U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2002
[ ] Transition report under Section 13 or 15(d) of the Exchange
Act of 1934
For the transition period from __________ to __________
Commission file number 1-9224
CAREERENGINE NETWORK, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 13-2689850
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
200 West 57th Street, Suite 1103, New York, N.Y. 10019
(Address of Principal Executive Offices)
212-775-0400
(Issuer's Telephone Number, Including Area Code)
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 the past 90 days.
Yes [X] No [_]
The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at October 31, 2002
----- -------------------------------
Common stock - par value $.10 5,590,944 shares
----------------------------- ----------------
2
PART I
FINANCIAL INFORMATION
Item l. Financial Statements.
The following consolidated financial statements of CareerEngine
Network, Inc. and subsidiaries (collectively referred to as the
"Company," unless the context requires otherwise) are prepared in
accordance with the rules and regulations of the Securities and
Exchange Commission for Form 10-QSB and reflect all adjustments
(consisting of normal recurring accruals) and disclosures which, in
the opinion of management, are necessary for a fair statement of
results for the interim periods presented. It is suggested that these
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2001, which was filed
with the Securities and Exchange Commission.
The results of operations for the three and nine-months ended
September 30, 2002 are not necessarily indicative of the results to be
expected for the entire fiscal year.
1
CareerEngine Network, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30,
2002 December 31,
(Unaudited) 2001
------------ ------------
ASSETS
Current:
Cash and cash equivalents $ 359,217 $ 200,782
Accounts receivable, net 30,507 71,342
Insurance claims receivable 54,389 346,231
Other 14,500 26,404
------------ ------------
Total current assets 458,613 644,759
Fixed assets, net 44,335 203,192
Deferred financing costs, net 331,337 364,297
Other 37,411
------------ ------------
Total assets $ 834,285 $ 1,249,659
============ ============
LIABILITIES
Current:
Accounts payable and accrued expenses $ 413,788 $ 897,257
Interest payable 144,000 72,000
Tax assessment payable 897,792 852,543
Excess of liabilities over assets of discontinued operations 3,512,884
------------ ------------
Total current liabilities 1,455,580 5,334,684
Debentures payable, net of unamortized discount
of $669,422 in 2002 and $691,748 in 2001 1,730,578 1,708,252
Deferred grant revenue 291,827
------------ ------------
Total liabilities 3,477,985 7,042,936
Commitments and contingencies
CAPITAL (DEFICIT)
Preferred stock - authorized 1,000,000 shares, par value $0.10;
none issued
Common stock - authorized 20,000,000 shares, par value $0.10;
6,829,600 and 6,789,600 shares issued
in 2002 and 2001, respectively 682,960 678,960
Paid-in surplus 16,290,691 15,996,941
Accumulated deficit (16,744,251) (19,596,078)
------------ ------------
229,400 (2,920,177)
Less treasury stock, at cost -
1,238,656 shares (2,873,100) (2,873,100)
------------ ------------
Total deficit (2,643,700) (5,793,277)
------------ ------------
Total liabilities and deficit $ 834,285 $ 1,249,659
============ ============
See Notes to Consolidated Financial Statements
2
CareerEngine Network, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Revenues:
Service fee income $ 58,702 $ 138,923 $ 191,818 $ 712,864
Income on securities transactions 420,253
Interest income 647 4,704 1,686 21,330
----------- ----------- ----------- -----------
59,349 143,627 193,504 1,154,447
----------- ----------- ----------- -----------
Expenses:
Compensation and related costs 134,256 373,626 490,759 1,687,871
Advertising 4,649 10,000 255,898
General and administrative 86,352 263,064 472,910 1,126,206
Interest 94,841 79,192 283,576 310,076
----------- ----------- ----------- -----------
315,449 720,531 1,257,245 3,380,051
----------- ----------- ----------- -----------
Loss from continuing operations before items shown below (256,100) (576,904) (1,063,741) (2,225,604)
Gain on fixed assets destroyed in catastrophe 152,934
Reversal of Director fees accrual 55,000
----------- ----------- ----------- -----------
Loss from continuing operations before income taxes (256,100) (576,904) (855,807) (2,225,604)
Income tax provision 5,250 10,200
----------- ----------- ----------- -----------
Loss from continuing operations (256,100) (576,904) (861,057) (2,235,804)
----------- ----------- ----------- -----------
Discontinued operations:
Income (loss) from discontinued operations 3,712,884 (87,750)
Net income (loss) $ (256,100) $ (576,904) $ 2,851,827 $(2,323,554)
=========== =========== =========== ===========
Per common share - basic and diluted:
Loss from continuing operations $ (.05) $ (.10) $ (.15) $ (.40)
Income (loss) from discontinued operations -- -- .66 (.02)
----------- ----------- ----------- -----------
Net income (loss) per common share $ (.05) $ (.10) $ .51 $ (.42)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding - basic and diluted 5,590,944 5,504,944 5,584,278 5,504,944
3
CareerEngine Network, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended
-------------------------------
September 30,
-------------------------------
2002 2001
(Unaudited) (Unaudited)
Cash flows from operating activities:
Loss from continuing operations $ (861,057) $(2,235,804)
Adjustments to reconcile loss from continuing operations to net cash
provided by (used in) operating activities:
Depreciation and amortization 191,818 307,027
Issuance of common stock for services 31,500
Amortization of debt discount 22,326 22,326
Reversal of fees due to Directors (55,000)
Gain on fixed assets destroyed in catastrophe (152,934)
Sale of marketable securities, net 1,084,182
Changes in:
Accounts and insurance claims receivable 485,610 99,213
Other assets 49,315 (88,595)
Accrued expenses and other liabilities (44,970) (67,321)
Deferred grant revenue 291,827
----------- -----------
Cash (used in) continuing operations (41,565) (878,972)
Cash provided by discontinued operations 200,000
----------- -----------
Net cash provided by (used in) operating activities 158,435 (878,972)
----------- -----------
Cash flows from investing activities:
Proceeds from surrender of life insurance policies 226,390
----------- -----------
Cash provided by continuing operations 226,390
----------- -----------
Net cash provided by investing activities 226,390
----------- -----------
Increase (decrease) in cash and cash equivalents 158,435 (652,582)
Cash and cash equivalents at beginning of period 200,782 1,126,358
----------- -----------
Cash and cash equivalents at end of period $ 359,217 $ 473,776
=========== ===========
Supplemental disclosures of cash flow information related to
continuing operations:
Cash paid during the period for:
Interest $ 72,000 $ 288,000
Income taxes $ 5,250 $ 216,843
4
CareerEngine Network, Inc. and Subsidiaries
Notes To Consolidated Financial Statements
(Unaudited)
1. Catastrophe of September 11, 2001
---------------------------------
The Company's headquarters were located at Suite 2112 of Two World Trade
Center in New York City. With the complete destruction of the building, all
of the Company's leasehold improvements, furniture and fixtures, and office
and computer equipment located at this site were also destroyed.
The net carrying value of the destroyed assets of the Company amounted to
$356,531 at September 11, 2001. These assets consisted of:
Leasehold improvements $ 76,809
Furniture and fixtures 36,966
Office and computer equipment 242,756
---------
$ 356,531
=========
In April 2002, the Company received insurance proceeds in amounts that have
exceeded the net carrying value of the destroyed assets and, accordingly,
has recorded a gain ($152,934 for the nine-month period ended September 30,
2002) on assets destroyed due to this catastrophe.
The Company also has insurance for lost business income, extra expenses
related to the catastrophe, and record re-creation. The ultimate insurance
proceeds expected from the lost business income and extra expense insurance
policy provisions are indeterminable by the Company at this time, however,
the Company has received $12,416 on claims submitted with regard to extra
expenses and has recorded such amount as a reduction of the expense
incurred. The insurance proceeds received in April 2002 ($50,000) and those
claims still outstanding under the record re-creation insurance policy
provisions of the Company will be sufficient to recover the Company's
related costs ($65,000).
In addition, the Company has applied for governmental assistance grants
related to the catastrophe. In April and September 2002, the Company
received grants aggregating $291,827. The grants have various restrictions
that could require their repayment (e.g., the Company temporarily
suspending its business due to the events of September 11th and not
resuming its operations in one year, or relocating a substantial portion
its operations outside of New York City for a period of three years). Until
such time as the grant restrictions shall no longer apply, the grants will
be classified as a liability of the Company. Upon the satisfaction or lapse
of the restrictions, the Company will remove the liability and record grant
income on its financial statements.
Since the attack, the Company's management has been preoccupied with the
relocation and reestablishment of its businesses, assessing and processing
of insurance claims with the assistance of a risk manager with its
insurers, and seeking sources of financing.
5
2. Significant Accounting Policies
-------------------------------
The accounting policies followed by the Company are set forth in the notes
to the Company's financial statements included in its Form 10-KSB, for the
year ended December 3l, 2001, which was filed with the Securities and
Exchange Commission.
In the opinion of management, the unaudited financial statements include
all adjustments necessary for a fair presentation of the Company's
financial position as of September 30, 2002 and the results of its
operations and its cash flows for the three-month and nine-month periods
ended September 30, 2002 and 2001. The financial statements as of September
30, 2002 and for the three months and nine months then ended are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
The Company has incurred substantial losses from continuing operations,
sustained substantial operating cash outflows, has a working capital
deficit and at September 30, 2002 has a capital deficiency. Management
believes that such losses and negative operating cash flows will continue
in fiscal year 2002. The above factors raise substantial doubt about the
Company's ability to continue as a going concern. The Company's continued
existence is dependent on its ability to obtain additional equity and/or
debt financing to fund its operations and ultimately to achieve profitable
operations. The Company is attempting to raise additional financing and has
implemented a cost reduction strategy. There is no assurance that the
Company will obtain additional financing or achieve profitable operations
or cash flow. The financial statements do not include any adjustments
relating to the recoverability or classification of recorded asset amounts
or the amount and classification of liabilities that might be necessary as
a result of this uncertainty.
Revenue Recognition
-------------------
E-recruiting fees are earned on the placement of job placement and
sponsorship advertisements on the Company's web site and are recognized
over the period during which the advertisements are exhibited. Revenues
derived from co-branding arrangements with content providers are of a
similar nature and were recognized over the period during which the
advertisements are exhibited. Website construction fees are recognized
ratably over the construction period. Monthly hosting and maintenance fees
for such sites are recognized ratably over the period of the underlying
contract.
Derivative Financial Instruments
--------------------------------
As part of its investment strategies to profit from anticipated market
movements, the Company maintained trading positions in a variety of
derivative financial instruments consisting principally of futures
contracts in treasuries, stocks and municipal securities. All positions
were reported at fair value, and changes in fair value are reflected in
operations as they occurred. The Company realized net gains from
derivatives sold in the three-month and nine-moth periods ended September
30, 2001 of approximately $420,000. Such amounts are included in income on
securities transactions in the accompanying statements of operations. At
September 30, 2002 and for the three-month and nine-month periods then
ended, no derivative financial instruments were held by the Company.
6
Income (Loss) Per Share
-----------------------
Basic income (loss) per share is based on the weighted average number of
common shares outstanding. Employee stock options and outstanding warrants
did not have an effect on the computation of diluted earnings per share
since they were anti-dilutive.
3. Discontinued Operations
-----------------------
In 1997, the Company entered into a triple net, credit type lease with
Carmike, pursuant to which the Company leased to Carmike six parcels of
land and the improvements thereon. Concurrently, the Company issued
$72,750,000 principal amount of its adjustable rate tender securities due
November 1, 2015 (the "Bonds"). The Bonds were secured by irrevocable
letters of credit issued by a group of banks. In connection therewith the
Company entered into a Reimbursement Agreement with Wachovia, as agent for
the banks, under which the Company was obligated to remit all rent received
under the lease to Wachovia to reimburse the banks for the Bond payments
made by draws on their letters of credit.
On August 8, 2000, Carmike filed a petition under Chapter 11 of the United
States Bankruptcy Code. As a result of that filing and Carmike's subsequent
failure to pay rent to date under the lease, the Company failed to make
required payments to Wachovia under the Reimbursement Agreement.
Accordingly, Wachovia declared a default under the Reimbursement Agreement
and accelerated all amounts due by the Company thereunder. Wachovia also
directed the Trustee under the related Indenture to redeem the Bonds. Such
amounts were paid entirely through draws on the related letters of credit
and were not paid with funds of the Company. However, as the Bonds are no
longer outstanding, all unamortized financing costs (amounting to $804,667)
relating thereto were expensed. In addition, Carmike has not disaffirmed
the lease and continues to occupy the six theaters.
Interest and fees which have been accrued on the reimbursement obligations
through December 2001 have been recorded with a corresponding amount of
accrued rent receivable from Carmike.
On January 31, 2002 title to the six theaters was transferred to the banks
in payment of the non-recourse debt under the Reimbursement Agreement and
the Company recognized a gain of $3,512,884, representing the excess of the
liabilities over the carrying value of the assets relating to the real
estate leased to Carmike. In addition, the Company received $294,755 in
connection with the sale of its common membership interest in Movieplex
relating to the transfer of title of the movie theaters to Wachovia.
7
Income (loss) from discontinued operations for the three-month and
nine-month periods ended September 30, 2002 and 2001 are as follows:
Three Months Nine Months
------------------------------ ------------------------------
Ended Ended
September 30, September 30,
------------------------------ ------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Rental income $ $ 3,749,130 $ 1,249,710 $ 7,498,260
Gain on extinguishment
of debt 3,512,884
Common membership 294,755
----------- ----------- ----------- -----------
interest transfer fee 3,749,130 5,057,349 7,498,260
----------- ----------- ----------- -----------
Expenses:
Interest 3,749,130 1,249,710 7,498,260
Other 94,755 87,750
----------- ----------- ----------- -----------
3,749,130 1,344,465 7,586,010
----------- ----------- ----------- -----------
$ -- $ -- $ 3,712,884 $ (87,750)
=========== =========== =========== ===========
4. Litigation
----------
The Company is a party to various vendor related litigations. Based on the
opinion of legal counsel, the Company has accrued a liability of
approximately $140,000 and, accordingly, this liability has been reflected
in accounts payable and accrued expenses.
5. Debentures Payable
------------------
In 2000, the Company privately placed 48 units of its securities. Each unit
consisted of a $50,000 subordinated convertible debenture, 12,500 Class A
Common Stock Warrants and 12,500 Class B Common Stock Warrants. Each
$50,000 debenture is convertible into 25,000 shares of common stock. The
Class A and B Warrants are exercisable at $4 and $6, respectively. The
debentures bear interest at 12%, payable quarterly, commencing October 1,
2000 and mature March 31, 2010. The Class A and B Warrants are exercisable
at any time until March 31, 2003 and March 31, 2005, respectively. In the
private placement, officers of the Company acquired 10.5 units for
$525,000.
The aggregate number of shares issuable upon the exercise of all the
warrants and the conversion of all the debentures is 2,400,000. The Company
incurred an interest charge of $246,875 due to the beneficial conversion
feature of the debentures. In addition, the Company valued the warrants,
utilizing the Black-Scholes Pricing Model, at $740,000 which is being
accounted for as debt discount and will be amortized over the life of the
debentures. The amounts ascribed to the beneficial conversion feature and
the warrants aggregating $986,875 were credited to paid-in-surplus.
8
The Company paid the placement agent cash of $375,025 and granted the agent
a warrant exercisable through June 2005 (valued at $200,000) to purchase 5
units at $60,000 per unit. Of the total consideration, $426,658 was
accounted for as deferred financing costs which is being amortized over the
life of the debentures and $148,367 deemed attributable to the warrant
portion of the unit, was charged to paid-in surplus.
Interest accrued on debentures payable, relating to the periods April 1,
2002 through June 30, 2002 (due July 1, 2002) and July 1, 2002 through
September 30, 2002 (due October 1, 2002), aggregating $144,000 has not been
paid to date.
6. Income Taxes
------------
Commencing in August 2000, pursuant to an understanding with the IRS, the
Company began paying $30,000 per month until the assessed tax deficiency
relating to the years 1985 through 1989 and interest thereon is fully
satisfied. However, after a technical review by special tax counsel of the
tax deficiency and related interest, management of the Company believes
that there may be a basis for its reduction. Management is actively
pursuing such a reduction at this time. Pending the ultimate resolution of
this matter with the IRS, in September 2001 the Company temporarily
suspended making monthly payments. At September 30, 2002, the outstanding
balance of the liability amounted to $897,792 including related additional
state and local taxes and interest.
7. Capital Contribution and Director Fees
--------------------------------------
As of March 31, 2002, significant shareholders of the Company, who are also
Directors and Officers, have agreed to permanently forego $266,250 of
compensation earned by them during 2001 and 2000. These individuals,
subject to change upon further notice, are currently performing their
Company functions without compensation. The amount of the forgone salaries
through December 31, 2001 has been reflected in the financial statements as
contributions to the capital of the Company during the nine-month period
ended September 30, 2002.
9
In addition, at March 31, 2002, the Company's five outside directors have
similarly agreed to forego previously accrued and unpaid directors' fees
earned through December 31, 2001 and agreed to forgo future compensation
until further notice. The reversal of previously accrued fees has been
reflected in the Company's Statement of Operations for the nine-month
period ended September 30, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
-------
The Company's headquarters were located at Suite 2112 of Two World Trade
Center in New York City. The catastrophe of September 11, 2001 involved no
injury to any of the Company's employees. However, with the complete
destruction of the building, all of the Company's leasehold improvements,
furniture and fixtures, and office and computer equipment located at this
site were also destroyed.
Since the attack, the Company's management had been preoccupied with the
relocation and reestablishment of its business, assessing and processing of
insurance claims with the assistance of a risk manager with its insurers,
and seeking sources of financing. As of the date hereof, the Company has
re-established all its operations at its new offices located at 200 West
57th Street, Suite 1103, New York, NY 10019. It has also recreated all its
critical accounting records lost due to the catastrophe. In April 2002, the
Company received insurance proceeds in amounts that have exceeded the net
carrying value of the destroyed assets and, accordingly, has recorded a
gain ($152,934 for the nine-month period ended September 30, 2002) on
assets destroyed due to this catastrophe.
The Company also has insurance for lost business income, extra expenses
related to the catastrophe, and record re-creation. The ultimate insurance
proceeds expected from the lost business income and extra expense insurance
policy provisions are indeterminable by the Company at this time, however,
the Company has received $12,416 on claims submitted with regard to extra
expenses and has recorded such amount as a reduction of the expense
incurred. The insurance proceeds received in April 2002 ($50,000) and those
claims still outstanding from the record re-creation insurance policy
provisions of the Company will be sufficient to recover the Company's
related costs ($65,000).
In addition, the Company has applied for numerous governmental assistance
grants related to the catastrophe. In April and September 2002, the Company
received grants aggregating $291,827. The grants have various restrictions
that could require its repayment (e.g., the Company temporarily suspending
its business due to the events of September 11th and not resuming its
operations in one year, or relocating a substantial portion its operations
outside of New York City for a period of three years). Until such time as
the grant restrictions shall no longer apply, the grants will be recorded a
liability of the Company. Upon the satisfaction of the restrictions, the
Company will remove the liability and record grant income on its financial
statements.
In August 2000, we discontinued our merchant banking operations, which
consisted of our real estate project with Carmike Cinemas, Inc., and our
financial consulting operations. Accordingly, our remaining operations are
solely from our e-recruiting segment. Our financial resources and our
management's efforts are now focused entirely on this segment.
E-recruiting activities are derived from the operations of the two
divisions of our wholly-owned subsidiary, CareerEngine, Inc. These
divisions, CareerEngine Network and CareerEngine Solutions, provide on- and
off-line companies with products and services addressed to meeting on-line
recruiting problems.
10
Critical Accounting Policies
----------------------------
The Company's condensed consolidated financial statements have been
prepared in accordance with the accounting principles generally accepted in
the United States of America. Certain accounting policies have a
significant impact on amounts reported in the financial statements. A
summary of those significant accounting policies can be found in Note B to
the Company's financial statements included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2001. The Company has not
adopted any significant new accounting policies during the nine months
ended September 30, 2002.
A significant judgment made by management in the preparation of the
Company's financial statements is the determination of the allowance for
doubtful accounts. This determination is made periodically in the ordinary
course of accounting.
Forward Looking Statements
--------------------------
Certain statements in this Quarterly Report on Form 10-QSB constitute
"forward-looking statements" relating to the Company within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements
regarding future events, our financial performance and operating results,
our business strategy and our financing plans are forward-looking
statements. In some cases you can identify forward-looking statements by
terminology, such as "may," "will," "would," "should," "could," "expect,"
"intend," "plan," "anticipate," "believe," "estimate," "predict,"
"potential," or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Known and unknown
risks, uncertainties and other factors could cause actual results to differ
materially from those contemplated by the statements. In evaluating these
statements, you should specifically consider various factors that may cause
our actual results to differ materially from any forward-looking
statements.
11
A. Results of Operations:
----------------------
Three-Month Period Ended September 30, 2002 Compared to the Three-Month
Period Ended September 30, 2001
Revenues
Total revenues from continuing operations decreased to $59,349 for the
three-month period ended September 30, 2002 from $143,627 for the
three-month period ended September 30, 2001.
Service fee income decreased to $58,702 for the three-month period ended
September 30, 2002 from $138,923 for the three-month period ended September
30, 2001 as the operations of our subsidiary, CareerEngine, Inc. have been
significantly reduced since January 2001.
Interest income decreased to $647 for the three-month period ended
September 30, 2002 from $4,704 for the three-month period ended September
30, 2001 due to the reduced amount of funds available for investment and
lower interest rates.
Expenses
Total expenses from continuing operations decreased to $315,449 for the
three-month period ended September 30, 2002 from $720,531 for the
three-month period ended September 30, 2001.
Compensation and related costs decreased to $134,256 for the three-month
period ended September 30, 2002 from $373,626 for the three-month period
ended September 30, 2001. The decrease is due to the Company's cost
reduction strategy, consisting primarily of significant staff reductions,
which commenced in December 2000 and the cessation of two officers'
salaries as of December 31, 2001.
Advertising expense decreased to nil for the three-month period ended
September 30, 2002 from $4,649 for the three-month period ended September
30, 2001 as CareerEngine, Inc. continued its cost reduction program,
focused primarily on compensation and advertising related expenditures.
General and administrative expenses decreased to $86,352 for the
three-month period ended September 30, 2002 from $263,064 for the
three-month period ended September 30, 2001 due primarily to the
significantly reduced operating costs associated with our subsidiary,
CareerEngine, Inc. These costs consisted principally of travel, telephone
and legal expenses, supplies, and website related expenditures.
12
Operating Loss
On a pre-tax basis, we had a loss of $256,100 for the three-month period
ended September 30, 2002 from continuing operations compared with a loss of
$576,904 for the three-month period ended September 30, 2001 from
continuing operations due to the expenses associated with CareerEngine,
Inc.
Our loss from continuing operations and net loss for the three-month period
ended September 30, 2002 was $256,100 compared with a loss from continuing
operations and net loss of $576,904 for the three-month period ended
September 30, 2001. For the three-month period ended September 30, 2002,
loss per common share from continuing operations and net loss per common
share, basic and diluted, was $.05 per share. For the three-month period
ended September 30, 2001, loss per common share from continuing operations
and net loss per common share, basic and diluted, was $.10 per share.
13
Nine-Month Period Ended September 30, 2002 Compared to the Nine-Month
Period Ended September 30, 2001
Revenues
Total revenues from continuing operations decreased to $193,504 for the
nine-month period ended September 30, 2002 from $1,154,447 for the
nine-month period ended September 30, 2001.
Service fee income decreased to $191,818 for the nine-month period ended
September 30, 2002 from $712,864 for the nine-month period ended September
30, 2001 as the operations of our subsidiary, CareerEngine, Inc. have been
significantly reduced since January 2001.
Income on securities transactions, net decreased to nil for the nine-month
period ended September 30, 2002 from $420,253 for the nine-month period
ended September 30, 2001 due to the cessation of cash management and
investing activities effective April 1, 2001. This revenue category
included the net profit from our cash management and our investing in
futures, puts, calls, municipals and other securities.
Interest income decreased to $1,686 for the nine-month period ended
September 30, 2002 from $21,330 for the nine-month period ended September
30, 2001 due to the reduced amount of funds available for investment and
lower interest rates.
Expenses
Total expenses from continuing operations decreased to $1,257,245 for the
nine-month period ended September 30, 2002 from $3,380,051 for the
nine-month period ended September 30, 2001.
Compensation and related costs decreased to $490,759 for the nine-month
period ended September 30, 2002 from $1,687,871 for the nine-month period
ended September 30, 2001. The decrease is due to the Company's cost
reduction strategy, consisting primarily of significant staff reductions,
which commenced in December 2000 and the cessation of two officers'
salaries as of December 31, 2001.
Advertising expense decreased to $10,000 for the nine-month period ended
September 30, 2002 from $255,898 for the nine-month period ended September
30, 2001 as CareerEngine, Inc. continued its cost reduction program, which
focused primarily on compensation and advertising related expenditures.
General and administrative expenses decreased to $472,910 for the
nine-month period ended September 30, 2002 from $1,126,206 for the
nine-month period ended September 30, 2001 due primarily to the
significantly reduced operating costs associated with our subsidiary,
CareerEngine, Inc. These costs consisted principally of travel, telephone
and legal expenses, supplies, and website related expenditures.
14
Other Items
Gain on fixed assets destroyed in catastrophe increased to $152,934 for the
nine-month period ended September 30, 2002 from nil for the nine-month
period ended September 30, 2001 due to the destruction of the World Trade
Center where the Company was headquartered.
Reversal of Directors fees increased to $55,000 for the nine-month period
ended September 30, 2002 from nil for the nine-month period ended September
30, 2001. This amount relates to the forgiveness of fees earned by the
outside Directors and their agreement to forego these fees until further
notice.
Operating Loss
On a pre-tax basis, we had a loss of $855,807 for the nine-month period
ended September 30, 2002 from continuing operations compared with a loss of
$2,225,604 for the nine-month period ended September 30, 2001 from
continuing operations due to the expenses associated with CareerEngine,
Inc.
Our loss from continuing operations for the nine-month period ended
September 30, 2002 was $861,057 compared with a loss from continuing
operations of $2,235,804 for the nine-month period ended September 30,
2001. For the nine-month period ended September 30, 2002, loss per common
share from continuing operations, basic and diluted, was $.15 per share.
For the nine-month period ended September 30, 2001, loss per common share
from continuing operations, basic and diluted, was $.40 per share.
Our income from discontinued operations for the nine-month period ended
September 30, 2002 was $3,712,884 compared with a loss from discontinued
operations of $87,750 for the nine-month period ended September 30, 2001
due primarily to the transfer of title to the six theaters leased to
Carmike Cinemas, Inc. by the Company to the banks in payment of the related
non-recourse debt, and the consequential recognition of the related gain
representing the excess of liabilities over the carrying value of the
theaters. For the nine-month period ended September 30, 2002, income per
common share from discontinued operations, basic and diluted, was $.66 per
share. For the nine-month period ended September 30, 2001, loss per common
share from discontinued operations, basic and diluted, was $.02 per share.
Our net income for the nine-month period ended September 30, 2002 was
$2,851,827 compared with a net loss of $2,323,554 for the nine-month period
ended September 30, 2001. For the nine-month period ended September 30,
2002, net income per common share, basic and diluted, was $.51 per share.
For the nine-month period ended September 30, 2001, net loss per common
share, basic and diluted, was $.42 per share.
15
B. Liquidity and Capital Resources
-------------------------------
The Company has incurred substantial losses from continuing operations,
sustained substantial operating cash outflows, has a working capital
deficit and at September 30, 2002 has a capital deficiency. Management
believes that such losses and negative operating cash flows will continue
in fiscal year 2002. The above factors raise substantial doubt about the
Company's ability to continue as a going concern. The Company's continued
existence is dependent on its ability to obtain additional equity and/or
debt financing to fund its operations and ultimately to achieve profitable
operations. The Company is attempting to raise additional financing and has
initiated a cost reduction strategy. However, the Company has been notified
that, subject to procedural requirements of the American Stock Exchange,
its stock may be delisted. There is no assurance that the Company will
obtain additional financing or achieve profitable operations or cash flow.
The financial statements do not include any adjustments relating to the
recoverability or classification of recorded asset amounts or the amount
and classification of liabilities that might be necessary as a result of
this uncertainty.
Our cost reduction strategy since December 14, 2000 has primarily consisted
of an 84% staff reduction, and the effective elimination of our advertising
expenditure.
Historically, we have sustained our operations primarily from the use of
our own financial resources, the net proceeds generated from our cash
management activities, and from the proceeds of the private financing of
units completed in June and August 2000. We are seeking sources of
financing, most likely from one or more additional public or private equity
or debt offerings. We currently have no commitments for any of such
additional funding. We may not be able to raise needed cash on terms
acceptable to us or at all. Financings may be on terms that are dilutive or
potentially dilutive to our stockholders.
We do not have any material commitments for capital expenditures as of
September 30, 2002.
C. American Stock Exchange
-----------------------
The Company received a letter dated March 15, 2002 from the Exchange (the
"Letter") indicating that the Company is not in compliance with the
Exchange's continuing listing requirements in that the Company has
sustained losses from continuing operations and/or net losses in three of
its four most recent fiscal years and its Stockholders' Equity is less than
$4,000,000.
On April 16, 2002 the Company submitted to the Exchange its detailed plan
to regain compliance. The Exchange approved the Company's plan on June 7,
2002. The plan is subject to periodic monitoring by the Exchange. Assuming
the Company reasonably achieves its scheduled financial milestones as
determined by the Exchange, the Company will have until December 31, 2002
to regain compliance with the continuing listing requirements of the
Exchange. If the Company does not reasonably achieve its scheduled
financial milestones as determined by the Exchange, or its Stockholders'
Equity does not equal or exceed $4,000,000 by December 31, 2002, the
Company will lose its listing on the Exchange.
16
The Company is attempting to raise additional financing to regain
compliance. Furthermore, the Company is actively pursuing other
alternatives as well so as to maintain its listing on the Exchange.
D. Inflation
The Company believes that inflation does not significantly impact its
current operations.
Item 3. Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of the Company have
conducted an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation,
they have concluded that the Company's disclosure controls and procedures
are effective in ensuring that all material information required to be
filed in this Quarterly Report on Form 10-QSB has been made known to them
in a timely fashion. There have been no significant changes in internal
controls, or in other factors that could significantly affect internal
controls, subsequent to the date they completed their evaluation.
17
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a party to various vendor related litigations. Based on the
opinion of legal counsel, the Company has accrued a liability of
approximately $140,000 and, accordingly, this liability has been reflected
in accounts payable and accrued expenses in the Company's financial
statements.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 99.1: Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Exhibit 99.2: Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
A statement regarding the computation of per share earnings is omitted
because the computation is described in Note 2 of the Notes to
Consolidated Financial Statements (Unaudited) in this Form 10-QSB.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the nine
months ended September 30, 2002.
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAREERENGINE NETWORK, INC.
/s/ George W. Benoit
------------------------------------------
Date: November 14, 2002 George W. Benoit, Chairman of the Board
of Directors, President, and Chief Executive
Officer
/s/ Anthony S. Conigliaro
------------------------------------------
Date: November 14, 2002 Anthony S. Conigliaro, Vice President and
Chief Financial Officer
19
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CareerEngine Network, Inc. (the
"Registrant") on Form 10-QSB for the quarterly period ending September 30, 2002
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, George W. Benoit, Chairman of the Board of Directors, President,
and Chief Executive Officer of the Registrant, certify, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, that:
1. I have reviewed the Report of the Registrant;
2. To the best of my knowledge, the Report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the periods covered by
the Report;
3. To the best of my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in the Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14(c) and 15d-14(c)) for the Registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the periods in which the Report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the Report (the "Evaluation Date"); and
c) presented in the Report are our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the Audit
Committee of Registrant's Board of Directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
20
6. The Registrant's other certifying officer and I have indicated in the
Report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ George W. Benoit
--------------------------------------------
Date: November 14, 2002 George W. Benoit, Chairman of the Board
of Directors, President, and Chief Executive
Officer
21
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CareerEngine Network, Inc. (the
"Registrant") on Form 10-QSB for the quarterly period ending September 30, 2002
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Anthony S. Conigliaro, Vice President and Chief Financial Officer
of the Registrant, certify, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, that:
1. I have reviewed the Report of the Registrant;
2. To the best of my knowledge, the Report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the periods covered by
the Report;
3. To the best of my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in the Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14(c) and 15d-14(c)) for the Registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the periods in which the Report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the Report (the "Evaluation Date"); and
c) presented in the Report are our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the Audit
Committee of Registrant's Board of Directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
22
6. The Registrant's other certifying officer and I have indicated in the
Report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Anthony S. Conigliaro
------------------------------------------
Date: November 14, 2002 Anthony S. Conigliaro, Vice President and
Chief Financial Officer
23