Agreement dated March 15, 2001 by and between
SearchHound.com and FreeAirMiles, Inc.
2.3* Stock Purchase Agreement dated March 28, 2001 by and between
SearchHound.com and JobBankUSA.com, Inc.
2.4 Stock Purchase Agreement dated June 30, 2001 by and between
SearchHound.com and MoneyMessage, LLC, FastCashOffers.com, LLC, and
EarlyBirdDomain.com, LLC.
2.5 Asset Purchase Agreement dated September 28, 2001 by and between
SearchHound.com and the owners of Mesia.com, Inc.
2.6 Asset Purchase Agreement dated December 20, 2001 by and between
SearchHound.com and the owners of Speak Globally, LLC.
3.1* Articles of Incorporation
3.2* By-laws
16.1* Letter on change in certifying accountant
21.1 Subsidiaries of the Registrant
23.1Consent of Clevenger & Haywood CPA, P.C.
_______________________________________
* Previously filed with the Commission
CONSOLIDATED FINANCIAL STATEMENTS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-KSB Report for the year ended December 31, 2001, has been signed
below by the following persons on behalf of the Registrant and in the
capacity and on the date indicated.
April 16, 2002
SEARCHHOUND.COM, INC.
A NEVADA CORPORATION
by
/S/ Dave Mullikin /S/ Dave Mullikin
------------------------------- -----------------------------------
Dave Mullikin Dave Mullikin
Agent on behalf of the Company President, CEO
/S/ Brad Cohen
------------------------------
Brad Cohen
Secretary/Treasurer
EXHIBIT 23
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 April 4,
2002, appearing in this Annual Report on Form 10-KSB of SearchHound.com, Inc.
for the period ended December 31, 2001.
/s/ Clevenger & Haywood CPA, P.C.
------------------------------------
Clevenger & Haywood CPA, P.C.
Parkville, Missouri
CLEVENGER & HAYWOOD CPA, P.C.
164 South Main
Parkville, Missouri 64152
SEARCHHOUND.COM AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2001 AND FOR
THE PERIOD FROM INCEPTION (April 11, 2000)
TO DECEMBER 31, 2000
SEARCHHOUND.com, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001
THE PERIOD FROM INCEPTION (APRIL 11, 2000)
TO DECEMBER 31, 2000
CONTENTS
INDEPENDENT AUDITOR'S REPORT F-2
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, 2001 and for the
Period from inception (April 11, 2000) to
December 31, 2000 F-4
CONSOLIDATED STATEMENT OF STOCHOLDERS' EQUITY
Year ended December 31, 2001 and for the
period from inception (April 11, 2000) to
December 31, 2000 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 2001 and for the
Period from inception (April 11, 2000) to
December 31, 2000 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 2001 and for the
period from inception(April 11, 2000) to
December 31, 2000 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, 2001 and 2000 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 2001 and for the period from inception (April 11,
2000) to December 31, 2000. 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 audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SearchHound.com, Inc. and subsidiaries as of December 31, 2001 and 2000 and the
consolidated results of its operations and cash flows for the year ended
December 31, 2001 and for the period from inception (April 11, 2000) to December
31, 2000 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 16 to
the consolidated financial statements, the company has incurred substantial
operating losses in 2001 and 2000, has a working capital deficit as of December
31, 2001 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 16 to
the consolidated financial statements. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Clevenger and Haywood CPA, P.C.
Parkville, Missouri
April 4, 2002
SEARCHHOUND.com, INC.
and subsidiaries
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS DECEMBER 31,
2001 2000
CURRENT ASSETS:
Cash and cash equivalents $102,163 $58,686
Marketable securities-available for sale - 5,000
Accounts receivable (no reserve for doubtful
accounts considered necessary) 244,233 206,829
Related party receivables 10,183 4,433
Other current assets - 10,819
Total current assets 356,579 285,767
FURNITURE, FIXTURES AND EQUIPMENT, net 171,272 48,224
INTANGIBLE ASSETS, net 3,844,719 15,771,137
INVESTMENT IN NONCONSOLIDATED SUBSIDIARY 803,320 -
OTHER ASSETS, net 794 24,464
TOTAL ASSETS $5,176,684 $16,129,592
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $448,799 $98,078
Deferred income - 140,000
Note payable-related parties 432,053 432,053
Notes payable-current maturities 73,107 -
Other current liabilities 15,545 32,164
Total current liabilities 969,504 702,295
NOTES PAYABLE 3,683 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares
authorized; 30,619,826 and 22,156,621 issued,
respectively 30,620 22,157
Additional paid-in-capital 20,095,890 17,720,531
Accumulated deficit (15,852,767) (2,251,437)
Treasury stock (1,291,617 shares) (1,292) -
Accumulated other comprehensive income (loss) (68,954) (63,954)
Total stockholders' equity 4,203,497 15,427,297
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,176,684 $16,129,592
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.com, INC.
and subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 AND FOR THE
PERIOD FROM INCEPTION (April 11, 2000) TO DECEMBER 31, 2000
Year ended
December 31, 2001 Period from
inception to December 31,
(April 11, 2000) 2000
Revenues $1,103,041 $211,164
Operating expenses:
Cost of services provided 423,234 -
General and administrative 1,425,431 694,221
Sales and marketing 42,129 3,791
Bad debt expense 62,628 -
Depreciation and amortization 4,073,668 1,759,033
Goodwill impairment charge 8,672,493 -
14,699,583 2,457,045
Operating loss (13,596,542) (2,245,881)
Other expense-interest expense (10,083) (5,556)
Other income-interest income 295 -
Equity in earnings of nonconsolidated
subsidiary 5,000 -
Loss before income taxes (13,601,330) (2,251,437)
Income taxes - -
Net loss $(13,601,330) $(2,251,437)
Basic and diluted net loss per share $(0.51) $(0.12)
Basic and diluted weighted average common
shares outstanding 26,532,463 18,122,312
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.com, INC.
and subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2001 AND FOR THE
PERIOD FROM INCEPTION (April 11, 2000) TO DECEMBER 31, 2000
Accumulated Total
Common Additional Other Stockholders
Stock
Paid-in Accumulated Comp. Treasury Comp.
Equity
Shares Amount Capital Deficit Income Stock Income
(Deficit) (Loss)
Initial capital
contributions to
SearchHound.com
2000, Ltd.
13,500,000 $13,500 $2,986,600 $- $- $- $3,000,100
Reverse acquisition,
exchange of
SearchHound.com 2000 Ltd.
Membership interests
(13,500,000)(13,500)(2,986,600) - - - (3,000,100)
Issuance of common stock
to owners of SearchHound.com
2000, Ltd.
13,500,000 13,500 2,986,600 - - - 3,000,100
Outstanding common stock of
Pan International Gaming, Inc.
5,486,703 5,487 (5,487) - - - -
Issuance of common stock
for acquisition of SoloSearch.com, Inc.
4,850,000 4,850 14,394,800 - - - 14,399,650
Issuance of common stock
and warrants in Private Placement,
net of costs
628,619 629 177,555 - - - 178,184
Issuance of common stock
for services rendered
915,299 915 163,839 - - - 164,754
Common shares surrendered
and cancelled
(3,224,000) (3,224) 3,224 - - - -
Marketable securities
valuation adjustment
- - - - (63,954) - (63,954) $(63,954)
Net loss
- - - (2,251,437) - - (2,251,437)(2,251,437)
Total comprehensive
loss
(2,315,391)
Balance,
December 31, 2000
22,156,621 22,157 17,720,531 (2,251,437) (63,954) - 15,427,297
Issuance of common stock
and warrants for investment
and acquisitions
3,700,000 3,700 1,826,075 - - - 1,829,775
Issuance of common stock
and warrants in Private
Placements
566,658 567 114,333 - - - 114,900
Issuance of common
stock for services
rendered
2,904,930 2,904 434,951 - - - 437,855
Issuance of common
stock and held in
treasury
1,291,617 1,292 - - - (1,292) -
Marketable securities
valuation adjustment
(5,000) (5,000) (5,000)
Net loss
- - - (13,601,330) - -(13,601,330)(13,601,330)
Total comprehensive
loss
$(13,606,330)
Balance, December 31, 2001
$30,619,826 $30,620 $20,095,890 $(15,852,767) $(68,954) $(1,292) $4,203,497
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 FOR THE
PERIOD FROM INCEPTION (April 11, 2000) TO DECEMBER 31, 2000
Year ended Period from
December 31, 2001 inception
(April 11, 2000)
to December 31,
2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($13,601,330) ($2,251,437)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,076,168 1,759,033
Goodwill impairment charge 8,672,493 -
Issuance of common stock for 437,855 164,754
services rendered
Provision for bad debts 62,628 -
Equity in earnings of nonconsolidated (5,000) -
subsidiary
Changes in operating assets and liabilities
(exclusive of effects of acquisitions):
Accounts receivable (20,508) (2,373)
Related party receivables (5,750) (4,433)
Other current assets 34,489 (10,819)
Accounts payable 330,144 49,115
Deferred revenue (140,000) -
Other current liabilities (16,619) 32,164
Net cash and cash equivalents used in
operating activities (175,430) (263,996)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of (11,174) (41,729)
cash acquired
Purchases of furniture, fixtures & equipment (15,835) (16,753)
Prepaid license fees - (26,700)
Net cash and cash equivalents used in
investing activities (27,009) (85,182)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial capital contribution - 100
Proceeds from private placement of common stock 114,900 191,500
Proceeds from notes payable-related parties - 30,000
Proceeds from notes payable 63,539 -
Payments on notes payable (14,432) -
Cash acquired in acquisitions 81,909 199,580
Transaction costs related to issuance - (13,316)
of common stock
Net cash and cash equivalents provided by
financing activities 245,916 407,864
Net increase in cash and cash equivalents 43,477 58,686
Cash and cash equivalents at beginning of period 58,686 -
Cash and cash equivalents at end of period $102,163 $58,686
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $2,918 $95
Income taxes $ - $ -
Non-cash investing and financing activities:
Unrealized loss on marketable equity $5,000 $63,954
securities
Issuance of common and held in treasury $1,292 $ -
Stock issued in Reverse acquisition $ - $5,486
Return/cancellation of stock $ - $3,224
Stock issued in acquisitions and $1,829,775 $14,399,650
investments
Note payable-related party issued in $ - $300,000
acquisitions
Stock issued in formation of $ - $3,000,000
SearchHound.com 2000, Ltd.
The accompanying notes are an integral part of these financial statements.
SEARCHHOUND.com, INC.
and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2001 AND FOR THE PERIOD FROM INCEPTION (APRIL 11, 2000)
TO DECEMBER 31, 2000
1. Organization and Basis of Accounting
SearchHound.com 2000, Ltd was a Nevada corporation formed on April 11, 2000,
which 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. Since this transaction is in
substance, a recapitalization of SearchHound.com 2000, Ltd. and not a business
combination, pro forma information is not presented.
As part of the Reverse Acquisition, the SearchHound.com 2000, Ltd. equity
interests were converted into 13,500,000 shares of Pan International's common
stock. Immediately prior to the Reverse Acquisition, there were 5,486,703
shares of Pan International common stock issued and outstanding.
SearchHound.com 2000, Ltd. was formed on April 11, 2000 to effect the purchase
of the intellectual property and website assets representing the SearchHound.com
backbone architecture. The shareholders of SearchHound.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 13,500,000 shares of stock. The
assets acquired in this transaction have been recorded as intangible assets in
the balance sheet at cost and are being amortized over their estimated useful
economic life of 5 years.
2. Significant accounting policies
Operations
SearchHound has its principal offices located in Kansas City, Missouri and is an
internet property that provides a content filtering search engine for the
internet under the tradename SearchHound.com. SearchHound has developed an
integrated site with a keyword-bidding feature for sponsored search results that
are ranked by relevance. In addition, the Company's subsidiaries provide other
website and related services that provide a variety of internet services to the
public.
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.
The Company holds a 49% interest in JobBank USA, Inc. as of December 31, 2001,
which for financial accounting reporting purposes it carries on the equity
method because it does not control JobBank USA, Inc.'s operations or its assets.
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.
At December 31, 2001 and 2000, the Company held Globalnet Financial.com, Inc.
common stock as its only marketable security and recorded unrealized losses of
$63,954 in the period ended December 31, 2000 and $5,000 in 2001 relative to
this security.
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 betterments are
capitalized.
Intangible 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 as described in Note 1 to the Consolidated
Financial Statements. These assets include the intellectual property and
related technology acquired as well as amounts representing goodwill, all of
which is amortized over an estimated useful life of 5 years.
Total amortization expense related to intangible assets was $4,051,443 and
$1,754,848 for the periods ended December 31, 2001 and 2000, respectively.
Impairment of Long-lived Assets
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.
The Company has determined that as of December 31, 2001, there has been an
impairment in the carrying value of long-lived assets (primarily goodwill
related to the acquisition of SoloSearch-See Note 3) and has reduced the
carrying value of its intangible assets to estimated fair value which resulted
in a charge off aggregating $8,672,493 during the year ended December 31, 2001
(See Note 12).
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" ("SFAS 141"), and SFAS No. 142, "Goodwill And Other
Intangible Assets" ("SFAS 142"). SFAS 141 addresses the accounting for
acquisitions of businesses and is effective for acquisitions occurring on or
after July 1, 2001. SFAS 142 addresses the method of identifying and measuring
goodwill and other intangible assets acquired in a business combination,
eliminates further amortization of goodwill, and requires periodic evaluations
of impairment of goodwill balances. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. Amortization of goodwill will cease after
December 31, 2001 and a new method of testing goodwill for impairment will be
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 is effective for fiscal years beginning after December 15, 2001.
In management's opinion, due to the substantial amount of goodwill and other
intangible assets the Company carries on its books and the related amortization,
the adoption of these standards will have a significant effect on our financial
position and results of operations. However, our cash flows should not be
affected.
Deferred Revenue
Deferred revenue is primarily comprised of billings in excess of recognized
revenue relating to advertising contracts and payments received pursuant to
sponsorship advertising contracts in advance of revenue recognition.
Product Development
Product development costs consist primarily of payroll and related expenses
incurred for enhancements to and maintenance of the Company's search engine and
related Web site.
The Company utilizes Statement of Position 98-1 ("SOP 98-1") "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." In
accordance with SOP 98-1, the Company capitalizes certain internal use software
and Website development costs. The estimated useful life of costs capitalized
is evaluated for each specific project for amortization purposes. The Company
has not capitalized any such costs during the periods ended December 31, 2001
and 2000.
Advertising Costs
Advertising production costs are recorded as expense the first time an
advertisement appears. All other advertising costs are expensed as incurred.
Advertising expense totaled approximately $37,582 and $3,791 for the periods
ended December 31, 2001 and 2000, respectively.
Revenue Recognition
The Company's revenues are derived principally from the sale of keyword
advertising, affiliate partnerships, special product offerings and HOWL!
Advertisements.
Keyword advertising enables the advertisers to determine their placement within
the SearchHound.com search results by placing a bid (the price they pay when a
user clicks through to their site) for each keyword search term they select.
The amount of the bid determines the placement of the advertiser's site within
the search listings. To establish an account, the advertisers must place a
deposit to "pre-pay" for the clickthroughs they will receive from the bidded
search listings. Revenue is recognized to the extent of direct setup costs when
the account is established and the remainder as the clickthroughs occur.
Affiliate partnerships represent alliances with third-party internet providers
of products and service. SearchHound.com enters into "reselling" agreements
with these partners that provide for mutually agreed upon revenue sharing of
sales generated. Revenue is recognized at the time the sale is generated.
Special product offerings represent direct email marketing arrangements with
customers (primarily Webmasters), which provides for the Company to receive a
specified rate (generally cost per thousand) each time a customer's email
advertisement is delivered to the Company's opt-in database of Webmasters.
Revenue is recognized at the time the service is performed under the term of the
contractual agreement with the advertiser or agency.
The Company sponsors a twice-weekly email newsletter with the trade name
"HOWL!". The Company provides banner advertisement (or text ads) to its
advertisers in the HOWL! under contractual agreements based on a rate for the
number of "impressions" (number of customer's to which the banner advertisement
is made visible) or based on a specified cost-per-click. Revenue is recognized
as the service is performed (when the banner advertisement is displayed or the
clickthrough occurs).
Other revenues include advertising services provided under the contractual
agreement for traditional banner and sponsorship advertisements. Advertising
revenues on both banner and sponsorship contracts are recognized as
"impressions", or times that an advertisement appears in pages viewed by users
of the Company's online properties, are delivered. Furthermore, advertising
revenue is recognized provided that no significant Company obligations remain at
the end of a period and collection of the resulting receivable is probable.
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.
Pan International represents the current and historical income tax reporting
entity as a result of the reverse acquisition (Note 1) and has not filed certain
required historical tax returns. It is anticipated that when the tax returns
are filed, the company will have significant net operating loss carryforwards.
Management estimates that the net operating loss carryforward available to the
Company at December 31, 2001 exceeds $4.6 million. Approximately $1.55 million
of these carryforward losses will 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 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, 2001
and 2000 due to the Company's operating losses and uncertain future operating
results. It is the Companies intent to file all required historical tax returns
and remain current on a going forward basis.
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).
The effect of the recapitalization on the SearchHound.com 2000, Ltd.
stockholders has been given retroactive application in the earnings per share
calculation. The common shares returned and cancelled have been treated as
occurring at the date such shares were originally issued. The common stock
issued and outstanding with respect to the pre-merger Pan International
shareholders has been included since the effective date of the merger.
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 year ended December 31, 2001 and for the period from
inception (April 11, 2000) to December 31, 2000.
Concentrations and Fair Value of Financial Instruments
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash investments and marketable securities.
At December 31, 2001 and 2000, the Company's cash investments are held at
primarily one financial institution. In addition, the Company's marketable
securities consist primarily of an investment in common stock of an unrelated
company and are stated at market value. 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.
3. SoloSearch Acquisition
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 4,850,000 shares of restricted common
stock and $300,000 cash. Total consideration paid was $14,699,650 based on the
market price of SearchHound ($2.969 closing price on May 3, 2000) and the
$300,000 cash consideration. The shareholders are restricted from selling or
transferring such shares for the period of time specified by Regulation 144a
(generally a twelve to twenty-four-month period). Subsequent to the
transaction, Solosearch became a wholly-owned subsidiary of SearchHound.
The foregoing transaction resulted in the issuance of 20.3% of the issued and
outstanding shares of SearchHound to the former owners of SoloSearch. The
amount of consideration paid and received was negotiated by the parties to the
Stock Purchase Agreement and may have no relationship to commercial, economic or
fair market value of any tangible or intangible assets. Founded in 1999, Kansas
City-based SoloSearch.com is an intelligent Internet search and content
management tool.
The purchase price approximated $14,699,650 (exclusive of acquisition costs of
$41,729), which consisted of 4,850,000 shares of SearchHound restricted common
stock valued at $2.969 per share (closing price of SearchHound on May 3, 2000).
The acquisition has been recorded under the purchase method of accounting.
Accordingly, assets and liabilities were recorded at their fair values as of
July 11, 2000, and operations of SoloSearch have been included in the Company's
consolidated statements of operations commencing July 11, 2000.
An allocation of the purchase price to the fair value of the assets acquired and
liabilities assumed is as follows:
Purchase price:
SearchHound common stock issued $ 14,399,650
Cash consideration paid (to be paid Note 7) 300,000
Acquisition costs 41,729
Total purchase price $14,741,379
Allocation of purchase price:
Fair value of tangible assets and liabilities:
Cash acquired $199,580
Marketable securities 68,953
Accounts receivable 204,456
Fixed assets 35,656
Other assets 264
Accounts payable (48,962)
Notes payable-related party (102,053)
Deferred revenue (140,000)
----------
217,894
Intangible assets acquired 14,523,485
--------------
$14,741,379
The following unaudited pro forma financial information has been prepared
assuming that the acquisition of SoloSearch had taken place at the beginning of
the period presented (April 11, 2000). The pro forma information is not
necessarily indicative of the combined results that would have occurred had the
acquisition taken place at the beginning of the period, nor is it necessarily
indicative of the results that may occur in the future.
Period from inception
(April 11, 2000) to
December 31, 2000
(unaudited)
Revenue $276,202
Net loss $(3,086,616)
Basic and diluted net loss per share $ (0.16)
During 2001, Management reviewed the carrying value of the long-term assets
acquired in the SoloSearch acquisition (principally goodwill) and determined
that it was impaired which resulted in an impairment charge approximating
$8,672,000(Refer to Note 12).
4. 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 250,000 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
1,235,000 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
150,000 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 $0.21
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 350,000 unregistered shares of
SearchHound common stock at a price of $0.15 per share and a term of two years,
2) 115,000 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, Utiopad.com and
PortofOne.com.
On December 20, 2001, SearchHound acquired substantially all assets (exclusive
of cash and fixed assets) of Speak Globally, LLC for total consideration
consisting of the following: 1) a warrant to purchase 100,000 unregistered
shares of SearchHound common stock at a price of $0.04 per share and a term of
two years, 2) 100,000 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 have been 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 (1,700,000 shares at
market value on date of issuance) $ 502,775
SearchHound common stock purchase warrants issued
(600,000 shares at estimated fair value on
date of issuance) 67,000
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, 2001, 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.
5. 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 2,000,000
(subject to adjustment, as defined) unregistered shares of SearchHound common
stock. The number of shares issued in consideration is 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 will not exceed 4,000,000 shares nor be
less than 2,000,000 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.
Currently, the Company and the Seller do 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. Currently, there is uncertainty as to whether the acquisition of
the remaining 51% will occur as scheduled, will occur at all and whether the
Company will retain its 49% interest in JobBank USA, Inc. Accordingly, the
Company has recorded its investment in JobBank USA, Inc. under the equity method
of accounting as of December 31, 2001 as follows:
Acquisition price (2,000,000 shares at $0.63 per share) $1,260,000
Acquisition costs 5,000
Total consideration paid 1,265,000
Amortization of related goodwill (over 5 years) (466,680)
Equity in earnings of JobBank USA, Inc. 5,000
Investment in nonconsolidated subsidiary at December 31, 2001 $803,320
Following is summarized financial information extracted from the JobBank USA,
Inc. unaudited internal financial statements:
(Unaudited)
Revenues for the period from
March 31, 001 to December 31, 2001
$497,000
Net income for the period from
March 31, 2001 to December 31, 2001
$ 10,000
Total assets as of December 31, 2001 $132,952
Total equity as of December 31, 2001 $ 44,822
6. Furniture.
Furniture, fixtures and equipment
consists of the following:
December 31,
2001 2000
Computer equipment and software $165,912 $38,332
Furniture and fixtures 30,083 9,890
Leasehold improvements 4,187 4,187
--------- -------
200,182 52,409
Less accumulated depreciation and amortization (28,910) (4,185)
$171,272 $48,224
7. Notes payable
December 31,
Notes payable-related party: 2001 2000
Note payable $ 30,000 $30,000
Consideration due related to
SoloSearch acquisition
300,000 300,000
Note payable 102,053 102,053
--------- ---------
Total notes payable-related party $ 432,053 $ 432,053
Notes payable
Note payable-trade creditor $ 63,539 $ -
Note payable-equipment vendor 13,251 -
76,790
Less current maturities (73,107) -
Notes payable (long-term due in 2003) $ 3,683 $ -
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.
Amounts due to related party in the amount of $300,000 as of December 31, 2001
and 2000 represents payments due to the previous owners of SoloSearch relating
to the cash consideration portion of the acquisition of SoloSearch (see Note 3).
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 operations or new capital is raised.
The $102,053 note payable is secured by substantially all assets of the Company,
bears a variable interest rate equivalent to prime (6.5% and 8.5% at December
31, 2001 and 2000, respectively) and is due on demand. This note was assumed as
part of the SoloSearch acquisition (Note 3).
The note payable-trade creditor bears interest at a variable rate equivalent
mid-term applicable Federal rate (4.49% at December 31, 2001), and is due on
demand. The Company issued 1,291,617 shares of restricted common stock as
collateral for the note, which are held in treasury at December 31, 2001.
The note payable-equipment vendor bears interest at 15.9% and is due June 2003.
The computer equipment acquired with the financing agreement serves as
collateral for the obligation.
All of the notes payable-related party become due within the next year.
8. Stockholders' equity
Common stock issuances
For the year ended December 31, 2001, the Company issued 8,463,205 shares of its
common stock as follows:
- 1,700,000 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.
- 2,000,000 shares were issued to the shareholder of JobBank USA, Inc. for
the acquisition of 49% of its common stock as described in Note 5 to the
consolidated financial statements.
- 566,658 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
9 to the consolidated financial statements.
- 2,694,940 shares of common stock registered pursuant to a Form S-8
during the period ended December 31, 2001. During 2001, the Company filed
amendments to its Form S-8 Registration Statement with the Securities and
Exchange Commission wherein it registered an additional 4,500,000 shares of the
Company's common stock for issuance to employees, consultants and Board Members
for services rendered to the Company. The Form S-8, as amended, authorizes the
issuance of a maximum of 6,000,000 shares of common stock as of December 31,
2001, 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.
- 1,291,617 shares of common stock were issued as treasury stock and
serves as collateral for a note payable to a creditor as described in Note 7 to
the consolidated financial statements.
For the period ended December 31, 2000, the Company issued 25,380,621 shares of
its common stock as follows:
- 13,500,000 unregistered shares were issued to former shareholders of
SearchHound.com 2000 Ltd. In connection with the reverse acquisition dated June
1, 2000 as described in Note 1 to the consolidated financial statements. In
addition, as of the date of the reverse acquisition there were 5,484,330 shares
of Pan International common shares outstanding which remain outstanding at
December 31, 2000.
- 5,486,703 shares were outstanding as of the merger date (June 1, 2000)
with Pan International as described in Note 1 to the consolidated financial
statements.
- 4,850,000 unregistered shares were issued to the shareholders of
SoloSearch on July 11, 2000 as described in Note 3 to the consolidated financial
statements
- 628,619 unregistered shares were issued pursuant to a Private Placement
memorandum during the period ended December 31, 2000. Such common shares were
issued for cash consideration. Certain of the purchasers also received
detachable common stock purchase warrants as further described in Note 9 to the
consolidated financial statements.
- 915,299 shares of common stock registered pursuant to a Form S-8 during
the period ended December 31, 2000. On December 21, 2000, the Company filed a
Form S-8 Registration Statement with the Securities and Exchange Commission
wherein it registered 1,500,000 shares of the Company's 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.
In connection with this plan, on December 18, 2000 the Board of directors
authorized the grant of 200,000 common shares to members of the Company's Board
of Directors pursuant to its Board Directors Compensation package and 515,299
common shares to certain employees and consultants for services rendered to
date. In addition, an aggregate of 200,000 shares were issued to two officers
and directors of the company in accordance with their respective employment
agreements. For financial accounting and reporting purposes, the Company has
recorded compensation expense (general and administrative expense) based on the
trading price of the Company's common stock on the date of grant (December 18,
2000) or an aggregate of $164,754 ($0.18 per share).
During the period ended December 31, 2000 the Company recorded the return and
cancellation of 3,224,000 shares from a shareholder of the Company. The shares
were returned/cancelled to settle a contractual dispute regarding the
shareholder's inability to raise required capital and other requirements
contained in the Reverse Acquisition agreement. The shareholder has committed to
return a total of 5,000,000 shares for which the Company would acknowledge and
agree to the repayment of approximately $300,000 in capital the shareholder
previously raised. As a result of the shareholder's failure to return the
balance of 1,876,000 shares, the Company has withdrawn its offer to repay the
$300,000. The Company has recorded the return/cancellation of stock at the
consideration given which is the share's par value.
9. Common stock purchase warrants
During the periods ended December 31, 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, 2001. The following table summarizes activity about all of the
Company's warrants outstanding at December 31, 2001:
Warrant Expiration Outstanding Issued Exercised Expired Outstanding
exercise date December 31, December 31
price 2000 2001
$0.59 August 2003 16,863 - - - 16,863
$0.53 September 2003 9,434 - - - 9,434
$0.55 August 2003 27,272 - - - 27,272
$0.48 September 2003 41,668 - - - 41,668
$0.30 September 2002 160,000 - - - 160,000
$0.25 March 2004 - 88,888 - - 88,888
$0.37 March 2004 - 54,054 - - 54,054
$0.21 June 2003 - 150,000 - - 150,000
$0.15 September 2003 - 350,000 - - 350,000
$0.04 December 2003 - 100,000 - - 100,000
---------------------------------------------------
255,237 742,942 - - 998,179
10. Income tax provision
The income tax provision for the periods ended December 31, 2001 and 2000
consists of the following:
2001 2000
Current $ - $ -
Deferred - -
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 2000
Federal statutory tax rate (34.0)% (34.0)%
State and local taxes net of Federal tax effect (5.8) (4.0)
Intangible assets amortization 10.1 22.0
Intangible asset charge-off 21.7 -
Valuation allowance on deferred tax asset 8.0 16.0
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 2000
Net operating loss carryforward $1,755,000 $1,468,000
Valuation allowance on net deferred (1,755,000) (1,468,000)
tax asset
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 increased its valuation allowance
on deferred tax assets by $287,000 during 2001.
At December 31, 2001, the Company has estimated net tax operating loss
carryforwards in excess of $4,600,000 available, subject to certain
restrictions, to offset future income tax liabilities, if any. The carryforward
losses expire in the year's 2011 through 2016 and have not been recognized in
the accompanying consolidated financial statements as a result of a valuation of
the total potential tax asset. Approximately $3,070,000 of these carryforwards
were generated by Pan International prior to the reverse acquisition and,
accordingly, are subject to significant restriction pursuant to the Internal
Revenue Code whenever a more than 50% change in ownership has occurred.
11. Related party transactions
The Company has incurred interest expense aggregating $10,083 and $870 during
the periods ended December 31, 2001 and 2000, respectively, in connection with
obligations to related parties as described in Note 7 to the consolidated
financial statements.
The Company has incurred license fee expense aggregating $-0- and $2,500 during
the periods ended December 31, 2001 and 2000, respectively, in connection with
the Neural Technologies, LLC license agreement as described in Note 13.
12. Goodwill impairment charges
In conjunction with the company's ongoing review of its businesses, certain
assets (including goodwill) are reviewed for impairment pursuant to the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. As a result of this review, a
goodwill impairment charge of $8,672,493 was recorded during 2001, related
primarily to the SoloSearch operations acquired in July 2000. SoloSearch was
acquired for an aggregate of 4,850,000 shares (valued at $2.969 per share at the
acquisition date) of restricted common stock and $300,000 cash. The Company has
not had sufficient working capital necessary to fully deploy the SoloSearch
software and the related revenue has been substantially less than expectations.
In addition, general market conditions have deteriorated for SoloSearch which
has led management to reconsider its overall strategy with respect to
SoloSearch. Management's strategy is to continue deploying the SoloSearch
software on a limited basis while it markets the SoloSearch software for a
possible sale to an outside party. The timing of a sale, if any, is not
reasonably predictable given current market conditions and other technology
factors.
A summary of goodwill as of December 31, 2001 and 2000 follows:
December 31
2001 2000
Goodwill $17,854,324 $17,523,485
Accumulated amortization (5,337,112) (1,752,348)
Goodwill impairment charge (8,672,493) -
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Goodwill, net $3,844,719 $15,771,137
13. Commitments and contingencies
Leases:
The Company has entered into leases for office space, office equipment and
computer equipment all of which expire in 2002. At December 31, 2001, the
Company's office lease required monthly payments of $1,100 through June 30, 2002
at which time it converts to a month-to-month lease subject to a 30-day advance
written termination notice.
Total rent expense for the year ended December 31, 2001 and for the period from
inception (April 11, 2000) to December 31, 2000 was $27,006 and $34,230,
respectively.
Employment agreements:
The Company entered into employment agreements with 2 executives during the
period ended December 31, 2000. The agreements cover initial terms of 12 and 24
months with automatic 12-month renewal periods thereafter. Each of the
agreements are substantially identical and provide for a base salary, customary
benefits, noncompetition covenants, nondisclosure provisions and salary
continuation provisions upon termination without cause (as defined). In
addition, the agreements provided for the issuance of an aggregate of 200,000
shares of common stock upon signing the agreement.
License agreement:
In connection with the acquisition of SoloSearch (Note 3), the Company assumed a
license agreement with Neural Technologies, LLC whereby SoloSearch was allowed
to use certain technology within its search engine. Neural Technologies, LLC is
majority-owned by a related party. The agreement was entered into on December
1, 1999 and has an initial term of seven years with automatic one-year renewals.
Either party can cancel the agreement after the initial term upon at least 60
days written notice. The agreement provides for an initial license fee of
$35,000, payable in monthly installments through January 2001. In addition, an
annual royalty fee equivalent to 1% of gross search engine sales (which utilize
the licensed technology) with a yearly maximum of $50,000 in 2000 and $75,000
thereafter. For financial accounting and reporting purposes, the Company has
capitalized the initial license fee and is amortizing the amount over the seven-
year initial term. The 1% annual royalty is expensed as incurred. License fee
expense during the period from inception (April 11, 2000) to December 31, 2000
aggregated $2,500.
During 2001, the Company exercised its rights to cancel the agreement and
charged off the remaining prepaid license fee of $24,200 net of the related
obligation of the same amount.
Legal matters:
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 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.
14. Segment and geographic information
Based on the criteria established by SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company operates in a number of
principal business-to-consumer (b2c) and business-to-business (b2b) segments
globally.
In accordance with SFAS 131, the Company is required to describe its reportable
segments and provide data that is consistent with the data made available to the
Company's management to assess performance and make decisions. The Company does
not allocate any operating costs separately to its segments as management does
not use this information to measure the performance of the operating segments.
Management reviews revenues generated by each segment and does not believe that
allocating these operating expenses is material in evaluating the segment's
performance.
Summarized information by segment for the year ended December 31, 2001 and for
the period ended December 31, 2000, as excerpted from the internal management
reports, is as follows:
2001 2000
Keyword advertising $665,003 $24,303
Special product offerings 50,126 40,991
Affiliate partnership 387,912 35,622
Website banner advertising -0- 4,992
Solosearch customization -0- 105,256
-----------------------------
$1,103,041 $211,164
Enterprise-wide information is to be provided in accordance with SFAS 131.
Revenue is attributed to individual countries according to the international
online property that generated the revenue. No single foreign country or
geographic area accounted for more than 10% of net revenues for the year ended
December 31, 2001 and for the period ended December 31, 2000.
15. Subsequent events
On January 17, 2002, the Company was notified that it had been awarded an
arbitration ruling, which totaled $123,253 plus post judgment interest at 6.25%.
The binding arbitration ruling was awarded to the Company as a result of
monetary damages it incurred as a result of Globalnet Financial.com's refusal to
honor the demand registration rights related to common stock of Globalnet
Financial.com owned by the Company. The Company must pay certain legal and
administrative costs approximating $65,000 from the proceeds of the award.
Currently, the Company is pursuing the collection of the award and will record
the related income when collection is assured.
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 accrue at a
rate equal to the mid-term applicable rate (4.49% as of December 31, 2001). The
Company has pledged 19,366,365 shares of common stock (issued and held in
treasury) as collateral for the payment of these promissory notes.
16. Going Concern
The Company is engaged in new operations and is attempting to implement its
business plan, which includes rapid growth requiring external sources of equity
or debt funding to meet its current and anticipated obligations. In addition,
the Company has incurred substantial operating losses, a working capital deficit
and is experiencing negative cash flows from operations. Current cash balances
and available credit are insufficient to fund the Company's cash flow needs for
the next year. As a result, there is uncertainty of future equity or debt
funding to fund the Company's upcoming cash flow needs, which raises substantial
doubt about the ability of the Company to continue as a going concern. The
Company has historically raised capital through external equity funding and
related party debt financing however there can be no assurance that such funding
will continue in the future. The Company anticipates that raising additional
working capital through private equity placement initiatives, the sale of
certain businesses/operations and improvements in current operations will enable
the Company to continue in existence for the upcoming year. However, no
assurance can be given that the Company will be successful in raising the
necessary capital to fund its operations in order to pay its obligations as they
become due and that ultimately it will be successful in implementing its
business plan. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
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