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 June 30, 2002
-------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act of 1934
For the transition period from to
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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
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(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 July 31, 2002
----- ----------------------------
Common stock - par value $.10 5,590,944 shares
------------------------------ ---------------------
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 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 six-months ended June 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
June 30,
2002 December 31,
(Unaudited) 2001
----------- ----
ASSETS
Current:
Cash and cash equivalents $ 361,793 $ 200,782
Accounts receivable, net 49,480 71,342
Insurance claims receivable 29,390 346,231
Other 31,541 26,404
----------- -----------
Total current assets 472,204 644,759
Fixed assets, net 91,236 203,192
Deferred financing costs, net 342,325 364,297
Other 37,411
----------- -----------
Total assets $ 905,765 $ 1,249,659
=========== ===========
LIABILITIES
Current:
Accounts payable and accrued expenses $ 499,096 $ 897,257
Interest payable 72,000 72,000
Tax assessment payable 882,393 852,543
Excess of liabilities over assets of discontinued operations 3,512,884
----------- -----------
Total current liabilities 1,453,489 5,334,684
Debentures payable, net of unamortized discount
of $676,864 in 2002 and $691,748 in 2001 1,723,136 1,708,252
Deferred grant revenue 116,740
----------- -----------
Total liabilities 3,293,365 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 (16,488,151) (19,596,078)
----------- -----------
485,500 (2,920,177)
Less treasury stock, at cost -
1,238,656 shares (2,873,100) (2,873,100)
----------- -----------
Total deficit (2,387,600) (5,793,277)
----------- -----------
Total liabilities and deficit $ 905,765 $ 1,249,659
=========== ===========
See Notes to Consolidated Financial Statements
2
CareerEngine Network, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ----------------------------
2002 2001 2002 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Revenues:
Service fee income $ 58,428 $ 290,705 $ 133,116 $ 573,941
Income on securities transactions 420,253
Interest income 635 9,778 1,039 16,626
----------- ----------- ----------- -----------
59,063 300,483 134,155 1,010,820
----------- ----------- ----------- -----------
Expenses:
Compensation and related costs 168,716 455,530 356,503 1,314,245
Advertising 63,370 10,000 251,249
General and administrative 215,083 359,035 386,558 863,142
Interest 94,578 79,442 188,735 230,884
----------- ----------- ----------- -----------
478,377 957,377 941,796 2,659,520
----------- ----------- ----------- -----------
Loss from continuing operations before items shown below (419,314) (656,894) (807,641) (1,648,700)
Gain on fixed assets destroyed in catastrophe 20,887 152,934
Reversal of Director fees accrual 55,000
----------- ----------- ----------- -----------
Loss from continuing operations before income taxes (398,427) (656,894) (599,707) (1,648,700)
Income tax provision 5,250 10,200
----------- ----------- ----------- -----------
Loss from continuing operations (398,427) (656,894) (604,957) (1,658,900)
Discontinued operations:
Income (loss) from discontinued operations 3,712,884 (87,750)
----------- ----------- ----------- -----------
Net income (loss) $ (398,427) $ (656,894) $ 3,107,927 $(1,746,650)
----------- ----------- ------------ -----------
Per common share - basic and diluted:
Loss from continuing operations $ (.07) $ (.12) $ (.11) $ (.30)
Income (loss) from discontinued operations -- -- .67 (.02)
----------- ----------- ----------- -----------
Net income (loss) per common share $ (.07) $ (.12) $ .56 $ (.32)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding - basic and diluted 5,590,944 5,504,944 5,580,944 5,504,944
=========== =========== ========= ============
See Notes to Consolidated Financial Statements
3
CareerEngine Network, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended
June 30,
--------
2002 2001
(Unaudited) (Unaudited)
----------- -----------
Cash flows from operating activities:
Loss from continuing operations $ (604,957) $(1,658,900)
Adjustments to reconcile loss from continuing operations to net cash
provided by (used in) operating activities:
Depreciation and amortization 133,928 216,876
Issuance of common stock for services 31,500
Amortization of debt discount 14,884 14,884
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 185,769 18,042
Other assets 32,274 (57,431)
Accrued expenses and other liabilities 258,807 18,206
Deferred grant revenue 116,740
----------- -----------
Cash (used in) continuing operations (38,989) (364,141)
Cash provided by (used in) discontinued operations 200,000 (87,750)
----------- -----------
Net cash provided by (used in) operating activities 161,011 (451,891)
----------- -----------
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 161,011 (225,501)
Cash and cash equivalents at beginning of period 200,782 1,126,358
----------- -----------
Cash and cash equivalents at end of period $ 361,793 $ 900,857
=========== ===========
Supplemental disclosures of cash flow information related to
continuing operations:
Cash paid during the period for:
Interest $ 144,000 $ 216,000
Income taxes $ 5,250 $ 156,843
See Notes to Consolidated Financial Statements
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 six-month period ended June 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 ($56,000).
In addition, the Company has applied for governmental assistance grants
related to the catastrophe. In April 2002, the Company received a grant in
the amount of $116,740. The grant has 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 grant 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 June 30, 2002 and the results of its operations
and its cash flows for the three-month and six-month periods ended June 30,
2002 and 2001. The financial statements as of June 30, 2002 and for the
three months and six 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 June 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. 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 six-moth periods ended June 30,
2001 of approximately $420,000. Such amounts are included in income on
securities transactions in the accompanying statements of operations. At
June 30, 2002 and for the three-month and six-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
six-month periods ended June 30, 2002 and 2001 are as follows:
Three Months Six Months
Ended Ended
June 30, June 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
interest transfer fee 294,755
------ ---------- ---------- ----------
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 $180,000 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 period April 1,
2002 through June 30, 2002 and due July 1, 2002, amounting to $72,000 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 June 30, 2002, the outstanding
balance of the liability amounted to $882,393 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 six-month period
ended June 30, 2002.
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 six-month period
ended June 30, 2002.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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 six-month period ended June 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 ($56,000).
In addition, the Company has applied for numerous governmental assistance
grants related to the catastrophe. In April 2002, the Company received a
grant in the amount of $116,740. The grant has 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 grant 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
A. Results of Operations:
----------------------
Three-Month Period Ended June 30, 2002 Compared to the Three-Month Period
Ended June 30, 2001
Revenues
Total revenues from continuing operations decreased to $59,063 for the
three-month period ended June 30, 2002 from $300,483 for the three-month
period ended June 30, 2001.
Service fee income decreased to $58,428 for the three-month period ended
June 30, 2002 from $290,705 for the three-month period ended June 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 three-month
period ended June 30, 2002 and for the three-month period ended June 30,
2001 due to the cessation of cash management and investing activities
effective April 1, 2001. This revenue category includes the net profit from
our cash management and our investing in futures, puts, calls, municipals
and other securities.
Interest income decreased to $635 for the three-month period ended June 30,
2002 from $9,778 for the three-month period ended June 30, 2001 due to the
reduced amount of funds available for investment.
Expenses
Total expenses from continuing operations decreased to $478,377 for the
three-month period ended June 30, 2002 from $957,377 for the three-month
period ended June 30, 2001.
Compensation and related costs decreased to $168,716 for the three-month
period ended June 30, 2002 from $455,530 for the three-month period ended
June 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 June
30, 2002 from $63,370 for the three-month period ended June 30, 2001 as
CareerEngine, Inc. continued its cost reduction program, focused primarily
on compensation and advertising related expenditures.
General and administrative expenses decreased to $215,083 for the
three-month period ended June 30, 2002 from $359,035 for the three-month
period ended June 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.
11
Other Items
Gain on fixed assets destroyed in catastrophe increased to $20,887 for the
three-month period ended June 30, 2002 from nil for the three-month period
ended June 30, 2001 due to the destruction of the World Trade Center where
the Company was headquartered.
Operating Loss
On a pre-tax basis, we had a loss of $398,427 for the three-month period
ended June 30, 2002 from continuing operations compared with a loss of
$656,894 for the three-month period ended June 30, 2001 from continuing
operations due to the expenses associated with CareerEngine, Inc.
Our loss from continuing operations for the three-month period ended June
30, 2002 was $398,427 compared with a loss from continuing operations of
$656,894 for the three-month period ended June 30, 2001. For the
three-month period ended June 30, 2002, loss per common share from
continuing operations, basic and diluted, was $.07 per share. For the
three-month period ended June 30, 2001, loss per common share from
continuing operations, basic and diluted, was $.12 per share.
Our income from discontinued operations for the three-month period ended
June 30, 2002 was nil compared with a loss from discontinued operations of
nil for the three-month period ended June 30, 2001 due primarily to the
transfer of title, during the three-month period ended March 31, 2002, 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, during the three-month period ended March
31, 2002, representing the excess of liabilities over the carrying value of
the theaters. For the three-month period ended June 30, 2002 and the three-
month period ended June 30, 2001 income per common share from discontinued
operations, basic and diluted, was nil per share.
Our net loss for the three-month period ended June 30, 2002 was $398,427
compared with a net loss of $656,894 for the three-month period ended June
30, 2001. For the three-month period ended June 30, 2002, net loss per
common share, basic and diluted, was $.07 per share. For the three-month
period ended June 30, 2001, net loss per common share, basic and diluted,
was $.12 per share.
12
Six-Month Period Ended June 30, 2002 Compared to the Six-Month Period Ended
June 30, 2001
Revenues
Total revenues from continuing operations decreased to $134,155 for the
six-month period ended June 30, 2002 from $1,010,820 for the six-month
period ended June 30, 2001.
Service fee income decreased to $133,116 for the six-month period ended
June 30, 2002 from $573,941 for the six-month period ended June 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 six-month
period ended June 30, 2002 from $420,253 for the six-month period ended
June 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 $1,039 for the six-month period ended June 30,
2002 from $16,626 for the six-month period ended June 30, 2001 due to the
reduced amount of funds available for investment.
Expenses
Total expenses from continuing operations decreased to $941,796 for the
six-month period ended June 30, 2002 from $2,659,520 for the six-month
period ended June 30, 2001.
Compensation and related costs decreased to $356,503 for the six-month
period ended June 30, 2002 from $1,314,245 for the six-month period ended
June 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 six-month period ended
June 30, 2002 from $251,249 for the six-month period ended June 30, 2001 as
CareerEngine, Inc. continued its cost reduction program, focused primarily
on compensation and advertising related expenditures.
General and administrative expenses decreased to $386,558 for the six-month
period ended June 30, 2002 from $863,142 for the six-month period ended
June 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.
13
Other Items
Gain on fixed assets destroyed in catastrophe increased to $152,934 for the
six-month period ended June 30, 2002 from nil for the six-month period
ended June 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 six-month period
ended June 30, 2002 from nil for the six-month period ended June 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 $599,707 for the six-month period
ended June 30, 2002 from continuing operations compared with a loss of
$1,648,700 for the six-month period ended June 30, 2001 from continuing
operations due to the expenses associated with CareerEngine, Inc.
Our loss from continuing operations for the six-month period ended June 30,
2002 was $604,957 compared with a loss from continuing operations of
$1,658,900 for the six-month period ended June 30, 2001. For the six-month
period ended June 30, 2002, loss per common share from continuing
operations, basic and diluted, was $.11 per share. For the six-month period
ended June 30, 2001, loss per common share from continuing operations,
basic and diluted, was $.30 per share.
Our income from discontinued operations for the six-month period ended June
30, 2002 was $3,712,884 compared with a loss from discontinued operations
of $87,750 for the six-month period ended June 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
six-month period ended June 30, 2002, income per common share from
discontinued operations, basic and diluted, was $.67 per share. For the
six-month period ended June 30, 2001, loss per common share from
discontinued operations, basic and diluted, was $.02 per share.
Our net income for the six-month period ended June 30, 2002 was $3,107,927
compared with a net loss of $1,746,650 for the six-month period ended June
30, 2001. For the six-month period ended June 30, 2002, net income per
common share, basic and diluted, was $.56 per share. For the six-month
period ended June 30, 2001, net loss per common share, basic and diluted,
was $.32 per share.
14
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 June 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 a reduction of our monthly advertising
expenditure rate to a level that is approximately 96% less than comparable
expenditure rate of a year ago.
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 June
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 it 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.
15
The Company is attempting to raise additional financing to regain
compliance. Furthermore, the Company is actively pursuing other
alternatives as well so as maintain its listing on the Exchange.
D. Inflation
---------
The Company believes that inflation does not significantly impact its
current operations.
16
PART II
OTHER INFORMATION
Item 5. Other Information.
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-QSB constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of
1995. Such forward looking statements are based on current
expectations and information available to management at this time.
They may involve known risks, uncertainties, and other factors which
may cause the actual results, performance or achievements of the
Company to be materially different from any future results,
performance or achievements expressed or implied by such forward
looking statements. Factors which could cause actual results to differ
from the forward looking statements include, among others, the
following: general economic and business conditions; competition; the
success of operating initiatives relating to the Company's technology
related subsidiary and the Company's financial consulting services;
development and operating costs; fluctuations in interest rates; the
existence or absence of adverse publicity; changes in business
strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of
personnel; availability of qualified personnel; labor and employee
benefit costs; and changes in or the failure to comply with government
regulations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 99: Certification of the Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted 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 six
months ended June 30, 2002.
17
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: August 14, 2002 George W. Benoit, Chairman of the Board
of Directors, President, and Chief Executive
Officer
/s/ Anthony S. Conigliaro
---------------------------------------------
Date: August 14, 2002 Anthony S. Conigliaro, Vice President and
Chief Financial Officer