UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark one) [X] Annual report under section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31,
1999
[ ] Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934
333-65319
(Commission file number)
THE MURDOCK GROUP CAREER SATISFACTION CORPORATION
(Name of small business issuer in its charter)
UTAH 87-0562244
(State or other jurisdiction of (IRS Employer Classifi-
incorporation or organization) cation Code Number)
736104
(Primary Standard
Industrial ID number)
5295 SOUTH COMMERCE DRIVE, SALT LAKE CITY, UTAH 84107
(Address of principal executive offices)
(801) 268-3232
(Issuer's telephone number)
CLASS A COMMON VOTING SHARES - NOT REGISTERED ON ANY EXCHANGE
(Title of each class - name of exchange on which registered)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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]
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The issuer's revenues for the fiscal year ending December 31, 1998 were
$1,709,055.
As of April 1, 1999, the aggregate market value of the voting common stock of
the registrant held by non-affiliates of the registrant (affiliates for these
purposes being Registrant's directors, executive officers and holders of more
than 5% of Registrant's common stock on such date) computed by reference to the
price at which the common equity was sold, or the average bid and asked price of
such common equity on that date was $8,114,595.
As of April 1, 1999, the issuer had 8,727,141 outstanding shares of class A
common voting shares and -0- outstanding shares of class B common non-voting
shares.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Table of Contents
PART I
Page
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ITEM 1. Description of Business 3
ITEM 2. Description of Property 8
ITEM 3. Legal Proceedings 8
ITEM 4. Submission of Matters to a Vote of Security Holders 9
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters 9
ITEM 6. Management's Discussion and Analysis or Plan of Operation 16
ITEM 7. Financial Statements 18
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 19
ITEM 10. Executive Compensation 20
ITEM 11. Security Ownership of Certain Beneficial Owners
and Management 20
ITEM 12. Certain Relationships and Related Transactions 21
ITEM 13. Exhibits and Reports on Form 8-K 22
SIGNATURES
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Part I
Forward-Looking Statements
This Form 10-KSB contains forward-looking statements within the meaning of that
term in the Private Securities Litigation Reform Act of 1995 (Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
Additional written or oral forward-looking statements may be made by the Company
from time to time, in filings with the Securities and Exchange Commission or
otherwise. Statements contained herein that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions
referenced above.
Forward-looking statements may include, but are not limited to, projections of
revenue, income or loss and capital expenditures, statements regarding future
operations, financing needs, compliance with financial covenants in loan
agreements, plans for acquisition or sale of assets or businesses and
consolidation of operations of newly acquired businesses, and plans relating to
products or services of the Company, assessments of materiality, predictions of
future events and the effects of pending and possible litigation, as well as
assumptions relating to the foregoing.
In addition, when used in this discussion, the words "anticipates," "believes,"
"estimates," "expects," "intends," plans" and variations thereof and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified based on current expectations.
Consequently, future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward-looking
statements contained in this Annual Report on Form 10-KSB.
Statements in this Annual Report, particularly in "Item 1. Business," "Item 3.
Legal Proceedings," the Notes to Consolidated Financial Statements and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe certain factors, among others, that could contribute to or
cause such differences.
Other factors that could contribute to or cause such differences include, but
are not limited to, unanticipated developments in any one or more of the
following areas: the rate and consumer acceptance of new product introductions,
competition, the number and nature of customers, pricing, borrowing costs,
pending or threatened litigation, the availability of key personnel and other
risks factors which may be detailed from time to time in the Company's
Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of unexpected
events.
Item 1. Description of Business
We are a career training company that helps people change their lives by
teaching them how to do what they love for a living.
In our branch offices, we provide The Murdock Group (TMG) Job Search System to
train clients how to make wise career choices and find a great job. The core
purpose is to help individuals achieve tangible improvement in their work
situations by choosing the right career and finding employment quickly in that
field.
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Our Internet site is designed to be the hub of job search activity, the place
where an employee finds all of the information and resources necessary to carry
out a successful job search online. We also provide coaching and other job
search assistance for a fee.
At a cost of $37,904 in 1996, $556,854 in 1997, and $883,967 for 1998, we have
conducted extensive research and development, and field-tested multiple products
to develop a sales and delivery system that is duplicable on a national level.
Products
1. TMG Job Search System
The TMG Job Search System accounts for nearly all of our revenue. It sells for
$2,995 - $3,495 and can be financed over 2 years. It includes a full-service job
search training, career advancement, and motivation system taught in small
groups.
The package also includes access to a fully staffed resource center containing
job leads, computer workstations, publications, and other job search tools. The
Job Search system includes the following features:
o 30 days of access to Career Insight Sessions which enable clients to
learn and practice key aspects of the system including networking,
interviewing, and negotiating.
o 4 months of access to our extensive Resource Center, which includes
on-call specialists to assist clients with job search advice, job
postings, contact databases, business databases, training center, and job
search publications, a computer center for on-line research, database
access, and job search document creation, and a phone/fax center.
o 4 months of access to coaching from our job search professionals who
provide personalized attention to each client's specific needs.
We invite clients and their spouses or partners to attend an orientation meeting
that provides an overview of the TMG Job Search System. Clients are also
introduced to the Resource Center and its databases, Internet recruiter lists,
job postings board, and career library.
We explain to clients that their efforts will directly impact the success of
their search, and require them to dedicate productive time each week to their
program.
The Career Insight Sessions noted above are small seminars consisting of 5-12
participants which cover the following topics:
o Launch (2 hours). Provides an introduction to career management and an
overview of the entire Job Search System, which will form the foundation
of the client's job search.
o Defining the Target (4 hours). Helps clients clarify their career
objectives.
o Creating a Powerful Resume (4 hours). Produces resumes and provides
techniques for getting results.
o Making the Right Connections (4 hours). Enables clients to access the
unadvertised job market by connecting with decision makers.
o Direct Contacting (4 hours). Teaches clients how to target and directly
contact employers.
o Interviews that Get Job Offers (4 hours). Improves the client's ability
to convert interviews into job offers.
o Negotiating a Better Job Offer (4 hours). Hones a client's ability to
negotiate better terms in a job offer.
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2. CareerIdeal Product
The CareerIdeal product sells for $129. This "counselor in a box" contains four
audio tapes and two workbooks designed for people who (i) will be making a
career change within the next year, (ii) are not content with what they are
doing now, or (iii) want to ensure that their next career change is the right
one.
It targets customers who typically have been working in the same position for
several years, and now feel stuck in a job, a company, or a career that is not
fulfilling. These individuals often cannot afford to start over in their
careers, and wonder if they are qualified to do anything else. The CareerIdeal
program also helps people just entering the workforce and seeking direction.
The CareerIdeal program contains a variety of tests, exercises, and assessments
which help users understand their career options and plan specific, tangible
career change. Activities include the following:
o Diagnosing career situations, concerns, needs, expectations, goals, and
objectives.
o Assessing qualifications: education, experience, strengths, weaknesses,
skills, interests, financial requirements, geographical preferences, and
overall marketability.
o Determining long-term career direction.
o Determining short-term job market positioning, job functions, level of
income, responsibility and authority; and target industries.
o Developing a career mission statement that incorporates long-term
direction and short-term job market positioning.
o Understanding salary data and job availability.
3. Outplacement services
We offer full and partial outplacement services to companies who lay off
employees and wish to help employees find new jobs as quickly as possible.
Outplaced employees are provided with selected training and resources from the
TMG Job Search system. We quote prices based upon the number of employees
serviced and the type of services to be performed.
4. Internet Products
Our Internet marketing approach has four parts:
o We have built a portal site with links to millions of free job postings,
career information, corporate job posting site links, career site
reviews, chat rooms, expert articles, resume templates, career bookstore,
personalized career search pages, etc. We are the information guide to
sites that normally compete with each other for corporate business, and
therefore are not easily referenced from each other, except through a
portal web site like ours. Our web site is designed to be the hub of job
search activity where an employee finds all of the information and
resources necessary to carry out a successful job search online.
o We are utilizing a portion of our existing $700,000 a year ad budget to
bring employees to our online site for job search assistance.
o We generate revenue by selling the employees coming to our web site,
training, coaching, and career products online.
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o We expect the volume of hits to our web site allows us to sell
advertising space on the site to generate additional revenue. Employees
use our site as the starting point and the regrouping point for all of
their job search activities, and so the online job seeker views our site
many times in a single web browsing session.
Marketing
We believe that the market for career-related services will continue to grow as
job insecurity and changes in the employment market compel individuals to take
control of their own careers. We believe that the desire of individuals to seek
satisfaction in their employment has created a significant market for the types
of products and services we provide.
Target customers
The target customers for Career Satisfaction products are individual
employees-whether they are currently working for themselves or others, preparing
to work, or searching for work. Our typical customer works full time and has
some college or professional training. Usually, customers have at least 5 years
of experience in the work force and are not top executives in an organization.
Advertising
We attract clients through a variety of advertising methods. Approximately 25%
of individuals who come to the office for a sales appointment purchase the
service.
o Radio. We use 60-second radio spots to advertise our services.
o Newspaper. We advertise in the classified section of the local newspapers
weekly.
o Referrals from Satisfied Job Seekers. Our current customers are one of
our best referral sources. As we acquire more customers, we increase our
potential for profitability.
o Direct mail. We have experimented with direct mail for the Career
Satisfaction products in the Salt Lake City area.
o Internet World Wide Web Site www. murdock.com: We use the web site to
advertise our products and services.
Steps in the sales process
Individuals who respond to our Career Satisfaction advertising are handled as
follows:
o Pre-Qualification of Callers. We interview callers, explain our approach
and fee structure, and set an appointment with a career advisor. Callers
are pre-qualified over the phone to verify that they have a college
degree or marketable work experience.
o Meeting with Career Advisor. The client visits our offices for the
scheduled appointment, and spends an hour with a career advisor. The
advisor explains our services and takes the client on a tour of the
facility to meet various specialists and examine resources such as the
training rooms, job postings board, computerized databases, and career
library. The advisor emphasizes that we are working for the client, not
for any potential employer and that we charge a flat fee. We do not
charge based upon future wages, as do many employment agencies.
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Financing
Clients are given the opportunity to pay a deposit and execute a 2-year
promissory note to the Murdock Group. We perform credit checks on each.
Currently, approximately 80% of our clients execute a note.
Competition
In our view, the job acquisition industry is large and fragmented with some
competitors being successful only in certain niches, and with no company having
acquired dominance in the industry. Many competitors have products and services
that are similar to ours, but we believe that our customers can quickly
distinguish between our products and services and those of our competitors.
We compete primarily with a large number of privately-owned companies. Some of
our competitors have greater financial, marketing, distribution, technical and
other resources than we do. Our two major competitors for career consulting
services are well established nationally. Both were founded by career industry
experts who still run the company:
o Bernard Haldane was founded in 1945 after World War II to assist
returning veterans in the job market. Bernard Haldane primarily services
executives who earn over $100,000 per year, and charges a fee of 8% of
the executive's salary, generally more than twice our fee.
o Cornell Business Associates was founded in the 1980's and also primarily
services executives. It too charges an 8% fee. CBA has sales offices
around the country, but flies customers to a California location for 1-2
days of consulting.
In addition, Robert Half offers staffing, permanent placement, recruiting, and
consulting services. Right Management Consulting is involved in career
development/management and consulting. Provant provides training, career
development, and product sales.
The principal competitive factors in obtaining customers appear to be a strong
sales and marketing program, life-changing and unique principles, competitive
pricing, and good customer service. We believe our strong emphasis on these
factors is an important competitive advantage.
Operations
Employees
As of April 1, 1999, we had 55 full-time employees. Our employees are not
represented by a labor union and are not subject to any collective bargaining
arrangement. We have never experienced a work stoppage and believe that we have
good relations with our employees.
Our headquarters operations, located in the same building as the Salt Lake City
office, employs 21 people. The Salt Lake City office employs 14 people, the
Seattle office employs 13 people, and the Portland office employs 7 people.
Intellectual property and proprietary rights
We rely on a combination of copyright and trademark laws and contractual
provisions to protect our proprietary rights. We have applied for trademark
registration for "The Murdock Group" and "The Murdock Group Career Satisfaction
Corporation." We will continue to evaluate the registration of additional
service marks and trademarks, as appropriate.
Litigation may be necessary to protect our proprietary technology. Litigation
may be time-consuming and costly. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our services or to
obtain and use information that we regard as proprietary.
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In addition, there are few barriers to entry into the market for our services.
It is possible that one or more of our competitors, most of whom have far
greater resources than we do, will independently develop technologies that are
substantially equivalent or superior to ours.
History
We are The Murdock Group Career Satisfaction Corporation, a Utah corporation
organized November 5, 1997, to carry on an existing business concept.
In 1983, Denis Murdock formed a sole proprietorship called "The Murdock Group"
in Virginia to provide job search assistance to senior executives. He moved the
business to Salt Lake City, Utah in 1987. The assets of this business, including
all intellectual property rights, were purchased in June 1996 by Envision Career
Services, L.L.C., a company formed by our founders KC Holmes and Heather Stone.
Envision conducted its operations under the name "The Murdock Group." We
purchased all membership interests of Envision by the issuance of 8,205,800
shares on May 31, 1998, and Envision was dissolved. We have built our business
on three major approaches: d
o Bypassing the competitive top-level corporate executive market and
targeting instead mid-range business professionals with several years of
experience;
o Popularizing career services through broad-based media including radio
and newspaper advertising; and
o Pricing career consulting services affordably, and making financing
available.
Expansion Plans
We plan to open additional offices across the United States. We also plan to
create and market over the Internet a number of products and services related to
the employment industry.
Item 2. Description of Property
We lease class A office space for all our operations, believing that a
professional appearance is important when providing services to professionals.
Our headquarters and Salt Lake City office are located at 5295 So. Commerce
Drive, Suite 400, Salt Lake City, Utah 84107. We occupy 30,000 square feet, for
which we pay $41,000 per month. The lease term expires on roughly 2/3 of this
space in June, 1999. The lease term for the remainder of the space expires in 5
years.
The Seattle office located at 10900 NE 8th Street, Suite 810, Bellevue,
Washington 98004-4405 has 5,700 square feet for which we currently pay $13,000
per month. The lease term expires on September 30, 2003.
The Portland, Oregon, office is located at 10220 SW Greenburg Rd. Suite 250,
Portland, OR 97223. It has 5,852 square feet, for which we pay monthly rent of
$10,728.67 from 1999 to 2002, increasing to $12,016 until the lease expiration
date on January 31, 2004.
Item 3. Legal Proceedings
As of the date of this report there is no litigation pending or threatened
against us.
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Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
Trading Market
There is currently no public trading market for our securities.
Stock Options
Options to acquire our shares are held by five individuals and trusts.
o Martin Collins, a former employee and founder of the Murdock Group, has
an option to acquire 800,000 shares. He may acquire these shares at a
discount of 15% during 1999.
o Reta Fawson, B&S Family Trust, and Argentum Family Trust, none of which
are affiliated with us, purchased our convertible bonds for an aggregate
price of $240,000 in May of 1998. This gave them the option of acquiring
shares at a discount of 15% from the public offering price if our shares
were registered with the SEC, but only during the offering period. During
a 6-month period following the listing of such shares on a public
exchange, these bonds may be converted to shares at a discount of 15%
from the average share trading price during the 30-day period prior to
exercise of the option. During the period from 7 to 18 months after the
listing date, these bonds may be converted to shares at a discount of 10%
similarly calculated.
o Brad Stewart, Chief Financial Officer, has an option to acquire 100,000
shares at $5 per share, vesting at the rate of 25,000 per year for four
years. Brad Stewart is the only employee who has been granted stock
options.
Securities Which Could Be Sold Under Rule 144
As of April 1, 1999, our 8,727,141 outstanding shares were held 76 shareholders.
Of these shares, 762,718 have been held for more than one year (as of April 1,
1999) and could be sold under the terms of Rule 144.
Dividends
We plan to reinvest all profits, if any, in the Murdock Group for a period of at
least 5 years. We will not pay dividends during this period.
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Unregistered Securities
The following table describes all securities we issued during 1998.
Issued To Date No. Shares Securities Act Exemption Relied Upon
Rachel Peterson 1/6/98 2,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
8/31/98 2,500 statements. A filing with the SEC was
Employee made on Form D. No underwriter was
grant involved in this transaction and no sales
commissions were paid. She had access to
information on the company necessary to
make an informed investment decision. The
granted shares were issued to the named
employee as a grant for outstanding
performance. No consideration was paid.
This transaction met all requirements of
Rule 505 of Regulation D; the company has
filed a Form D to reflect reliance on
this rule.
Daryl Guiver 1/7/98 4,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
8/31/98 2,500 statements. A filing with the SEC was
Employee made on Form D. No underwriter was
grant involved in this transaction and no sales
commissions were paid. He had access to
information on the company necessary to
make an informed investment decision. The
granted shares were issued to the named
employee as a grant for outstanding
performance. No consideration was paid.
This transaction met all requirements of
Rule 505 of Regulation D; the company has
filed a Form D to reflect reliance on
this rule.
David Cannon 1/7/98 8,400 These shares were issued to the named
and John F. employee of registrant pursuant to a
Cannon Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Dick Flack 1/7/98 2,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
8/31/98 10,000 statements. A filing with the SEC was
Employee made on Form D. No underwriter was
grant involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. The granted shares were issued
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to the named employee as a grant for
outstanding performance. No consideration
was paid. He is a sophisticated investor
and company executive officer. This
transaction met all requirements of Rule
505 of Regulation D; the company has
filed a
Dominic Ingo 1/7/98 2,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Dominic 1/7/98 2,000 These shares were issued to the named
Militello employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Paul Benincosa 1/7/98 24,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Steve Richter 1/7/98 22,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. He is a sophisticated investor
and company executive officer. This
transaction met all requirements of Rule
505 of Regulation D; the company has
filed a Form D to reflect reliance on
this rule.
Chris Leonard 1/8/98 2,800 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
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with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
8/31/98 10,000 statements. A filing with the SEC was
Employee made on Form D. No underwriter was
grant involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. The granted shares were issued
to the named employee as a grant for
outstanding performance. No consideration
was paid. He is a sophisticated investor
and company executive officer. This
transaction met all requirements of Rule
505 of Regulation D; the company has
filed a F
Bev-Anne Frost 1/12/98 6,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Cameron 1/12/98 2,000 These shares were issued to the named
Jaccard employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the termsof
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employyee receiveda
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved involved in this tranaction and
no sales commissions were paid. The
Employee has access to information on the
Company necessary to make an informed
investment decision. This transaction met
all requirements of Rule 505 of
Regulation D; the company has filed a
Form D to reflect reliance on this rule.
Cameron Lewis 1/12/98 8,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. underwriter was involved
in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Daren Gates 1/12/98 2,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
12
<PAGE>
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Dave Atkinson 1/12/98 2,400 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Marty Lloyd 1/12/98 8,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Mike Burnett 1/12/98 2,800 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Randy Burnham 1/12/98 13,200 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
3/6/98 10,000 the registrant for 1 year at 16%
Emp. grant interest, and received, in addition to a
promissory note, 400 shares for each
8/31/98 5,000 $1,000 loaned. The employee received a
Emp. grant Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. The granted shares were issued
to the named employee as a grant for
outstanding performance. No consideration
was paid. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Rhett Kasparian 1/12/98 2,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
13
<PAGE>
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Scott & Chris- 1/12/98 28,000 These shares were issued to the named
tine Holmes officer of a limited liability company
Grant in affiliated with registrant, and his
connection employee wife, in a transaction exempt
with loan from registration under the Act pursuant
to Regulation D, Rule 506. In this
transaction, the officer loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. This officer is a brother
of the registrant's CEO; he received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
statements. A filing with the SEC was
made on Form D. No underwriter was
involved in this transaction and no sales
commissions were paid. This individual
had access to information on the company
necessary to make an informed investment
decision. This transaction met all
requirements of Rule 505 of Regulation D;
the company has filed a Form D to reflect
reliance on this rule.
Steve Anderson 1/12/98 2,000 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
3/6/98 10,000 statements. A filing with the SEC was
Employee made on Form D. No underwriter was
grant involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. The granted shares were issued
to the named employee as a grant for
outstanding performance. No consideration
was paid. He is a sophisticated investor
and company executive officer. This
transaction met all requirements of Rule
505 of Regulation D; the company has
filed a Form D to reflect reliance on
this rule.
Wade Hyatt 1/12/98 4,400 These shares were issued to the named
employee of registrant pursuant to a
Grant in transaction exempt from registration
connection under the Act under the terms of
with loan Regulation D, Rule 506. In this
transaction, the employee loaned money to
the registrant for 1 year at 16%
interest, and received, in addition to a
promissory note, 400 shares for each
$1,000 loaned. The employee received a
Disclosure Memorandum dated January 2,
1998, which contained audited financial
8/31/98 2,500 statements. A filing with the SEC was
Employee made on Form D. No underwriter was
grant involved in this transaction and no sales
commissions were paid. The Employee had
access to information on the company
necessary to make an informed investment
decision. The granted shares were issued
to the named employee as a grant for
outstanding performance. No consideration
was paid. He is a sophisticated investor
and company executive officer. This
transaction met all requirements of Rule
505 of Regulation D; the company has
filed a Form D to reflect reliance on
this rule.
Serenity Trust 4/3/98 12,500 These shares were issued to a trust as
inducement to make a $100,000 loan made
10/2/98 12,500 to the registrant. The trustee was a
sophisticated businessman and
Grant in sophisticated investor who was given the
conncetion opportunity to meet with all the
14
<PAGE>
with loan registrants officers and examine all
books and records, including audited
financial statements. The registrant
believes this is a transaction exempt
from registration under Section 4(2) of
the Act. No underwriter was involved in
this transaction and no sales commissions
were paid.
Dogbreath Trust 4/3/98 12,500 These shares were issued to a trust as
inducement to make a $100,000 loan made
12,500 to the registrant. The trustee was a
sophisticated businessman and
Grant in sophisticated investor who was given the
connection opportunity to meet with all the
with loan registrants officers and examine all
books and records, including audited
financial statements. The registrant
believes this is a transaction exempt
from registration under Section 4(2) of
the Act. No underwriter was involved in
this transaction and no sales commissions
were paid. He had access to information
on the company necessary to make an
informed investment decision.
Lance Heaton 8/31/98 300,000 These shares were issued to an officer of
registrant for consideration of 1/10 mill
$1.20 per per share. He is a sophisticated
share businessman and sophisticated investor
who was familiar with all books and
records, including audited financial
statements, and is an employee. The
registrant believes this is a transaction
exempt from registration under Section
4(2) of the Act. No underwriter was
involved in this transaction and no sales
commissions were paid. He had access to
information on the company neccessary to
make an informed investment decision. He
is a sophisticated investor and company
executive officer.
Jon Davis 8/31/98 1,000 These shares were issued to the named
Employee employee as a grant for outstanding
grant performance. No consideration was paid.
Dawn Davis 8/31/98 1,000 These shares were issued to the named
Employee employee as a grant for outstanding
grant performance. No consideration was paid.
Chris Kenney 8/31/98 5,000 These shares were issued to the named
Employee employee as a grant for outstanding
grant performance. No consideration was paid.
He is a sophisticated investor and
company executive officer.
Larry Solomon 8/31/98 2,500 These shares were issued to the named
Employee employee as a grant for outstanding
grant performance. No consideration was paid.
Darla Wenger 8/31/98 1,000 These shares were issued to the named
Vendor vendor of services as a grant for
grant outstanding performance. No consideration
was paid.
Robert & Donna 8/31/98 1,000 These shares were issued to the named
Joy Stone Vendor vendor of services as a grant for
grant outstanding performance. No consideration
was paid.
Wayne Ross 9/21/98 375,940 These shares were issued pursuant to a
transaction exempt from registration
$1.20 per under the Act under the terms of
share Regulation D, Rule 506. In this
transaction, an accredited investor paid
$1.33 per share. He has a net worth in
excess of $1 million. He received a
Disclosure Memorandum dated September 21,
1998, which contained audited financial
statements. No underwriter was involved
in this transaction and no sales
commissions were paid. He had access to
informat investment decision.
Brad Stewart 9/23/98 84,000 These shares were issued to an officer of
registrant for no charge at the time he
$1.20 per was hired as CFO. He is a sophisticated
share businessman and sophisticated investor
who was familiar with all books and
records, including audited financial
statements. The registrant believes this
is a transaction exempt from registration
under Section 4(2) of the Act. No
underwriter was involved in this
transaction and no sales commissions were
paid. He had access to information on the
company necessary to make an informed
investment decision. He is a
sophisticated investor and company
executive officer.
15
<PAGE>
Buckeneer 10/2/98 2,500 These shares were issued to a trust as
inducement to make a $100,000 loan made
Grant in to the registrant. The trustee was a
connection sophisticated businessman and
with loan sophisticated investor who was given the
opportunity to meet with all the
registrants officers and examine all
books and records, including audited
financial statements. The registrant
believes this is a transaction exempt
from registration under Section 4(2) of
the Act. No underwriter was involved in
this transaction and no sales commissions
were paid. He had access to information
on the company necessary to make an
informed investment decision.
Item 6. Management's Discussion and Analysis or Plan of Operation
The Murdock Group Career Satisfaction Corporation is a career advancement and
employment consulting company with offices in Salt Lake City, Utah, Seattle,
Washington, and Portland, Oregon.
We target our services to professionals and others with several years of
experience who are seeking to clarify their career direction or their current
job situation.
Our system utilizes job-search training workshops, consultants, and access to a
comprehensive job-search resource center. We also provide full service hiring
assistance to corporations, which includes training and outplacement.
We have incurred significant losses to date developing our proprietary
job-search technology into a training system that can service a larger volume of
customers than our original one-on-one coaching. We have completed development
of this system and believe that we now have a product that can be marketed
profitably.
In September 1998, we opened our second branch office which is located in
Seattle, Washington. This is our first location outside of headquarters in Salt
Lake City, Utah. In February 1999, we opened our third branch office which is
located in Portland, Oregon. We plan to open other branch offices in 1999.
Additional branches will allow us to allocate administrative costs across
multiple locations, thereby improving the utilization of our infrastructure.
With the completion of our new proprietary job-search technology training system
we anticipate a reduction in cancellation and discounts and improved collection
of receivables.
Subsequent to year-end we were declared effective with our initial public
offering. The initial public offering provides for the sales of 2,500,000 shares
of the Company's common stock, at a price of $5.00 per share. The offer also
provides for the sale of bonds of $3,000,000. The Company has until October 28,
1999, or until the Company terminates the offering, to sell the securities. The
proceeds from the offering will enable the Company to pay off high-interest
debts thereby reducing interest costs. It is unknown what proceeds will actually
be raised in the offering.
Results of Operations
December 31, 1998 compared to December 31, 1997
Net service revenues increased to $1,709,055 for the year ended December 31,
1998, compared to $551,830 for the prior year. The increase in revenues was
primarily a result of enhanced service products from new research and
development efforts, increased marketing through radio and newspaper campaigns,
completion of a new proprietary system that provides for delivery of products
and services in volume, increased name recognition in the market place and the
addition of the new Seattle branch office.
16
<PAGE>
Contract cancellations and discounts increased to $1,143,650 for the year ended
December 31, 1998, compared to $142,263 for the prior year. The cancellations
and discounts were the result of concessions made to customers while pilot
testing and implementing the Murdock Group's new intellectual property.
Cancellations and discounts have decreased related to the Company's new
proprietary job-search training system introduced in 1998. However, the Company
recognized significant cancellations related to its old product during 1998.
Direct cost of services increased to $2,028,404 for the year ended December 31,
1998, compared to $667,402 for the prior year. Gross profit as a percentage of
service revenues improved to a negative 18.7% for the year ended December 31,
1998, compared to a negative 21.0% for the prior year. The improvement in gross
profit as a percentage of sales was primarily a result of increased sales, which
served to reduce per-sale overhead. Gross profit as a percentage of sales was
negatively affected as a result of the large amount of cancellations and
discounts recognized by the Company in 1998. These cancellations and discounts
related to the old product as discussed above.
General and administrative expenses, which include selling expense, increased to
$2,908,854 for the year ended December 31, 1998, compared to $704,566 for the
corresponding period of the prior fiscal year. The increase in general and
administrative expense relates to Company growth and branch expansion. Also,
during 1998, the Company recorded $491,350 in general and administrative expense
for the issuance of 384,000 shares of common stock given to two officers as
incentive. The issuance of these shares and the recording of the related expense
is a non-cash, nonrecurring item and will not have an impact on future
operations.
General and administrative expenses, as a percentage of sales, increased in
1998, compared to 1997 as a result of the large amount of cancellations and
discounts recognized by the Company related to old products and the issuance of
the common stock referred to above. General and administrative expenses should
continue to decrease as a percentage of sales in fiscal 1999 and thereafter as a
result of increased sales.
New products research and development expenses increased to $883,967 for the
year ended December 31, 1998, compared to $556,854 for 1997. The increase in
research and development for 1998, was a result of expenses related to the
development of new intellectual property and training systems that allow the
mainstream professional to access previously elitist job-search concepts and
techniques at an acceptable price. This systematization also enables us to
efficiently service a larger volume of customers with lower costs and greater
effectiveness than a year ago.
Interest expense increased to $1,836,723 for the year ended December 31, 1998,
compared to $248,387 for 1997. The increase in interest expense for 1998 was a
result of higher outstanding debt balances and increased rates on moneys
borrowed than in 1997. See Financial Condition - Liquidity and Capital
resources.
December 31, 1997, compared to December 31, 1996
We began operations August 5, 1996 as a startup and development-stage entity.
Operating results for the five-month period ended December 31, 1996 are not
representative of or comparable to the first full year of operations, which
ended December 31, 1997.
Financial Condition
Liquidity and capital resources
We have suffered recurring losses from operations since our inception in 1996,
and as of December 31, 1998, had an accumulated deficit of $8,444,858. The
17
<PAGE>
accumulated deficit reflects losses associated with the development and startup
of operations and significant costs for research and development for our
propriety job-search technology and training system. This technology will enable
us to effectively service a large volume of customers in each office and provide
a model to expand the operations into s other locations. We have also
experienced losses from interest expense associated with the large amount of
debt the Company carries with high interest rates.
At December 31, 1998, we had a working capital deficit of approximately
$6,200,572. This working capital deficit is a result of our need to fund our
operating losses primarily through short-term borrowings. The interest rates
associated with these short-term borrowings are significantly higher than prime
interest rates.
Subsequent to year-end we were declared effective with our initial public
offering. The initial public offering provides for the sales of 2,500,000 shares
of the Company's common stock, at a price of $5.00 per share. The offer also
provides for the sale of bonds of $3,000,000. The Company has until October 28,
1999, or until the Company terminates the offering, to sell the securities. The
proceeds from the offering will primarily be used to pay off high-interest debts
thereby reducing interest costs. It is unknown what proceeds will actually be
raised in the offering.
If a substantial amount of equity is not raised in the initial public offering,
the Company will be required to continue to pay large amounts of interest and
fund its cash needs from additional borrowings. There is no assurance that the
Company will be able to borrow additional funds.
As contained in the report of our Independent Auditor dated April 22, 1999,
covering the year ended December 31, 1998 and 1997, there is substantial doubt
of The Murdock Group's ability to continue as a going concern.
Capital Expenditures
The Company purchased $411,258 of property and equipment during the year ended
December, 31, 1998, primarily for expanding offices to accommodate growth and
opening a new branch office in Seattle, Washington.
Inflation and year 2000 issues
Inflation has not had and is not expected to have a significant impact on our
operations.
We have evaluated our information technology for Year 2000 issues and do not
anticipate any material disruption in our operations.
Item 7. Financial Statements
Please refer to the Financial Statements included separately herein.
18
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
Directors
KC Thane Holmes, Director, Chief Executive Officer, age 31. Mr. Holmes received
a B.A. degree from Brigham Young University in Psychology with a minor in
Business and Accounting in 1992. Prior to founding Envision Career Services,
L.L.C. and acquiring The Murdock Group in 1996, he served as a technical sales
representative for Provider Solutions, an Elk Ridge, Utah based software
developer from 1995 to 1996, and an account executive and technical engineer for
Ameritech Library Services of Provo, Utah, a creator of custom software for
America's largest libraries, from 1991 to 1995. He is an owner of Open Seas
Trading Company, a marketing business, and a former owner of Classic Coupons, a
Provo-based coupon business.
Heather J. Stone, Director, Chairman of the Board, President, age 30. Ms. Stone
received an M.B.A. from the University of Phoenix with a focus on marketing and
strategic planning in 1992, and a B.A. in English from Brigham Young University
in 1990. She served as Director of Product Management for ViewSoft, Inc., a
Provo-based software firm, from 1994 to 1996, and a Product Line Manager for
Novell, Inc., a networking software firm, for several years. She was a technical
writer for Clyde Digital Systems (RAXCO), an Orem, Utah-based software company,
from 1987 to 1991. She has contributed articles to technical journals and won
several writing awards.
Mr. Holmes and Mrs. Stone are brother and sister. Directors serve for a one year
term.
Executive officers
The backgrounds of our CEO, KC Holmes, and our President, Heather Stone, appear
in "Directors" above. Additional officers serve at the pleasure of the board,
and include the following:
O. Richard Flack, Vice President of Operations, age 54. Prior to joining The
Murdock Group, Mr. Flack received a B.A. in Marketing in 1966 from the
University of Utah, and served as General Manager of Valley Fair Mall from 1968
to 1997. He served as the president of the West Valley Area Chamber of Commerce.
Mr. Flack joined The Murdock Group in June, 1997, after going through The
Murdock Group program as a client.
Chris L. Kenney, General Manager of Salt Lake City Office, age 36. Mr. Kenney
earned degrees in Data Processing from Utah Technical College in 1984, and
Information Management from Brigham Young University in 1987. He managed
operations in customer support and third-party sales for Clyde Digital Systems
from 1987 to 1990, in sales for Fresh Technology Group from 1990 to 1991, in
product management for Raxco/Axent Technologies from 1993 to 1995, and in
product line management and network engineering for Ameritech Library Services
from 1995 to 1998.
19
<PAGE>
Brad L. Stewart, Financial Officer, age 41. From 1996 to 1998 he served as
Executive Vice President and Chief Operating Officer of Marker International, a
public company. He directed Marker's initial public offering and a secondary
offering while serving as its Vice President and Chief Financial Officer from
1991 to 1996. From 1986 to 1991 he was a manager in the audit department in the
Phoenix, Arizona office of Arthur Andersen, after serving as a senior accountant
in its Atlanta, Georgia office from 198 to 1986. He received a B.S. in
accounting from Brigham Young University in 1983. Mr. Stewart began work at the
Murdock Group on October 16, 1998, and was appointed The Murdock Group's
principal financial officer on February 1, 1999.
Christopher E. Leonard, Chief Information Systems Officer, age 25. Mr. Leonard
received a B.S. in English with a minor in Philosophy from the University of
Puget Sound in Tacoma, Washington in 1995. He co-founded Coastlink Corporation,
a corporate Internet Service Provider in Salt Lake City, Utah, in 1996. Later
that year he began Coastlink Consulting, a network consulting company. He
specializes in the use of technology to gather, organize, store and distribute
all types of information.
Stanford S. Smith, In-house General Counsel, age 54. Mr. Smith obtained his J.D.
degree from the University of Utah College of Law in 1971, and has practiced
corporate law in the Salt Lake City, Utah area since that time, with an emphasis
in the legal issues related to high-growth companies. He has served as a
lecturer in strategic planning for the international consulting firms Shipley
Associates and James A. Bent & Associates. Mr. Smith is a former member of the
Utah House of Representatives, and a former adjunct professor of business law at
the University of Utah College of Business.
Section 16(a) Beneficial Ownership Reporting Compliance
No person who, at any time during the fiscal year, was a director, officer,
beneficial owner of more than ten percent of any class of equity securities of
the registrant failed to file on a timely basis reports required by section
16(a) of the Exchange Act during the most recent fiscal year or prior fiscal
years.
Item 10. Executive Compensation.
The table below sets forth 1998 compensation for our CEO and the only officer
who made more than $100,000 for that year:
Principal Position and Name Year Salary
CEO, KC Holmes 1998 $81,692
General Counsel, Stanford Smith 1998 $124,615
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The table below sets forth the security ownership of beneficial owners of more
than 5% of the Company's shares as of February 1, 1999:
20
<PAGE>
<TABLE>
<CAPTION>
Title of Class Name & address of Amount and nature Percent of class
beneficial owner of beneficial owner
<S> <C> <C> <C>
Class A common KC Holmes, 5395 South Commerce Dr., 3,038,842 35.8%
voting shares #300, SLC, UT 84107
Class A common Heather Stone, 5395 South Commerce 3,038,842 35.8%
voting shares Dr., #300, SLC, UT 84107
Class A common Stanford Smith, 5395 South Commerce 612,718 7.2%
voting shares Dr., #300, SLC, UT 84107
The following table describes the security ownership of management as of
February 1, 1999:
Title of Class Name & address of Amount and nature Percent of class
beneficial owner of beneficial owner
Class A common KC Holmes, 5395 South Commerce Dr., 3,038,842 35.8%
voting shares #300, SLC, UT 84107
Class A common Heather Stone, 5395 South Commerce 3,038,842 35.8%
voting shares Dr., #300, SLC, UT 84107
Class A common Stanford Smith, 5395 South Commerce 612,718 7.2%
voting shares Dr., #300, SLC, UT 84107
Class A common Directors and executive officers as a 7,104,202 83.7%
voting shares group
</TABLE>
Item 12. Certain Relationships and Related Transactions
KC Holmes, a director and officer of the Murdock Group, owed the Murdock Group
$66,358 and $277,824 as of December 31, 1997, and December 31, 1998,
respectively. This open loan bears interest at 8%, has no maturity date, and is
based on an oral agreement. We have provided an allowance for these receivable
amounts.
Heather Stone, a director and officer of the Murdock Group, owed the Murdock
Group $19,737 and $96,803 as of December 31, 1997 and December 31, 1998,
respectively. This open loan bears interest at 8%, has no maturity date, and is
based on an oral agreement. We have provided an allowance for these receivable
amounts.
During the Year ended December 31, 1998, we borrowed $70,000 from Scott Holmes,
a brother to both KC Holmes and Heather Stone, who are directors and officers of
the Murdock Group. This amount was outstanding at December 31, 1998, and bears
interest at approximately 18%.
We regularly purchase computer hardware, software, and services from Coastlink
Consulting, which is a sole proprietorship registered in the State of Utah. The
owner of Coastlink Consulting is Chris Leonard who is also an officer and
employee of the Murdock Group. The amounts paid to Coastlink Consulting for the
years ended December 31, 1997 and for the year ended December 31, 1998, were
$68,495 and $7,102, respectively.
We have a revolving line of credit with interest at a rate of 10% annually
calculated on month end outstanding balances, with Open Seas Trading Company, a
Utah corporation. Open Seas is owned 38% by KC Holmes who is a director and
officer of the Murdock Group. As of December 31, 1997 Open Seas owed the Murdock
Group $28,846, and as of December 31, 1998 The Murdock Group owed Open Seas
$339,789.
21
<PAGE>
In each of these related party transactions, terms were as favorable to the
issuer as those generally available from unaffiliated third parties.
The Company was indebted to employees $340,000, $0, and $0 as of December 31,
1998, 1997 and 1996, respectively, relating to a private placement offering and
owed the parents of an employee $48,189 for funds advanced to the Company under
a line of credit arrangement as of December 31, 1998
Item 13. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during 1998.
22
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Murdock Group Career Satisfaction Corporation
Dated this 28th day of April, 1999
/s/ KC Holmes
- -----------------------------------------------
By KC Holmes, CEO
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Dated this 28th day of April, 1999
/s/ KC Holmes
- -----------------------------------------------
By KC Holmes, CEO
/s/ Heather Stone
- -----------------------------------------------
By Heather Stone, President
/s/ Brad Stewart
- -----------------------------------------------
By Brad Stewart, CFO
23
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
TOGETHER WITH
INDEPENDENT AUDITOR'S REPORT
F-1
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
Table of Contents
Page
----
Independent Auditor's Report F-3
Consolidated Balance Sheets F-4, F-5
Consolidated Statements of Operations F-6
Consolidated Statement of Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9, F-27
F-2
<PAGE>
Independent Auditor's Report
- ----------------------------
Board of Directors
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
I have audited the consolidated balance sheets of The Murdock Group Career
Satisfaction Corporation as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1998 and 1997 and from inception (August 5, 1996)
to December 31, 1996. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on the
financial statements based on my audit.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of The Murdock Group
Career Satisfaction Corporation, as of December 31, 1998 and 1997 and the
consolidated results of their operations and their cash flows for the periods
indicated, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company has experienced a consolidated net loss of
$6,576,706 for the year ended December 31, 1998 and has incurred substantial net
losses since its inception. At December 31, 1998 and December 31, 1997, current
liabilities exceed current assets by $6,200,572 and $1,140,334 respectively, and
total liabilities exceed total assets by $7,531,443 and $1,868,152,
respectively. These factors, and the others discussed in Note 8, raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
David T. Thomson, P.C.
Salt Lake City, Utah
April 22, 1999
F-3
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997
<CAPTION>
ASSETS
1998 1997
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,289 $ 1,604
Current portion of contracts receivable - Note 3 543,344 381,955
Current portion of contracts receivable - related parties 2,482 5,273
Prepaid expenses and other 23,857 23,402
Current portion of amounts due from related parties - Note 9 84,594 1,800
Deferred offering costs 153,659 --
----------- -----------
Total current assets 812,225 414,034
----------- -----------
PROPERTY AND EQUIPMENT, at cost
Computer equipment 247,573 83,291
Equipment, furniture and fixtures 162,014 88,915
Leasehold improvements and other 75,506 4,195
Property and equipment held under capital leases 362,208 259,642
----------- -----------
847,301 436,043
Less: accumulated depreciation and amortization (161,545) (39,875)
----------- -----------
Total property and equipment, net 685,756 396,168
----------- -----------
OTHER ASSETS
Contracts receivable - less current portion - Note 3 170,958 427,917
Contracts receivable - related party - less current portion -- 7,033
Intangible assets, net - Note 2 53,054 59,294
Deposits and other assets 311,378 38,618
Investments and other assets 25,000 25,000
Amounts due from related parties, net - Note 9 1,583 28,846
----------- -----------
Total Other Assets 561,973 586,708
----------- -----------
TOTAL ASSETS $ 2,059,954 $ 1,396,910
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS EQUITY
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 349,168 $ 249,346
Accrued payroll costs and wages payable 276,139 201,620
Short-term debt - Note 15 3,466,700 113,000
Short-term debt - related parties - Note 16 642,289 128,571
Current portion of long-term debt - Note 17 858,316 18,307
Current portion of long-term debt - related parties - Note 18 203,100 --
Current portion of obligation under capital leases - Note 7 110,002 59,066
Other accrued liabilities 942,312 40,144
Unearned revenue - Note 2 164,771 744,314
-
Total current liabilities 7,012,797 1,554,368
----------- -----------
LONG-TERM LIABILITIES
Long-term debt - Note 17 1,943,068 1,563,420
Long-term debt-related parties - Note 18 185,089 --
Convertible debenture - Note 13 265,000 --
Obligations under capital leases - Note 7 185,443 147,274
----------- -----------
Total long-term liabilities 2,578,600 1,710,694
----------- -----------
COMMITMENTS AND CONTINGENCIES - Note 6
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock - Class A, no par value, 100,000,000 shares
authorized; 8,488,240, and 9,880,000 shares
issued and outstanding, respectively 913,460 988
Common Stock - Class B, no par value, no shares issued and
outstanding -- --
Treasury Stock Class A Common - 2,000,000 Shares (45) --
Accumulated Deficit (8,444,858) (1,869,140)
----------- -----------
Total stockholders' equity (deficit) (7,531,443) (1,868,152)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,059,954 $ 1,396,910
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997 and
from August 5, 1996 (inception) through December 31, 1996
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
SERVICE REVENUES, inclusive of interest charged $ 2,852,705 $ 694,093 $ 33,662
Less: Contract cancellations (809,575) (101,543) (3,665)
Contract discounts (334,075) (40,720) (2,541)
----------- ----------- -----------
Total, net 1,709,055 551,830 27,456
DIRECT COST OF SERVICES 2,028,404 667,402 46,163
----------- ----------- -----------
Gross profit (loss) (319,349) (115,572) (18,707)
----------- ----------- -----------
OPERATING EXPENSES
Selling, General and administrative 2,908,854 704,566 70,810
New products research and development 883,967 556,854 37,904
Depreciation and amortization 117,440 32,796 2,578
----------- ----------- -----------
Total operating expenses 3,910,261 1,294,216 111,292
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (4,229,610) (1,409,788) (129,999)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (1,836,723) (248,387) (9,893)
Other Income 79,409 126 112
Non-trade receivables write-off and other, net (589,782) (70,323) --
----------- ----------- -----------
Total, net (2,347,096) (318,584) (9,781)
----------- ----------- -----------
NET INCOME (LOSS) $(6,576,706) $(1,728,372) $ (139,780)
----------- ----------- -----------
EARNINGS PER SHARE $ (0.74) $ (0.17) $ (0.01)
----------- ----------- -----------
WEIGHTED AVERAGE CLASS A SHARES 8,887,000 9,880,000 9,880,000
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1998 and 1997,
and From August 5, 1996 (Inception) to December 31, 1996
<CAPTION>
Common Stock - Class A
--------------------------------------------------
Number of Number of
shares Amount shares Amount
outstanding treasury Accum. Deficit
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, August 5, 1996 (Inception) -- $ -- -- $ -- $ --
* Shares issued to initial stockholders at incorporation 9,880,000 988 -- -- (988)
Net loss -- -- -- -- (139,780)
---------- ---------- ---------- ---------- -----------
BALANCE, December 31, 1996 9,880,000 988 -- -- (140,768)
Net loss -- -- -- -- (1,728,372)
---------- ---------- ---------- ---------- -----------
BALANCE, December 31, 1997 9,880,000 988 -- -- (1,869,140)
* Shares issued pursuant to offering of promissory notes at a
value of $.01 per share during January 1998 150,000 1,500 -- -- --
* Cancellation of treasury shares, February 1998 at $.0001
per share (29,700) (3) -- -- --
* Shares issued to two individuals for services rendered at
$.01 per share 48,000 200 -- -- --
* Cancellation of treasury shares, March 1998 at $.0001
per share (20,000) (2) -- -- --
* Shares issued to trusts at $.01 per share 25,000 250 -- -- --
* Cancellation of treasury shares at $.0001
per share (25,000) (2) -- -- --
* Issuance of shares in exchange for members
interest in LLC 8,205,800 -- -- -- --
* Cancellation of shares received and dissolution
of LLC (8,205,800) (821) -- -- 988
Repurchase of shares from initial stockholder at $.0001
per share (800,000) -- 800,000 (80) --
Shares issued to employees as bonus at $.0001
per share 49,500 -- (49,500) 5 --
Shares issued to an individual at $1.20
per share 300,000 360,000 (300,000) 30 --
Shares issued to an individual for cash and subscription
agreement at $1.20 per share 375,940 450,000 -- -- --
Shares issued to an individual pursuant to employment
agreement at $1.20 per share 84,000 101,350 -- -- --
Shares contributed to treasury by (1,549,500) -- 1,549,500 -- --
initial stockholders
Net Loss -- -- -- -- (6,576,706)
---------- ---------- ---------- ---------- -----------
BALANCE, December 31, 1998 8,488,240 $ 913,460 2,000,000 $ (45) $(8,444,858)
========= ========= ========= ========= ===========
</TABLE>
* After the effect of recapitalization
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997,
and From August 5, 1996 (Inception) to December 31, 1996
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,576,706) $ (1,728,372) $ (139,780)
Adjustments to reconcile net loss to net cash used
in operating activities
Nonmonetary stock transactions 463,415 -- --
Depreciation and amortization 139,433 45,550 3,581
Change in operating assets and liabilities
Contracts receivable 95,570 (748,427) (161,445)
Contracts receivable - related party 9,824 (10,061) (2,245)
Prepaid expenses and other (455) (16,473) (6,929)
Amounts due from related parties - current (82,794) (1,800) --
Deferred Offering Costs (153,659) -- --
Intangible assets (11,523) (550) (68,000)
Deposits and other assets (272,760) (33,588) (5,030)
Amounts due from related parties 27,263 (19,406) (9,440)
Accounts payable 99,822 225,369 23,977
Accrued payroll costs and wages 74,519 194,123 7,497
Other accrued liabilities 902,168 34,009 6,135
Unearned revenue (579,543) 667,268 77,046
----------- ----------- -----------
Net cash used in operating activities (5,865,426) (1,392,358) (274,633)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (411,258) (417,432) (18,611)
Investments in securities and investment trust -- (25,000) --
----------- ----------- -----------
Net cash used in investing activities (411,258) (442,432) (18,611)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 9,912,672 2,028,402 284,521
Principle payments on debt (4,083,303) (198,002) (85,283)
Proceeds from sale of stock 450,000 -- --
----------- ----------- -----------
Net cash provided by financing activities 6,279,369 1,830,400 199,238
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,685 (4,390) (94,006)
CASH AND CASH EQUIVALENTS - BEG OF PERIOD 1,604 5,994 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 4,289 $ 1,604 $ (94,006)
----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,021,236 $ 218,506 $ 26,632
----------- ----------- -----------
Income taxes $ -- $ -- $ --
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Stock issued as compensation $ 461,350
-----------
Stock issued as debt issue cost $ 1,500
-----------
Debt exchange for corporate promissory notes $ 150,000
-----------
</TABLE>
The accompanying notes are an integral part of
these financial statements
F-8
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
The Murdock Group Career Satisfaction Corporation (the Company) is a
job-search and employment training company. The Company is focused to
service professionals with five or more years of experience who are
dissatisfied with their career direction or current job situation. The
Company offers job-search training workshops, consultants and coaches,
and access to a job-search resource center. The Company also provides
full-service hiring assistance, including training, recruiting, and
outplacement to corporations. The Company's main office is located in
Salt Lake City, Utah. The Company also has offices in Seattle,
Washington and Portland, Oregon. Substantially all of the Company's
revenue is from the services described above. At its inception, the
Company purchased assets, a copyright, rights to the business name, and
miscellaneous intangible assets from an individual operating as a sole
proprietorship DBA The Murdock Group.
Envision Career Services LLC. DBA The Murdock Group (Envision), owned a
majority share of the corporation prior to the business combination
with the Company and Envision's dissolution. Envision originally
conducted the business activities explained above which now continue in
the surviving corporate entity.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates.
Consolidation principles - The accompanying consolidated financial
statements include the accounts of the Companies as outlined in the
business combination as explained in note 4. Intercompany transactions
and balances have been eliminated in consolidation.
Net income per share - The computation of net income (loss) per share
of common stock is based on the weighted average number of shares
outstanding during the period presented.
Revenue Recognition - The Company provides services under various types
of contracts. Revenue is recognized as service is rendered, based on
the contract type. In August 1998, the Company began the delivery of
its new product, The Job Search System. The Company delivers
approximately 85% of its service within 30 days of the signed contract
for this service. The Company provides approximately 15% of its service
equally over the next 90 days. Accordingly, the Company recognizes 85%
of the revenue on these contracts in the month of sale, and 5% each
month for the following three months.
Previously, the Company sold services using various types of contracts.
These contracts were One Year Contracts, Flex Contracts, and Guarantee
Contracts. At December 31, 1998, all revenue associated with these
various types of contracts had been recognized.
Unearned revenue for the Company's contracts were $164,771 and $744,314
for the years ended December 31, 1998 and 1997.
F-9
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Revenue is recognized completely in the month it is earned for those
services requiring less than one month to complete. Cash discounts,
cancellations, and write-offs are recognized based on certain criteria
such as time since last payment made, cancellation requests negotiated
and granted, and contract price reduction due to early cash payment.
Cash and Cash Equivalents - The Company considers highly liquid
investments with an original maturity of three months or less to be
cash and cash equivalents. Cash and cash equivalents are recorded at
cost, which approximates market value.
Property and Equipment - Property and equipment are stated at cost and
depreciated using the straight-line method over their estimated useful
lives. Leasehold improvements are amortized over the terms of the
respective leases or the estimated economic lives of the assets,
whichever is shorter. The depreciation and amortization periods are as
follows:
Computer equipment and software 3-5 years
Office equipment 5 years
Art, furniture and fixtures 7 years
Leasehold improvements and other 5 years
Certain art works are artist originals and may or may not be
depreciated.
Upon retirement or other disposition of property and equipment, the
cost and related accumulated depreciation and amortization are removed
from the accounts. The resulting gain or loss is reflected in income.
Major renewals and betterments are capitalized while minor expenditures
for maintenance and repairs are charged to expense as incurred.
Intangible Assets - Intangible assets consist of the following amounts
as of and December 31, 1998 and 1997:
1998 1997
---- ----
Miscellaneous intangibles $ 15,000 $ 15,000
Copyright 53,000 53,000
Organization Costs 550 550
Debt issue costs 11,523 --
-------- --------
Total 80,073 68,550
Less: Accumulated Amortization (27,019) (9,256)
-------- --------
$ 53,054 $ 59,294
======== ========
Goodwill and organization costs are amortized using the straight-line
method over 5 years. The copyright is amortized using the straight-line
method over 15 years. Debt issue costs are amortized using the
straight-line method over 2 years.
F-10
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
Accounting for the Impairment of Long-Lived Assets - The Company
accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of long-lived Assets and for long-lived
Assets to be Disposed of." SFAS 121 requires that long-lived assets be
reviewed for impairment whenever events of changes in circumstances
indicate that the book value of the asset may not be recoverable. The
Company evaluates at each balance sheet date whether events and
circumstances have occurred that indicate possible impairment. In
accordance with SFAS No. 121, the Company uses an estimate of the
future undiscounted net cash flows of the related assets over the
remaining life in measuring whether the assets are recoverable.
Income Taxes - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred income taxes related primarily to the
difference between the corporation reporting income on the cash basis
for tax purposes and the reporting of income on the accrual basis of
accounting for financial statement purposes. Deferred income taxes
represent the future income tax consequence of those timing
differences, which will in the future be taxable or deductible when the
assets or liabilities are recovered or settled.
Concentrations of Credit Risk - The Company's financial instruments
that potentially subject the Company to concentrations of credit risk
consist principally of cash, contracts receivable, and loans to related
parties. In the normal course of business, the Company provides credit
terms to its customers. The Company performs on going credit
evaluations of its customers and maintains allowances for possible
losses, but typically does not require collateral.
Research and Development Costs - Research and Development costs are
expensed as incurred.
Reclassification - Certain accounts have been reclassified to conform
with current presentations.
NOTE 3 - CONTRACTS RECEIVABLE - NON RELATED
Contracts receivable consists of the following at December 31,
1998 1997
---- ----
CURRENT
Contracts Receivable $ 722,072 $ 457,732
Write-Off Allowance (178,728) (75,777)
-------------- --------------
Net $ 543,344 $ 381,955
============== ==============
NON-CURRENT
Contracts Receivable $ 227,230 $ 516,009
Write-Off Allowance (56,272) (88,092)
-------------- --------------
Net $ 170,958 $ 427,917
============== ==============
TOTAL
Contracts Receivable $ 949,302 $ 973,741
Write-Off Allowance (235,000) (163,869)
-------------- --------------
Net $ 714,302 $ 809,872
=============== ===============
F-11
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - BUSINESS COMBINATION
Effective May 31, 1998, the members of the limited liability company
(Envision) exchanged their membership interest for shares of stock in
The Murdock Group Career Satisfaction Corporation (Murdock), a Utah
Corporation. Envision's members conveyed all of their membership
interest to Murdock in exchange for 8,205,800 shares of Murdock stock.
As a result of the transaction, Envision's membership interests in
Envision were terminated and Envision was dissolved. As a result of the
exchange, a majority of Murdock stock was owned by Envision members and
they assumed the operating control of the combined entity, Murdock.
Where the ownership and operating control in the combined entity reside
in shareholders of the acquired corporation, generally accepted
accounting principles require that Envision be treated as the purchaser
for accounting presentation. The business combination of Murdock with
Envision was accounted for as a combination of entities under common
control, similar to a pooling of interests. No acquired assets or
liabilities were adjusted to fair value. Murdock had no operating or
material assets or liabilities prior to May 31, 1998, and the financial
statements are essentially the historical financial statements of
Envision. Envision's equity has been adjusted to reflect the above
accounting treatment, therefore, consolidated historical data of
Envision from inception has been combined and shown in these financial
statements.
NOTE 5 - INVESTMENTS AND OTHER ASSETS
The securities investments held by the Company have been classified as
available-for-sale securities. Securities are recorded at fair value
and are recorded in the investments and other assets section on the
balance sheet. Any change in the fair value of the securities during
the periods shown is excluded from earnings and is recorded as a
separate component of equity. The Company paid nothing for the
securities held and it is believed that the fair value of the
securities at the periods shown was also zero. No change in value has
been recorded in the financial statements and there are no unrealized
holding gains or losses.
The Company has a 10% interest in a trust that engages in investing
activities. It paid $25,000 for its ownership interest. Investments in
companies or entities in which the Company has less than a 20% interest
are carried at cost. Dividends received from those companies are
included in other income.
NOTE 6 - NONCANCELABLE OPERATING LEASES
The Company leases office facilities and office equipment under
noncancelable operating leases.
Future minimum lease payments under noncancelable operating leases are
as follows:
Year Ending December 31, Amount
------------------------ ------
1999 $ 543,681
2000 393,260
2001 394,881
2002 401,055
2003 229,810
Thereafter --
--------------
$ 1,962,687
==============
Facility rental expense for the periods ending December 31, 1998, 1997
and 1996 totaled approximately $494,258, $135,146, and $7,735
respectively.
F-12
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CAPITAL LEASES
The Company is the lessee of computer software, hardware, and office
furniture and fixtures under capital leases. The assets and liabilities
under capital leases are recorded at the lower of the present value of
the minimum lease payments or the fair value of the asset. The assets
are amortized (or depreciated) over the lower of their related lease
terms or their estimated productive lives. Amortization (or
depreciation) of assets under capital leases is included in
depreciation expense for December 31, 1998 and 1997.
Following is a summary of property held under capital leases at
December 31,
1998 1997
---- ----
Computer equipment $ 107,967 $ 140,256
Equipment, furniture and fixtures 205,811 70,956
Leasehold improvements and other 48,430 48,430
--------- ---------
362,208 259,642
Less: accumulated depreciation and
Amortization (67,851) (20,295)
--------- ---------
$ 294,357 $ 239,347
========= =========
Minimum future lease payments under capital leases for each of the next
five years and in the aggregate at December 31, 1998 are:
Fiscal Year Ending December 31,
1999 $ 168,455
2000 135,800
2001 57,294
2002 28,321
2003 11,374
Thereafter 3,792
---------------
Total Minimum Lease Payments 405,036
Less: Executory Costs --
Net minimum lease payments 405,036
Less: Amount representing interest (109,591)
Present value of net minimum lease payments 295,445
Less: Current Portion (110,002)
Long-term portion $ 185,443
===============
Interest rates on capitalized leases average 28% to 32% and are
imputed based on the lower of Company's incremental borrowing rate at
the inception of each lease or the lessor's implicit rate of return.
F-13
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company
has sustained substantial operating losses since inception. In
addition, the Company has used substantial amounts of working capital
in its operations. Further, December 31, 1998 and 1997, current
liabilities exceed current assets by $6,200,572 and $1,140,334
respectively, and total liabilities exceed total assets by $7,531,443
and $1,868,152, respectively.
In view of these matters, realization of a major portion of the assets
in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the
Company's ability to meet its financing requirements, and the success
of its future operations.
Management believes that a major contribution of losses to date were
incurred while developing the Company's proprietary job-search
technology into a training system that serviced a larger volume of
customers. The Company has completed development on the training system
and anticipates that it now has a product that can operate profitably.
In September 1998, the Company opened an office in Seattle, and in
February, 1999 an office in Portland. Other offices are planned for
1999.
The Company intends to allocate administrative costs across multiple
locations, thereby reducing the financial impact of the Company's
investment to date in infrastructure items such as computer technology,
human resources, accounting, and operations staff. Management also
anticipates a reduction in cancellations, discounts, and write offs
with the new product.
To summarize, management's plan for overcoming losses includes
increasing revenues from multiple offices, allocating infrastructure
investment across multiple new locations, reducing cancellations,
discounts, and write offs, and reducing interest expense.
F-14
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - DUE FROM RELATED PARTIES
Amounts due from related parties consists of the following at December
31,
1998 1997
---- ----
Loans to officers and directors. The
loans are unsecured with interest at 8% $ 374,627 $ 86,095
Less: Allowance for uncollectibility due
to personal guarantees on other Company
debts (374,627) (86,095)
Loan due from employee at 6% interest,
due July 14, 2000 3,583 --
Loan to an affiliated company through a
revolving line of credit dated November
30, 1996, interest at 10%, unsecured -- 28,846
Loan to former employee, unsecured,
non-interest bearing 78,000 --
Employee advances, no interest, unsecured
4,594 1,800
--------- ---------
Total 86,177 30,646
Less: Current portion (84,594) (1,800)
--------- ---------
Long-term portion $ 1,583 $ 28,846
========= =========
NOTE 10 - RELATED PARTY TRANSACTIONS
KC Holmes, a director and officer of the Company, owed the Company
$66,358 and $277,824 as of December 31, 1997, and December 31, 1998,
respectively. This open loan bears interest at 8%, has no maturity
date, and is based on an oral agreement. We have provided an allowance
for these receivable amounts.
Heather Stone, a director and officer of the Company, owed the Company
$19,737 and $96,803 as of December 31, 1997 and December 31, 1998,
respectively. This open loan bears interest at 8%, has no maturity
date, and is based on an oral agreement. We have provided an allowance
for these receivable amounts.
F-15
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - RELATED PARTY TRANSACTIONS - CONTINUED
During the Year ended December 31, 1998, the Company borrowed $70,000
from Scott Holmes, a brother to both KC Holmes and Heather Stone, who
are directors and officers of the Company. This amount was outstanding
at December 31, 1998, and bears interest at approximately 18%.
The Company regularly purchases computer hardware, software, and
services from Coastlink Consulting, which is a sole proprietorship
registered in the State of Utah. The owner of Coastlink Consulting is
also an officer and employee of the Company. The amounts paid to
Coastlink Consulting for the years ended December 31, 1997 and December
31, 1998 were $68,495 and $7,102, respectively.
Interest paid to related parties for the years ended December 31, 1998,
1997 and 1996, was approximately $61,542, $23,670, and $3,521
respectively.
The Company has a revolving line of credit with interest at a rate of
10% annually calculated on month end outstanding balances, with Open
Seas Trading Company, a Utah corporation. Open Seas is owned 38% by KC
Holmes who is a director and officer of the Company. As of December 31,
1997 Open Seas owed the Murdock Group $28,846, and as of December 31,
1998 the Company owed Open Seas $339,789.
The Company was indebted to employees $340,000, $0, and $0 as of
December 31, 1998, 1997 and 1996, respectively, relating to a private
placement offering and owed the parents of an employee $48,189 for
funds advanced to the Company under a line of credit arrangement as of
December 31, 1998.
In each of these related party transactions, terms were as favorable to
the issuer as those generally available from unaffiliated third
parties.
NOTE 11 - PROPOSED PUBLIC OFFERING
The Company has filed a prospectus for an initial public offering, and
such offering was given effective status on January 28, 1999. The
offering consists of the sale of Company 2,500,000 shares and the
issuance of bonds (repaying principal and 15% interest compounded
annually at the end of 4 years). In addition, four of the corporations
stockholders are seeking to sell shares. The Company is planning to pay
a sales commission on the sale of its shares and its bonds. Direct
costs of the offering are estimated to be approximately $200,000. These
costs will be netted against the proceeds from the offering or expensed
when the offering is closed. The shares and bonds issued will be those
of the corporation remaining after the business combination (See Note
4).
NOTE 12 - EMPLOYEE LEASING COMPANY
The Company is not the employer of record for the employees of the
Company. The Company uses an employee leasing company named Employers
Solutions Group (ESG). ESG is the official employer of record and all
benefits are administered on its plans. This includes, but is not
limited to, medical and dental insurance, flex days off, 401k plan,
cafeteria plan, and all applicable payroll taxes, filings and
notifications. ESG bills the Company for the services it provides.
F-16
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - CONVERTIBLE BONDS
The Company has sold $265,000 of Convertible Bonds, to various trusts
and others pursuant to a Regulation D Offering utilizing a Disclosure
Memorandum dated April 29, 1998. The bonds are convertible to Class A
common shares of the Company (the "Shares") upon the terms set forth
below.
Upon Company receipt of a conversion notice from the bondholder(s), the
Bond(s) may be converted into Shares only upon the following terms:
During a 6-month period commencing on the public offering date, the
Bonds may be converted to Shares at a discount of 20% from the average
Share trading price during the 30-day period prior to Company receipt
of the conversion notice.
During the period from 7 to 18 months after the public offering date,
the Bonds may be converted to Shares at a discount of 10% from the
average Share trading price during the 30-day period prior to Company
receipt of the conversion notice.
The Bonds may be converted to Shares only in increments of $1,000. No
fractional Shares will be issued. Converted Bonds will be canceled upon
issuance of Shares to the converting Bond holder(s).
The Bonds are callable by the Company at any time upon 30-day written
notice (the "Exercise Period") to the Bond holder(s). During the
Exercise Period such Bond holder(s) may elect to convert the Bonds to
Shares upon the discount terms set forth above. If the Company does not
receive a conversion notice from such Bond holder(s) within the
Exercise Period, the Company shall pay to such holders all principal
and accrued interest with respect to such Bond(s) within 30 days of the
end of the Exercise Period.
F-17
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - INCOME TAXES
The Company's (benefit) provision for income taxes for the year ended
December 31, 1998 consisted of the following:
1998
----
Current:
Federal $ 0
State 0
---------------
0
Deferred: 0
---------------
$ 0
================
The (benefit) provision for income taxes as a percentage of income,
before provision for income taxes, differed from the statutory federal
rate due to the following:
1998
----
Statutory federal income tax rate (34.0%)
Change in deferred tax asset valuation allowance 34.0
---------------
0.0%
================
The components of the net deferred tax asset and liability at December
31, 1998 were as follows:
1998
----
Deferred tax asset:
Net operating loss carryforward $ 2,052,792
Valuation allowance (2,052,792)
--------------
Net deferred tax asset $ 0
===============
The recognition of deferred tax assets is based upon judgements
regarding the potential realization of such assets in the future.
Management believes that realization is not assured therefore has
provided an allowance for the entire deferred tax asset.
F-18
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
NOTE 15 - SHORT-TERM DEBT
Dec. 31, Dec. 31,
Short-term debt consists of the following: 1998 1997
----------- ------------
<S> <C> <C>
Note with an individual dated December 31, 1997 with interest of $1,000 per
week outstanding. Due January 5, 1998. Secured by a personal guarantee
of officer, director and major shareholder of the company $ -- $ 11,000
Note with a company dated December 20, 1997 with 8% interest. Due date
February 20, 1998. Unsecured -- 25,000
Note with an investment group dated December 30, 1997 with no
interest rate or due date stated. Unsecured -- 12,000
Note with a trust dated November 28, 1997 with 48% interest, due
January 30, 1998. Unsecured -- 15,000
Note with Trust dated June 10, 1997, 24% interest. Interest only payments
of $1,000 per month for 12 months. Payment of $50,000 due June 10,
1998. Secured by $50,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off since the loan inception -- 50,000
Note with a Trust, dated April 24, 1998, 36% interest. Interest only payments of
$4,500 per month for 12 months. Payment of $150,000 due April 28, 1999
Secured by $150,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off since the loan inception 150,000 --
Note with a Trust dated January 19, 1998, 36% interest. Interest only payments of
$1,500 per month. Principal due on Demand. Secured by $70,000 in accounts
receivable and personal guarantee of officer, director, and major shareholder of the
Company. Accounts receivable which originally secured this loan may have been paid off, 50,000 --
paid down, renegotiated, or written off since the loan inception
Note with a Trust dated April 28, 1998, 24% interest. Interest only payments of
$800 per month for 12 months. Payment of $40,000 due April 28, 1999
Secured by $40,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off since the loan inception 40,000 --
Note with a Trust dated May 8, 1998, 24% interest. Interest only payments
of $1,000 per month for 12 months. Payment of $50,000 due May 8,1999
Secured by $50,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off since the loan inception 50,000 --
Note with a Trust dated May 8, 1998, 24% interest. Interest only payments
of $500 per month for 12 months. Payment of $25,000 due May 8,
1999. Secured by $25,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off since the loan inception 25,000 --
Note with a Trust dated May 13, 1998, 24% interest. Interest only payments of
$500 per month for 12 months. Payment of $25,000 due May 13, 1999
Secured by $25,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off since the loan inception 25,000 --
</TABLE>
F-19
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
NOTE 15 - SHORT-TERM DEBT - CONTINUED
Dec. 31, Dec. 31,
Short-term debt consists of the following: 1998 1997
------------- -------------
<S> <C> <C>
Note with a Trust dated April 3, 1998, 36% interest. Interest only payments of $4,500 per
month for 12 months. Payment of $150,000 due May 31, 1999. Secured by $150,000 in
accounts receivable. Accounts receivable which originally secured this loan may have been
paid off, paid down, renegotiated, or written off since the loan inception. $ 150,000 $ --
Note with a Trust dated April 3, 1998, 36% interest. Interest only payments
of $4,500 per month for 12 months. Payment of $150,000 due May 31,
1999. Secured by $150,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off since the loan inception. 150,000 --
Note with two individuals dated August 24, 1998 with 24% interest. Interest only payments of
$1,000 per month for 12 months. Payment of $50,000 due August 24, 1999. Secured by
$50,000 in accounts receivable and personal guarantees by officers, directors, and major
shareholders of the Company. New accounts receivable must be substituted every 4 to 6
weeks as accounts receivable which originally secured this loan become paid off, paid down,
canceled, renegotiated, or written off. 50,000 --
Various notes with a trust at various dates, 36% interest. Interest and principal due on
demand. Unsecured. $595,000 was paid subsequent to year-end. Secured by real-estate
owned by unrelated third party. 1,210,000 --
Note with a Trust dated August 26, 1998, 36% interest. Interest only payments of
$6,000 per month for 4 months. Payment of $200,000 due December 26, 1998
Secured by $200,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off, since the loan inception. Personally guaranteed by an officer, director
and major shareholder of the Company. This note was paid subsequent to year-end. 200,000 --
Note with a Company dated September 28, 1998 with 36% interest. Due September 28,
1999. Interest only payments of $2,100 per month for 12 months.
Secured by $70,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off since the loan inception. 70,000 --
Note with an Individual dated August 11, 1998 with 30% interest. Payment of $22,000 due
August 11, 1999. Interest only payments of $550 per month for 12 months.
Secured by $22,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off since the loan inception. 22,000 --
Note with an Individual dated August 24, 1998 with 24% interest. Interest only payments of
$778 per month for 12 months. Payment of $38,900 due August 24, 1999. Secured by
$38,900 in accounts receivable and personal guarantees of officers, directors, and major
shareholders of the Company. New accounts receivable must be substituted every 4 to 6
weeks as accounts receivable which originally secured this loan become paid down, paid off,
canceled, renegotiated, or written off. 38,900 --
Note with an individual dated September 21, 1998 with 24% interest. Interest only payments
of $1,200 per month for 12 months. Payment of $60,000 due September 21, 1999.
Secured by $60,000 in accounts receivable and personal guarantees of officers, directors,
and major shareholders of the Company. New accounts receivable must be substituted
every 30 days as accounts receivable which originally secured this loan become paid down,
paid off, canceled, renegotiated, or written off. 60,000 --
</TABLE>
F-20
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
NOTE 15 - SHORT-TERM DEBT - CONTINUED
Dec. 31, Dec. 31,
Short-term debt consists of the following: 1998 1997
------------- -------------
<S> <C> <C>
Note with an individual dated July 16, 1998 with 24% interest. Interest only payments of $222
per month for 12 months. Payment of $11,100 due July 15, 1999. Secured by $11,100 in
accounts receivable and personal guarantees of officers, directors, and major shareholders
of the Company. New accounts receivable must be substituted every 4 to 6 weeks as
accounts receivable which originally secured this loan become paid down, paid off, canceled,
renegotiated, or written off. $ 11,100 $ --
Note with an individual dated September 22, 1998 with 24% interest. Interest only payments
of $300 per month for 12 months. Payment of $15,000 due September 22, 1999
Secured by $15,000 in accounts receivable. Accounts receivable which originally secured this loan
may have been paid off, paid down, renegotiated, or written off since the loan inception.
Personally guaranteed by officers, directors, and major shareholders of the
Company. 15,000 --
Note with a Trust dated June 1, 1998, 36% interest. Interest only payments of
$3,000 per month for 12 months. Payment of $100,000 due June 1, 1999
Secured by $100,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off, since the loan inception. Personally guaranteed by officers, directors
and major shareholders of the Company. 100,000 --
Note with an individual dated September 14, 1998 with 30% interest. Payment of principal
and interest due December 14, 1998. Unsecured. This note was paid subsequent to year-end. 55,000 --
Note with an individual dated September 14, 1998 with 30% interest. Payment of principal
and interest due December 14, 1998. Unsecured. This note was paid subsequent to year-end. 45,000
Note with a company dated December 22, 1998 due June 15, 1999, 36% interest.
Secured by real property owned by parent of related party. Interest only payment of
$9,000 per month. 300,000 --
Note with a trust dated December 9, 1998 with 36% interest, due February 9, 1999. Interest
only payments of $3,000 per month. This note was paid subsequent to year-end. 100,000 --
Note with a trust dated December 26, 1998 with 36% interest, due February 26, 1999.
Interest only payments of $6,000 per month. Secured by accounts receivable. This note
was paid subsequent to year-end. 200,000 --
Note with an individual dated October 29, 1998 for $70,000, 24% interest. Balance at
December 31, 1998 was $26,700. This note was paid subsequent to year-end. 26,700 --
Note with a company dated December 8, 1998. No stated interest rate. Payment
of $32,571 was made subsequent to year-end for payment in full. 30,000 --
Short-term debt obligation with a company. No stated interest rate. Due on demand. 130,000 --
This note was paid subsequent to year-end.
Short-term debt obligations with various trusts. No stated interest rate. Due on demand.
These notes were paid subsequent to year-end. 163,000 --
------------ ------------
Total short-term debt $3,466,700 $ 113,000
============ ============
</TABLE>
F-21
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
NOTE 16 - SHORT TERM DEBT WITH RELATED PARTIES
Related party short-term debt consists of the following: Dec. 31, Dec. 31,
1998 1997
------------- -------------
<S> <C> <C>
Note with an employee dated November 28, 1997 with interest at 25%, $ -- $ 20,000
and no due date stated. Unsecured
Note with an employee dated November 20, 1997, no interest rate or due -- 15,101
date stated. Unsecured
Note with an employee dated October 16, 1997 with no interest rate or -- 5,655
due date stated. Unsecured
Note with an employee dated December 31, 1997, no interest rate or due -- 19,000
date stated. Unsecured
Note with LLC Member's personal relation dated November 3, 1997 with -- 5,000
10% interest, no due date stated. Unsecured
Note with LLC Member's personal relation dated November 20, 1997, -- 10,000
with 10% interest, no due date stated. Unsecured
Short-term line of credit with an employee's parents, with 10 1/2% interest, -- 36,683
due December 30, 1998. Unsecured
Short-term note with employee and employee's parents, dated May 21, 1997
with 22% interest. Per agreement, interest is reinvested monthly -- 17,132
Payment of principal and interest due at end of agreement
Short-term debt obligation to an affiliated company through a revolving
line of credit dated 11/30/96 with interest at 10% 339,789 --
Short-term debt obligations with employees and other related parties
Various interest rates. Due on demand 302,500 --
-------- --------
Total short-term debt with related parties $642,289 $128,571
======== ========
</TABLE>
F-22
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
NOTE 17 - LONG-TERM DEBT
Long-term debt consists of the following:
Dec. 31, Dec. 31,
1998 1997
-------- --------
<S> <C> <C>
Note with a Trust dated June 1, 1997 ,18% interest. Interest only payments of
$900 per month for 36 months. Payment of $60,000 due June 1, 2000
Secured by $60,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, cancelled,
renegotiated, or written off, since the loan inception $ 60,000 $ 60,000
Note with a Trust dated July 28, 1997, 18% interest. Interest only payments of
$5,625 per month for 24 months. Payment of $375,000 due
August 1, 1999. Secured by $375,000 in accounts receivable
Accounts receivable which originally secured this loan may have been paid
off, paid down, cancelled, renegotiated, or written off since the loan inception 375,000 375,000
Note with a finance group dated December 24, 1997, 30% interest. Interest only
payments of $1,250 per month for 24 months. Payment of
$50,000 due December 24, 1999. Secured by personal guarantee of
officer, director, and major shareholder of the company 50,000 50,000
Note with a finance group dated December 22, 1997, 30% interest. Interest
only payments of $1,250 per month for 24 months. Payment of
$50,000 due December 22, 1999. Secured by personal guarantee of
officer, director, and major shareholder of the company 50,000 50,000
Note with a Trust, dated February 1, 1997, 24% interest. Interest only payments
of $2,000 per month for 36 months. Payment of $100,000 due
February 1, 2000. Secured by $100,000 in accounts receivable
Accounts receivable which originally secured this loan may have been paid off,
paid down, cancelled, renegotiated, or written off since the loan inception 100,000 100,000
Note with a Trust, dated March 1, 1997, 24% interest. Interest only payments
of $2,000 per month for 36 months. Payment of $100,000 due
March 1, 2000. Secured by $100,000 in accounts receivable
Accounts receivable which originally secured this loan may have been paid off,
paid down, cancelled, renegotiated, or written off since the loan inception 100,000 100,000
Note with a Trust, dated April 1, 1997, 24% interest. Interest only payments
of $2,000 per month for 36 months. Payment of $100,000 due
April 1, 2000. Secured by $100,000 in accounts receivable
Accounts receivable which originally secured this loan may have been paid off,
paid down, cancelled, renegotiated, or written off since the loan inception 100,000 100,000
Note with two individuals dated May 15, 1998 with 24% interest. Interest only
payments of $10,000 per month. Payment of $500,000 due May 15, 2001. Secured
by $500,000 in accounts receivable and a personal guarantee by officers,
directors, and major shareholders of the company. New accounts receivable
must be substituted every 4 to 6 weeks as accounts receivable which originally
secured the loan become paid off, paid down, canceled, renegotiated, or
written off 500,000 --
Note with a finance group, dated February 13, 1998, 30% interest. Interest only
payments of $1,250 per month for 24 months. Payment of $50,000
due February 13, 2000. Secured by personal guarantees of officer, director,
and major shareholder of the company 50,000 --
</TABLE>
F-23
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
NOTE 17 - LONG-TERM DEBT - CONTINUED
Dec. 31, Dec. 31,
1998 1997
-------- --------
<S> <C> <C>
Note with a Trust dated April 10, 1997, 30% interest. Interest only payments of
$2,500 per month for 36 months. Payment of $100,000 due
April 10, 2000. Secured by $100,000 in accounts receivable.
Accounts receivable which originally secured this loan may have been paid off,
paid down, cancelled, renegotiated, or written off since the loan inception. $ 100,000 $ 100,000
Note with a Trust dated July 15, 1997, 18% interest. Interest only payments
of $975 per month for 36 months. Payment of $65,000 due July 15, 2000.
Secured by $65,000 in accounts receivable. Accounts receivable which
originally secured this loan may have been paid off, paid down, renegotiated,
or written off since the loan inception. 65,000 65,000
Note with a Trust dated August 15, 1997, 18% interest. Interest only payments
of $1,350 per month for 36 months. Payment of $90,000 due
August 15, 2000. Secured by $90,000 in accounts receivable. Accounts
receivable which originally secured this loan may have been paid off, paid down,
renegotiated, or written off since the loan inception. 90,000 90,000
Note with Trust dated September 25, 1997, 18% interest. Interest only payments
of $2,625 per month for 24 months. Payment of $175,000 due
September 25, 1999. Secured by $175,000 in accounts receivable.
Accounts receivable which originally secured this loan may have
been paid off, paid down, renegotiated, or written off since the loan inception. 175,000 175,000
Note with Trust dated October 21, 1997, 18% interest. Interest only payments
of $2,475 per month for 24 months. Payment of $165,000
due October 21, 1999. Secured by $165,000 in accounts receivable. Accounts
receivable which originally secured this loan may have been paid off, paid down,
renegotiated, or written off since the loan inception. 165,000 165,000
Note with an individual dated February 26, 1997, 18% interest. Monthly principal
and interest payments of $362 per month for 36 months with a maturity date of
February 26, 2000. Secured by $20,000 in accounts receivable and by personal guarantees
of majority owners and members. Accounts receivable which originally secured this
loan may have been paid off, paid down, renegotiated, or written off since the loan
inception. This note was paid in full prior to December 31, 1998. -- 7,736
Note with a Trust dated July 21, 1997, 24% interest. Interest only payments of $720 per
month for 24 months. Payment of $36,000 due August 1, 1999. Secured by $36,000
in accounts receivable. Accounts receivable which secured this loan may have
been paid off, paid down, renegotiated, or written off since the loan inception. This note
was paid in full prior to December 31, 1998. -- 36,000
Note with a finance group , dated February 5, 1998, 30% interest. Interest only
payments of $2,500 per month for 24 months. Payment of $100,000
due February 5, 2000. Secured by personal guarantee of officer, director,
and major shareholder of the company. 100,000 --
Note with a finance group, dated March 23, 1998, 30% interest. Interest only payments of
$3,750 per month for 24 months. Payment of $150,000 due March 23, 2000. Secured
by personal guarantee of officer, director, and major shareholder of the Company. 150,000 --
Note with a finance group, dated August 15, 1998, 18% interest. Interest plus principal
payments of $1,188 per month for 67 months. Secured by various furniture items,
artwork, and personal guarantee of officer, director, and major shareholder of the
Company. 47,116 --
</TABLE>
F-24
<PAGE>
<TABLE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
NOTE 17 - LONG-TERM DEBT - CONTINUED
Dec. 31, Dec. 31,
1998 1997
-------- --------
<S> <C> <C>
Note with a finance group, dated April 17, 1998, 30% interest. Interest only payments
of $5,250 per month for 24 months. Payment of $210,000 due April 17,
2000. Secured by personal guarantee of officer, director, and major
shareholder of the company. $ 210,000 $ --
Note with a finance group, dated August 15, 1997. No stated interest rate. Monthly principal
and interest payments of $999 per month for 60 months. Secured by various furniture
and computer equipment, and personal guarantee of officer, director, and major
shareholder of the Company. This note was paid in full prior to December 31, 1998. -- 30,012
Note with a finance group, dated October 1, 1997. No stated interest rate. Monthly
principal and interest payments of $1,987 per month for 60 months. Secured by
various computer equipment, and personal guarantee of officer, director, and major
shareholder of the Company. This note was paid in full prior to December 31, 1998. -- 77,979
Note with a finance group, dated May 8, 1998. 18% interest. Monthly principal and
interest payments of $667 per month for 72 months. Secured by computer
software, and personal guarantee of officer, director and major
shareholder of the Company 26,793 --
Note with a finance group, dated May 26, 1998. 18% interest. Monthly principal and
interest payments of $690 per month for 72 months. Secured by artwork,
and personal guarantee of officer, director, and major shareholder of the Company. 27,956 --
Note with a finance group dated May 1, 1998. 18% interest. Monthly principal and
interest payments of $6,662 per month ($948 of which is applied to capital
leases payable) for 72 months. Secured by various furniture, computer
equipment, software, and artwork, and personal guarantee of officer, director,
and major shareholder of the company. 240,596 --
Note with a finance group, dated July 15, 1998, 18% interest. Interest plus principal
payments of $475 per month for 68 months. Secured by various
furniture items and artwork and personal guarantee of officer, director, and major
shareholder of the company. 18,923 --
---------- ----------
TOTAL LONG TERM DEBT 2,801,384 1,581,727
LESS CURRENT PORTION (858,316) (18,307)
---------- ----------
LONG TERM DEBT NON CURRENT PORTION $1,943,068 $1,563,420
========== ==========
</TABLE>
Following are maturities of long-term debt for each of the five years
ending December 31,
Amount
1999 $ 862,144
2000 1,177,742
2001 562,514
2002 75,109
2003 90,247
Thereafter 33,628
----------
Total long term debt $2,801,384
==========
F-25
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - LONG-TERM DEBT WITH RELATED PARTIES
Pursuant to a private offering, the Company sold 375 units to related
parties. Each unit consisted of a promissory note and 400 shares of the
Company's Class A common stock. The promissory note has an interest of
16% and matures 1 year from the date of issuance. The holder has an
option to extend the maturity date for an additional year. If the
option is exercised, the Company is obligated to pay the holder
interest of 18% for the two-year period. As of December 31, 1998, the
Company's long term obligations with related parties are as follow:
<TABLE>
<CAPTION>
<S> <C>
Promissory notes issued in conjunction with offering $ 375,000
Less: Repayments during 1998 (35,000)
Line of credit with an employee's parents, with 10 1/2%
interest, no specified due date - unsecured 48,189
---------------
Total 388,189
Less: Current Portion (203,100)
Long-term debt to related parties $ 185,089
===============
</TABLE>
Subsequent to year-end, $202,500 of this debt was retired, the
remaining balance accrues interest at 18%.
NOTE 19 - ASSETS USED AS COLLATERAL
At December 31, 1998, 1997 and 1996, $379,545, $68,375 and $0
respectively, of fixed assets not held under capital leases were
collateral for debt. Substantially all of the Company's contracts
receivable are used to secure borrowings.
NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of the Company's financial instruments approximates fair
value. The estimated fair values of financial instruments have been
determined using appropriate market information and valuation
methodologies.
F-26
<PAGE>
THE MURDOCK GROUP
CAREER SATISFACTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - COMMON STOCK TRANSACTIONS
The Company purchased 800,000 shares of Class A common stock from an
individual who is a former employee and founder at the founder's price
of $80 that he originally paid for those shares. In conjunction with
this purchase, the Company has granted him an option to acquire up to
800,000 Company shares of Class A Common Stock as follows:
During 1999, The option may be exercised to acquire shares from
the Company at a discount of 15% from the market trading price, if
any.
The Company has issued 49,500 shares of Class A common stock out
of treasury stock as a bonus.
The Company issued 384,000 shares of class A common stock as incentives
for two officers. To comply with Topic 4 D of the Staff Accounting
Bulletins issued by the Securities and Exchange Commission, the Company
has recorded in selling, general, and administrative, an expense of
$461,350 related to this stock issuance. 300,000 shares of the above
came out of treasury shares.
Existing shareholders are contributing up to 1,545,900 shares of their
Class A common stock to the Company. These shares along with the
450,500 shares mentioned above will be sold by the Company in its
initial public offering.
The Company issued 375,940 shares of its Class A common stock in a
private placement in exchange for $450,000 of existing corporate debt
and cash.
An officer has acquired the right to receive 100,000 shares of common
class A stock at $5 each, with vesting at 25,000 -- shares per year at
issue date.
NOTE 22 - COMMITMENTS
The Company recorded approximately $500,000 for accrued loan fees, as
interest related to the use of certain real property owned by a third
party as collateral for the Company's borrowings. As of December 31,
1998 none of the fee had been paid.
F-27
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4289
<SECURITIES> 0
<RECEIVABLES> 951327
<ALLOWANCES> 234543
<INVENTORY> 0
<CURRENT-ASSETS> 812225
<PP&E> 847301
<DEPRECIATION> 61545
<TOTAL-ASSETS> 685756
<CURRENT-LIABILITIES> 7012797
<BONDS> 265000
0
0
<COMMON> 913460
<OTHER-SE> (45)
<TOTAL-LIABILITY-AND-EQUITY> 2059954
<SALES> 0
<TOTAL-REVENUES> 1709055
<CGS> 2028404
<TOTAL-COSTS> 3910261
<OTHER-EXPENSES> (79409)<F1>
<LOSS-PROVISION> 589782
<INTEREST-EXPENSE> 1836723
<INCOME-PRETAX> (65762706)
<INCOME-TAX> 0
<INCOME-CONTINUING> (65762706)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6576706)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> (.74)
<FN>
<F1>
This represents other income such as sublease rent.
</FN>
</TABLE>
