SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee required)
For the fiscal year ended December 31, 2002
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)
For the transition period from __________ to __________
Commission file number l-9224
CAREERENGINE NETWORK, INC.
(Name of Small Business Issuer 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, NY. 10022
(Address of Principal Executive Offices) (Zip Code)
212-775-0400
(Issuer's Telephone Number, including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common stock - par value $.10 American Stock Exchange
Pacific Exchange
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of Class)
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 |_|
(Cover page 1 of 2 pages)
2
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
Issuer's revenues for 2002, its most recent fiscal year, were $240,048.
As of March 31, 2003, the aggregate market value of voting stock held by
non-affiliates of the Issuer was approximately $2,795,000.
The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at March 31, 2003
Common stock - par value $.10 5,590,944
DOCUMENTS INCORPORATED BY REFERENCE
None.
(Cover page 2 of 2 pages)
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PART I
Item l. Description of Business.
Background and History
CareerEngine Network, Inc., through its wholly-owned subsidiary
CareerEngine, Inc., is engaged in the business of e-recruiting.
CareerEngine Network, Inc. and all its subsidiaries are hereinafter
collectively referred to as the "Company," "our," or "we" unless the
context requires otherwise.
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, as
stated above, are solely from our e-recruiting activities. Our financial
resources and our management's efforts are currently focused on this
segment and raising capital.
Our Continuing Operations
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
e-recruiting services.
Our Network Division operates 6 portal career sites organized by specific
job function and diversity and one general board.
These sites enable employers and recruiters to post job offerings for
specific target areas in one or more of our career specific sites.
Prospective employees can search for jobs, confidentially post their
resumes, and avail themselves of a host of other services.
Our Solutions Division develops and maintains career sites for companies
and recruiters. We customize these sites to reflect the particular look
and feel of our customers' websites utilizing our software that we make
available on an ASP basis. We believe that by offering multiple products
and services to address online
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recruiting needs, we have established our own unique niche in the online
recruiting market.
Our CareerEngine Network Division
Most online job sites that offer aggregate listings in different
fields lack specialized capabilities. Their postings are broad based,
covering all types of jobs in many industries. As a result, job seekers
must often search through exhaustive lists of unsuitable opportunities.
The CareerEngine Network is different. Our category specific approach
enables job seekers to focus on those opportunities that are suitable for
their skills. We do this by limiting employment opportunities in each
database to the industry covered by that database. This helps to reduce
the quantity of non-related postings delivered by a key word search.
Recruiters and employers can quickly find and attract qualified candidates
with specialized skills and expertise. We attempt to screen our employment
postings for specificity, although we are not always successful. However,
we believe we offer a network of career sites through which a recruiter
can conveniently and cost effectively focus on highly trained qualified
candidates suited for specific job openings. The vertical orientation of
our job sites - which encompass fields ranging from accounting to sales
and IT - makes it easier for job seekers and potential employers to locate
and evaluate one another.
We derive a significant number of job postings through independent
distributors. These distributors include major online and offline
recruitment advertising firms and major recruitment and placement agencies
that seek a variety of websites, both category specific and broad based,
to post their clients' job openings. Some of our distributors include
Bernard Hodes, TMP Worldwide, Shaker Advertising and Dice.
Among the services provided to employers and recruiters on our network is
the opportunity to access our confidential resume database containing
resumes placed on our category specific websites by job seekers. These
resumes are furnished to them with built-in safeguards to protect the
privacy concerns of applicants.
Revenue from the CareerEngine Network Division is derived from job
placement advertisements, outsourced job seeker services and resume
database access.
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Our CareerEngine Solutions Division
Online career centers are becoming increasingly utilized by web
publishers, corporations and other organizations such as search firms that
can generate revenue by selling job postings. Web publishers can utilize
career centers to create additional revenue streams through advertising
and retain visitors. Corporations can use a career center to make their
online recruitment efforts more productive. Our CareerEngine Solutions
Division offers the experience, staff and know-how to build, host and
maintain on an ASP basis career centers for on and offline organizations
more effectively, quicker and at less cost than would be the case if the
organizations built and maintained their own websites. Our management
believes that these career centers should provide a company with the
opportunity to attract and recruit the best candidates by being able to
offer them the ability to quickly assess the company's visions and
competitive advantages by accessing information placed by the company in
appropriate fields provided by us.
We develop customized career websites for our clients and recommend
proprietary "plug-ins" that incorporate the latest technology - such as
job search agents and confidential resume hosting. If the site we
construct becomes an important revenue producer for the client, they have
the option of joining the CareerEngine Network and utilizing the sales
representatives of our distributors to sell and market job postings for
their sites. We also provide programs to help our clients facilitate their
site updates and provide them with customer service capabilities.
Revenues generated by this division include fees generated from website
construction services, monthly subscription-type revenue streams based
upon contractual terms for maintenance and website hosting services, and
fees from consulting services.
Our Discontinued Operations
During the past five years we had concentrated in providing merchant and
investment banking (primarily related to real estate projects such as our
project with Carmike Cinemas, Inc.), financial consulting, and
e-recruiting services. In 2000 our Board of Directors decided to
discontinue the merchant and investment
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banking and financial consulting segments to concentrate our efforts on
our online recruiting business.
In 1997, Movieplex Realty Leasing, L.L.C. ("Movieplex"), a subsidiary of
the Company, entered into an agreement with a major film exhibitor,
Carmike Cinemas, Inc. ("Carmike"), to develop and lease an unspecified
number of state of the art multiplex movie theaters at a cost not to
exceed approximately $75,000,000, plus an amount equal to any proceeds
received by Movieplex from the investment of related funding prior to the
expending of development costs (the "Project Funding"). Under the terms of
the agreement, Carmike was responsible for construction costs in excess of
the Project Funding. The primary components of the Project Funding were
(i) $72,750,000 from Movieplex's issuance of bonds and (ii) $2,272,500
from an equity investment. Pursuant to one of the related agreements,
Carmike acted as the development agent for Movieplex over the period
November 20, 1997 through November 19, 1999 (the "Development Period").
During the Development Period, eight theaters (each theater consisting of
an acquired parcel of land and the improvements constructed thereon) were
developed at a cost substantially in excess of the Project Funding. These
excess costs were funded by Carmike. In order to restore the original
intent of developing multiple theaters at an amount not to exceed the
Project Funding, on April 11, 2000, Movieplex transferred title to two
theaters to Carmike. The costs relating to the remaining six properties,
after reallocating those costs incurred by Movieplex pertaining to the two
transferred theaters, does not exceed the cost incurred to develop such
remaining theaters. The allocated costs for each of the six theaters does
not exceed their value as determined by an outside appraiser. In
connection with the transfer of the two theaters, the related lease was
amended to (i) increase the purchase option price to Carmike at the
expiration of the initial lease term from 100% to 110% of a pre-determined
future value, (ii) effectively increase the rent payable during the
initial renewal option term of the lease by 10%, and (iii) increase the
current return on Movieplex's common members' equity investment. These
amendments, in the aggregate, increased the Company's anticipated
financial return on this transaction. The Company was also compensated
$188,000 for its consulting services provided with regard to this matter.
7
Commencing November 20, 1999, Carmike leased each of the six theaters
under the terms of a triple net, credit type lease with Movieplex, as
lessor. Monthly rental payments received by the lessor primarily
fluctuated with the debt service payments on the related bonds and the
cash return due to the Common and Preferred Members of Movieplex. The
lease required that Carmike, in addition to paying a stipulated monthly
rental to the lessor (i) pay all utilities, insurance, and local real
estate, corporate and franchise taxes; (ii) reimburse the lessor for
substantially all of its necessary and reasonable expenses incurred in
fulfilling its role as lessor; and (iii) assume full operating,
maintenance and environmental responsibilities for the preservation and,
if necessary, restoration of the land and related improvements thereon. At
the end of the initial lease term in 2015, Carmike had the option to
extend the lease, relating to not less than all the theaters, for an
additional term of ten years and, thereafter, for an additional term of
five years at rental rates provided in the lease. Alternatively, at the
end of the initial lease term, Carmike had the option to purchase, not
less than all the theaters, at an amount based on a predetermined future
value.
Bonds payable were secured by irrevocable letters of credit issued by a
group of banks which, in turn, were collateralized solely by the related
land and theaters thereon. In connection therewith the Company entered
into a Reimbursement Agreement with Wachovia, N.A. 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. The bonds bore interest, payable
monthly, at a variable base rate indexed to the 30-day, high-grade
commercial paper rate which was reset weekly. Principal on the bonds was
payable in annual installments, commencing December 1, 2000, in amounts
ranging from $970,000 to $7,775,000 with a final payment due at maturity,
November 1, 2015, of $12,975,000.
The 3% equity investment by the lessor amounted to $2,272,500 of which
$2,250,000 and $22,500 was contributed by the lessor's Preferred and
Common Memberships (or shareholdings), respectively. A third party owns
100% of the Preferred Membership and two subsidiaries of the Company own
100% of the Common Membership of the lessor. The Common and Preferred
8
Membership interests are entitled to a cash return based on a formula
specified within the lease.
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, on August 15, 2000, 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. On August 15, 2000 the bonds were paid entirely
through draws on the related letters of credit. Accordingly, amounts
previously payable on the bonds became payable to the banks immediately
under the Reimbursement Agreement. 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.
General
The Company was incorporated under the laws of the State of Delaware in
1968. It maintains offices at 200 West 57th Street, Suite 1103, New York,
New York 10019 and its telephone number is (2l2) 775-0400.
Unless the context requires otherwise, the term "Company," "our," or "we"
refers to CareerEngine Network, Inc. and its wholly-owned subsidiaries:
CareerEngine, Inc.; Snider, Williams & Co., Inc.; Randolph, Hudson & Co.,
Inc.; Shaw Realty Company, Inc.; Helmstar Funding, Inc.; Burrows, Hayes
Company, Inc.; Dover, Sussex Company, Inc.; Housing Capital Corporation;
Randel, Palmer & Co., Inc.; Parker, Reld & Co., Inc., McAdam, Taylor &
Co., Inc.; Ryan, Jones & Co., Inc.; Advanced Digital Networks, Inc.; A.E.
Lander Corp. (formerly Alexander Edwards International, Inc.); and
Matthews & Wright, Inc. The above companies,
9
other than CareerEngine, Inc., are currently operationally inactive.
As of March 31, 2003, the Company had 6 employees.
Competition
The market for online recruiting services is relatively new, intensely
competitive and rapidly evolving. There are minimal barriers to entry, and
current and new competitors can launch new websites and add content at
relatively low costs within relatively short time periods. We expect
competition to persist and intensify and the number of competitors to
increase significantly in the future. We compete against large online
recruiting services that operate "generalist sites" that offer single
database job boards, such as Monster.com, HotJobs.com, CareerBuilder.com,
as well as corporate Internet sites, and not-for-profit websites operated
by individuals, educational institutions and governmental agencies. We
also compete against some companies that offer one or more specific career
sites oriented toward the community served by one or more of our vertical
career sites, and with an increasing number of companies offering ASP
services that construct, host and maintain career centers for individual
corporations, professional associations and other organizations. In
addition to this online competition, we compete against a variety of
companies that provide similar content through one or more media, such as
classified advertising, radio and television. Many of our current and
potential competitors, including those mentioned above, have significantly
greater financial, technical and marketing resources, longer operating
histories, better name recognition and more experience than we do. Many of
our competitors also have established relationships with employers,
recruiters and other job posters.
Regulation
The Company does not believe that they are subject to regulation in the
current conduct of its business.
10
American Stock Exchange (the "Exchange") Listing
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 may lose its listing on the Exchange. The Company has been
notified that, subject to the procedural requirements of the American
Stock Exchange, its stock can be delisted imminently.
The Company is considering entering into a transaction with certain
selling parties with whom it previously signed a letter of intent to
acquire two entities and an intangible asset. The letter of intent has
expired but the Company is attempting to finalize such business
combination. The Company is considering the issuance of a combination of
its securities including its preferred stock, warrants, and notes payable
as consideration. The execution of such purchase agreement would depend,
but is not limited to, the Company's ability to raise appropriate amounts
of capital, and maintain its listing on the American Stock Exchange.
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.
11
Forward Looking Statements
Certain statements in this Annual Report Form 10-KSB 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.
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Item 2. Description of Property.
The Company currently leases, on a month-to-month basis,
approximately 1,500 square feet of office space at Suite 1103, 200 West
57th Street in New York City at a monthly rental rate of $5,000. This
rental arrangement expires April 2003. The Company is currently
negotiating to lease approximately 1,000 square feet of space in New York
City at a base rental rate not to exceed $2,500 per month on a one or two
year basis.
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Item 3. 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 $100,000.
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Item 4. Submission of Matters to a Vote of Security-Holders.
None.
15
PART II
Item 5. Market For Common Equity and Related Stockholder Matters.
Exchange Listing:
The common stock of CareerEngine Network, Inc. is listed on the American
Stock Exchange and the Pacific Exchange (trading symbol CNE).
The approximate number of recordholders of Common Stock as of March 31,
2003 was 220.
Equity Sale Prices:
Common Stock
------------
High Sales Price Low Sales Price
---------------- ---------------
2001
1st Quarter 1.8125 0.60
2nd Quarter 1.2 0.45
3rd Quarter .75 0.15
4th Quarter 2.00 0.50
2002
1st Quarter 1.40 0.60
2nd Quarter 0.57 0.16
3rd Quarter 0.34 0.16
4th Quarter 0.56 0.10
Dividends:
The Company has not previously paid cash dividends on its common stock.
The Board of Directors does not presently intend to pay cash dividends on
the outstanding shares of common stock in the foreseeable future. The
payments of future dividends and the amount thereof will depend upon the
Company's earnings, financial condition, capital requirements and such
other factors as the Board of Directors may consider relevant.
Private Issuance of Company Securities:
None.
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Item 6. Management's Discussion and Analysis.
Summary Financial Information
The summary financial data set forth below are derived from and should be
read in conjunction with the financial statements, including the notes
thereto, filed as part of this Annual Report in Form 10-KSB.
Year Ended December 31,
-----------------------
2002 2001
---- ----
(In thousands, except per
share data)
Statement of Operations Data
Revenues $ 240 $ 1,243
Net income (loss) $ 1,597 $ (2,786)
Net income per common share $ .29 $ (.51)
Weighted average number
of shares 5,585,944 5,514,775
December 31,
------------
2002 2001
---- ----
(in thousands)
Balance Sheet Data
Working capital $ (3,640) $ (4,690)
Total assets $ 316 $ 1,250
Total liabilities $ 4,214 $ 7,043
Capital deficit $ (3,898) $ (5,793)
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 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. In 2002, the Company received
insurance proceeds in amounts that have exceeded the net carrying value of
the destroyed assets and, accordingly, has recorded a $152,934 gain on
assets destroyed due to this catastrophe.
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The Company also had insurance coverage for other than assets destroyed.
The remaining outstanding insurance claims at December 31, 2002 of
approximately $64,000 were received in January 2003.
In addition, the Company had 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 have been 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 or,
alternatively, have to repay such grants if the above conditions are not
satisfied.
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 on this segment and raising capital.
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.
Critical Accounting Policies
The Company's 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 to the Company's
financial statements included in this Annual Report on Form 10-KSB. The
Company has not adopted any significant new accounting policies during the
year ended December 31, 2002.
18
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 and adjusted as
necessary.
Forward Looking Statements
Certain statements in this Annual Report on Form 10-KSB 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.
A. Results of Operations: 2002 Compared to 2001
Revenues
Total revenues from continuing operations decreased to $240,048 in 2002
from $1,242,980 in 2001.
Service fee income decreased to $237,800 in 2002 from $796,870 in 2001 as
the operations of our subsidiary, CareerEngine, Inc. have been
significantly reduced since January 2001 due to the significant downturn
in the online technology sector.
Income on securities transactions, net decreased to nil in 2002 from
$420,253 in 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.
19
Interest income decreased to $2,248 in 2002 from $25,857 in 2001 due to
the reduced amount of funds available for investment and lower interest
rates.
Costs and Expenses
Total costs and expenses from continuing operations decreased to
$2,558,178 in 2002 from $3,931,317 in 2001.
Compensation and related costs decreased to $580,145 in 2002 from
$1,970,411 in 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 reduction of two officers' salaries as
of December 31, 2001.
Advertising expense decreased to $10,000 in 2002 from $244,490 in 2001 as
CareerEngine, Inc. continued its cost reduction program, which focused
primarily on compensation and advertising related expenditures.
General and administrative expenses decreased to $927,367 in 2002 from
$1,330,494 in 2001 as the Company continued its cost reduction program.
General and administrative expenses in 2002 include a $320,350 charge
incurred relating to the write-off of all remaining deferred financing
costs pertaining to the Company's debentures payable.
Interest expense increased to $1,040,666 in 2002 from $385,922 in 2001
primarily due to the Company's recognition of all of the remaining
unamortized debt discount relating to its debentures payable as interest
expense.
Other Items
Gain on insurance claim for fixed assets destroyed in catastrophe
consisting of $152,934 in 2002 relates to insurance proceeds in excess of
carrying costs due to the destruction of the World Trade Center where the
Company was headquartered.
Reversal of Directors fees of $55,000 in 2002 relates to the forgiveness
of fees earned by the outside Directors and their agreement to forego
these fees until further notice.
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Operating Loss
Our loss from continuing operations in 2002 was $2,115,446 compared with a
loss from continuing operations of $2,697,857 in 2001. In 2002, loss per
common share from continuing operations, basic and diluted, was $.37 per
share. In 2001, loss per common share from continuing operations, basic
and diluted, was $.49 per share.
Our income from discontinued operations in 2002 was $3,712,884 compared
with a loss from discontinued operations of $87,750 in 2001 due primarily
to the transfer of title of 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. In
2002, income per common share from discontinued operations, basic and
diluted, was $.66 per share. In 2001, loss per common share from
discontinued operations, basic and diluted, was $.02 per share.
Our net income in 2002 was $1,597,438 compared with a net loss of
$2,785,607 in 2001. In 2002, net income per common share, basic and
diluted, was $.29 per share. In 2001, net loss per common share, basic and
diluted, was $.51 per share. All outstanding options and warrants were not
dilutive.
B. Liquidity and Capital Resources
The Company has incurred substantial losses from continuing operations,
sustained substantial cash outflows from operating activities, has a
working capital deficit and at December 31, 2002 has a capital deficiency.
Management believes that such losses and negative operating cash flows
will continue in the first quarter of fiscal year 2003. 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 is continuing a cost reduction strategy.
However, the Company has been notified that, subject to the procedural
requirements of the American Stock Exchange, its stock can be delisted
imminently.
21
There is no assurance that the Company will obtain additional financing or
achieve profitable operations or positive cash flows. 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
going concern uncertainty. 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 more than a 90% staff reduction, and the effective
elimination of our advertising expenditures.
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
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. Should the Company not be
able to raise additional financing or should it lose its American Stock
Exchange listing, it might have to cease operations.
We do not have any material commitments for capital expenditures as of
December 31, 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
22
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 may lose its
listing on the Exchange. The Company has been notified that, subject to
the procedural requirements of the American Stock Exchange, its stock can
be delisted imminently.
The Company is considering entering into a transaction with certain
selling parties with whom it previously signed a letter of intent to
acquire two entities and an intangible asset. The letter of intent has
expired but the Company is attempting to finalize such business
combination. The Company is considering the issuance of a combination of
its securities including its preferred stock, warrants, and notes payable
as consideration. The execution of such purchase agreement would depend,
but is not limited to, the Company's ability to raise appropriate amounts
of capital, and maintain its listing on the American Stock Exchange.
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.
23
Item 7. Financial Statements.
The Company's financial statements to be filed hereunder follow, beginning
with page F.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
CareerEngine Network, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of CareerEngine
Network, Inc. and subsidiaries (the "Company") as of December 31, 2002, and the
related consolidated statements of operations, changes in capital deficit and
cash flows for each of the years in the two-year period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of CareerEngine Network,
Inc. and subsidiaries as of December 31, 2002, and the consolidated results of
their operations and their consolidated cash flows for each of the years in the
two-year period then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has experienced substantial losses, sustained
operating cash outflows, and at December 31, 2002 has a capital deficit from
continuing operations and anticipates that such conditions will continue in
fiscal year 2003. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note A. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Eisner LLP
New York, New York
April 9, 2003
F-2
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 2002
ASSETS
Current:
Cash and cash equivalents $ 183,200
Accounts receivable, net 35,144
Insurance claims receivable 63,912
------------
Total current assets 282,256
Fixed assets, net 33,250
------------
$ 315,506
============
LIABILITIES
Current:
Accounts payable and accrued expenses $ 392,307
Interest payable 216,000
Debentures payable (Note E) 2,400,000
Tax assessment payable (Note C) 913,461
------------
Total current liabilities 3,921,768
Deferred grant revenue 291,827
------------
4,213,595
------------
Commitments and contingencies (Note I)
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 shares issued 682,960
Paid-in surplus 16,290,691
Accumulated deficit (17,998,640)
------------
(1,024,989)
Less treasury stock, at cost - 1,238,656 shares (2,873,100)
------------
(3,898,089)
------------
$ 315,506
============
See notes to financial statements F-3
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended December 31,
-----------------------------
2002 2001
----------- -----------
Revenue:
Service fee income $ 237,800 $ 796,870
Income on securities transactions 420,253
Interest income 2,248 25,857
----------- -----------
240,048 1,242,980
----------- -----------
Costs and Expenses:
Compensation and related costs 580,145 1,970,411
Advertising 10,000 244,490
General and administrative 927,367 1,330,494
Interest 1,040,666 385,922
----------- -----------
2,558,178 3,931,317
----------- -----------
Loss from continuing operations before items shown below (2,318,130) (2,688,337)
Gain on insurance claim for fixed assets destroyed in catastrophe 152,934
Reversal of Director fees accrual 55,000
----------- -----------
Loss from continuing operations before income taxes (2,110,196) (2,688,337)
Income tax provision 5,250 9,520
----------- -----------
Loss from continuing operations (2,115,446) (2,697,857)
Discontinued operations:
Income (loss) from discontinued operations 3,712,884 (87,750)
----------- -----------
Net income (loss) $ 1,597,438 $(2,785,607)
=========== ===========
Per common share - basic and diluted:
Loss from continuing operations $ (.37) $ (.49)
Income (loss) from discontinued operations .66 (.02)
----------- -----------
Net income (loss) per common share $ .29 $ (.51)
=========== ===========
Weighted average number of common shares outstanding - basic and diluted 5,585,944 5,514,775
=========== ===========
See notes to financial statements F-4
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Capital Deficit
Years ended December 31, 2002 and 2001
Common Stock Treasury Stock
----------------------- Paid-in Accumulated ------------------------
Shares Amount Surplus Deficit Shares Amount Total
---------- ---------- ------------- ------------- --------- ------------ -------------
Balance - January 1, 2001 6,749,600 $ 674,960 $ 16,022,187 $(16,810,471) 1,305,594 $(3,028,396) $ (3,141,720)
Common stock issued for services,
at market value 20,000 2,000 25,000 27,000
Issuance of common stock in
connection with the exercise
of stock options 20,000 2,000 11,000 13,000
Treasury stock issued for services,
at fair value (61,246) (66,938) 155,296 94,050
Net loss (2,785,607) (2,785,607)
---------- ---------- ------------- ------------ --------- ----------- ------------
Balance - December 31, 2001 6,789,600 $ 678,960 $ 15,996,941 $(19,596,078) 1,238,656 $(2,873,100) $ (5,793,277)
Common stock issued for services,
at market value 40,000 4,000 27,500 31,500
Capital contributions by officers,
directors and stockholders
in the form of compensation
forgiveness 266,250 266,250
Net income 1,597,438 1,597,438
---------- ---------- ------------- ------------ --------- ----------- ------------
Balance - December 31, 2002 6,829,600 $ 682,960 $ 16,290,691 $(17,998,640) 1,238,656 $(2,873,100) $ (3,898,089)
========== ========== ============= ============ ========= =========== ============
See notes to financial statements F-5
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
-----------------------------
2002 2001
----------- -----------
Cash flows from operating activities:
Loss from continuing operations $(2,115,446) $(2,697,857)
Adjustments to reconcile loss from continuing operations to net cash
used in operating activities:
Depreciation and amortization 534,239 366,432
Issuance of common and treasury stock for services 31,500 121,050
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
Amortization of debt discount 691,748 29,768
Changes in:
Accounts and insurance claims receivable 471,451 102,867
Other assets 63,815 (26,621)
Accrued expenses and other liabilities 21,218 75,863
Deferred grant revenue 291,827
----------- -----------
Cash (used in) continuing operations (217,582) (944,316)
Cash provided by (used in) discontinued operations 200,000 (87,750)
----------- -----------
Net cash (used in) operating activities (17,582) (1,032,066)
----------- -----------
Cash flows from investing activities:
Proceeds from surrender of life insurance policies 226,390
Disposal of computer equipment 4,080
Purchase of furniture and equipment (1,722)
----------- -----------
Cash provided by continuing operations 228,748
----------- -----------
Net cash provided by investing activities 228,748
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 13,000
Principal payments in reduction of tax assessment payable (135,258)
----------- -----------
Cash (used in) continuing operations (122,258)
----------- -----------
Net cash (used in) financing activities (122,258)
----------- -----------
Decrease in cash and cash equivalents (17,582) (925,576)
Cash and cash equivalents at beginning of year 200,782 1,126,358
----------- -----------
Cash and cash equivalents at end of year $ 183,200 $ 200,782
=========== ===========
Supplemental disclosures of cash flow information related to
continuing operations:
Cash paid during the year for:
Interest $ 72,000 $ 356,154
Income taxes $ 5,250 $ 9,520
Noncash investing and financing activities:
See Note J
See notes to financial statements F-6
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE A - THE COMPANY
CareerEngine Network, Inc. (the "Company") is engaged in the e-recruiting
(online) business through its subsidiary CareerEngine, Inc., which was formed in
1998 and commenced revenue producing operations in the fourth quarter of 1999.
CareerEngine Network, Inc. through other subsidiaries was also engaged in
merchant banking activities concentrating on real estate projects and also
provided financial consulting services. On August 16, 2000, the Board of
Directors of CareerEngine Network, Inc. decided to discontinue such operations
and accordingly, the accompanying consolidated financial statements reflect the
merchant banking activities and financial consulting services as discontinued
operations. The Company's sole operating segment is the e-recruiting business,
which provides services.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As reflected in the accompanying
financial statements, the Company has incurred substantial losses from
continuing operations, sustained substantial cash outflows from operating
activities, has a working capital deficit and at December 31, 2002 has a capital
deficiency. Management believes that such losses and negative operating cash
flows will continue in the first quarter of calendar year 2003. 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 the procedural requirements of the
American Stock Exchange, its stock can be delisted imminently. There is no
assurance that the Company will obtain additional financing or achieve
profitable operations or generate possible 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 going concern uncertainty.
Catastrophe on 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 (see Note D).
Subsequent to September 11, 2001, 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.
F-7
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE B - SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO CONTINUING OPERATIONS
[1] Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
[2] Revenue recognition:
E-recruiting fees are earned on the placement of banner advertisements,
job placement advertisements 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.
[3] Depreciation and amortization:
Furniture, fixtures and equipment were being depreciated using the
straight-line method over estimated lives of three to seven years.
Leasehold improvements were amortized on a straight-line basis over the
shorter of the term of the lease or their estimated useful lives. Computer
equipment is being depreciated on a straight-line basis over an estimated
life of three years.
[4] Cash and cash equivalents:
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. As of
December 31, 2002, cash equivalents consist principally of an investment
of approximately $151,000 in a money market account.
[5] Net income (loss) per share:
Basic and diluted net loss per share is computed based upon the weighted
average number of common shares outstanding during each year. Based on
losses recognized from continuing operations, outstanding stock options,
warrants and convertible debentures did not have an effect on the
computation as they were anti-dilutive.
[6] Income taxes:
Deferred income taxes are measured by applying enacted statutory rates in
effect at the balance sheet date to net operating loss carryforwards and
to the differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements. The resulting deferred
tax asset as of December 31, 2002 was fully reserved since the likelihood
of realization of future tax benefits cannot be established.
F-8
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE B - SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO
CONTINUING OPERATIONS (CONTINUED)
[7] 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 2002 and 2001 were de minimus and $420,000,
respectively. Such amounts are included in income on securities
transactions in the accompanying statements of operations. At December 31,
2002, no derivative financial instruments were held by the Company and the
average fair value of such instruments held during the years was not
material.
[8] Stock-based compensation:
We apply the provisions of Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for our stock-based compensation plans. Accordingly, no
compensation has been recognized in the financial statements with respect
to employee and director grants of options and warrants issued with an
exercise price at or above the fair market value of the stock on the grant
date. Since options to be awarded can vest over several years, the pro
forma results noted below are not necessarily representative of the
effects on future years of the application of the fair value method. Had
compensation costs for such options and warrants been determined based on
the fair value approach promulgated by SFAS No. 123 "Accounting for Stock
Based Compensation", our net loss applicable to Common Stock would have
been as follows.
For the year ended December 31,
-------------------------------
2002 2001
---- ----
Net income (loss) as reported $ 1,597,438 $(2,785,607)
SFAS 123 compensation charge (213,657) (307,556)
----------- -----------
Proforma net income (loss) $ 1,383,781 $(3,093,163
=========== ===========
Proforma net income (loss)
per share as reported $ 0.25 $ (0.56)
=========== ===========
For the purpose of the above pro forma information, the fair value of
these options was estimated at the date of grant using the Black-Scholes
option pricing model. The weighted-average fair value of the options
granted during 2001 was $.24. The following weighted-average assumptions
were used in computing the fair value of option grants for 2001:
weighted-average risk-free interest rate of 3.62%; zero dividend yield;
volatility of the Company's Common Stock of 192%; and an expected life of
the options range from one to seven years. No stock options were issued in
the twelve months ending December 31, 2002.
F-9
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE B - SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO
CONTINUING OPERATIONS (CONTINUED)
[9] Use of estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
[10] Advertising costs:
Advertising costs are expensed as incurred.
[11] Software development costs:
External direct costs of materials and services incurred to develop the
Company's website during the application development stage were
capitalized. There were no such costs during the years ended December 31,
2002 and 2001, respectively. These costs are being amortized using the
straight-line method over an estimated useful life of three years.
[12] Impairment of long-lived assets:
Impairment losses are recognized for long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are not sufficient to recover
the assets' carrying amount. The impairment loss is measured by comparing
the fair value of the asset to its carrying amount. No write-down of
assets for impairment losses were required during the years ended December
31, 2002 and 2001.
[13] Deferred financing costs:
Deferred financing costs were being amortized on a straight-line basis
over the term of the debentures. (See Note E.)
F-10
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE B - SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO
CONTINUING OPERATIONS (CONTINUED)
[14] Recent accounting pronouncements:
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The statement retains the previously
existing accounting requirements related to the recognition and
measurement of the impairment of long-lived assets to be held and used
while expanding the measurement requirements of long-lived assets to be
disposed of by sale to include discontinued operations. It also expands
the previously existing reporting requirements for discontinued operations
to include a component of an entity that either had been disposed of or is
classified as held for sale. The Company implemented SFAS No. 144 on
January 1, 2002. Management does not expect this statement to have a
material impact on the Company's financial position or results of
operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS 146"), which addresses financial accounting and
reporting for costs associated with exit or disposal activities and
supersedes Emerging Issues Tax Force ("EITF") Issue 94-3, "Liability
Recognition for Certain Employee Termination benefits and Other Costs to
Exit an Activity" (including Certain Costs Incurred in a Restructuring).
SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. Under EITF
Issue 94-3, a liability for an exit cost as defined in EITF Issue 94-3 was
recognized at the date of an entity's commitment to an exit plan. SFAS 146
also establishes that the liability should initially be measured and
recorded at fair value. SFAS 146 is effective for exit and disposal
activities initiated after December 31, 2002. Management is currently
evaluating the provision of SFAS 146 but expects that they will not have a
material impact on the Company's results of operations and financial
position upon adoption.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees and Indebtedness of Others." FIN 45
elaborates on the disclosures to be made by the guarantor in its interim
and annual financial statements about its obligations under certain
guarantees that it has issued. It also requires that a guarantor
recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of this interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002; while the provisions of the disclosure requirements are
effective for financial statements of interim or annual reports ending
after December 15, 2002. Management does not expect this statement to have
a material impact on the Company's financial position or results of
operations.
F-11
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE B - SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO
CONTINUING OPERATIONS (CONTINUED)
[14] Recent accounting pronouncements (continued)
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" ("SFAS 148"). SFAS 148 amends Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), to provide
alternative methods for voluntary transition to SFAS 123's fair value
method of accounting for stock-based employee compensation ("the fair
value method"). SFAS 148 also requires disclosure of the effects of an
entity's accounting policy with respect to stock-based employee
compensation on reported net income (loss) and earnings (loss) per share
in annual and interim financial statements and has determined not to adopt
the fair value method for stock based compensation.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." In general, a variable
interest entity is a corporation, partnership, trust, or any other legal
structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its
activities. FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the investors do
not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The
consolidation requirements of FIN 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim
period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31,
2003, regardless of when the variable interest entity was established.
Management does not expect this statement to have a material impact on the
Company's financial position or results of operations.
NOTE C - INCOME TAXES
The income tax provision applicable to continuing operations, all of which is
current, consists of the following:
Year Ended
December 31,
--------------------
2002 2001
------ ------
Federal $ -- $ --
State and local franchise taxes 5,250 9,520
------ ------
$5,250 $9,520
====== ======
At December 31, 2002, the Company has a net operating loss carryforward for
federal income tax purposes of approximately $31,596000, which expires in the
years 2005 through 2022.
F-12
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE C - INCOME TAXES (CONTINUED)
The Company's deferred tax assets and liabilities consists of the following:
------------ ------------
2002 2001*
------------ ------------
Deferred tax assets:
Net operating loss carryforward $ 14,534,000 $ 12,254,000
Liability for interest and state taxes related to federal
tax settlement 232,000 203,000
Other 16,000 134,000
------------ ------------
Total deferred tax assets, before valuation allowance 14,782,000 15,650,000
Valuation allowance (14,782,000) (14,890,000)
------------ ------------
Total deferred tax assets 0 760,000
Deferred tax liability:
Deferred rental income 0 (760,000)
------------ ------------
$ 0 $ 0
============ ============
The valuation allowance (decreased) increased by approximately ($108,000) during
2002 and $1,092,000 during 2001. The decrease in the valuation allowance of
$108,000 for the twelve months ended December 31, 2002 results from the increase
in the valuation allowance attributable to the deferred tax benefit of
approximately $840,000 on the loss from continuing operations and a benefit
recognized of $948,000 from discontinued operations.
*The amount of net operating loss carried forwards at December 31, 2001
and the corresponding amount of valuation allowance attributable thereto
has been retroactively adjusted to conform to the company's federal tax return.
The effective tax rate applicable to continuing operations varied from the
statutory federal income tax rate as follows:
Year Ended
December 31,
----------------------
2002 2001
------- -------
Statutory rate (34)% (34)%
State and local taxes, net of federal income tax effect (12) (12)
Nondeductible expenses 2 1
Valuation allowance 44 45
------- -------
Effective rate 0 % 0 %
======= =======
The Internal Revenue Service ("IRS") has examined the Company's federal income
tax returns for the years 1985 through 1989 and in December 1999 assessed a tax
deficiency of $348,000 together with accrued interest of $576,000. During 2002
and 2001, the Company accrued additional interest expense of $60,918 and
$68,154, respectively, related to the tax deficiency. 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
F-13
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE C - INCOME TAXES (CONTINUED)
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 December 31, 2002, the outstanding balance of the liability
amounted to $913,000 including related additional state and local taxes and
interest.
NOTE D - INSURANCE CLAIMS RECEIVABLE AND FIXED ASSETS
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 destroyed.
The net carrying value of the destroyed assets of the Company was $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 2002, the Company received insurance proceeds in amounts that have exceeded
the net carrying value of the destroyed assets and, accordingly, has recorded a
$152,934 gain on assets destroyed due to this catastrophe.
The Company also had insurance coverage for other than assets destroyed. The
remaining outstanding insurance claims at December 31, 2002 of approximately
$64,000 were received in January 2003.
In addition, the Company had 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 or, alternatively,
have to repay such grants if the above conditions are not satisfied
Fixed assets, net at December 31, 2002 consists of the following:
Computer equipment $ 657,172
Software 133,000
-----------
790,172
Less, accumulated depreciation and amortization 756,922
-----------
$ 33,250
===========
Such receivable was used to reduce the corresponding costs included in general
and administrative expenses.
F-14
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE E - 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, stockholders
and directors of the Company acquired 10.5 units for $525,000. The Class A
Warrants expired at March 31, 2003.
The aggregate number of shares issue able 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 was amortized through the period the
debentures are callable. The amounts ascribed to the beneficial conversion
feature and the warrants aggregating $986,875 were credited to paid-in-surplus.
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 from April 1,
2002 through December 31, 2002, aggregating $216,000 has not been paid through
April 1, 2003.
Since the Company had not paid the interest due on April 1, 2002 by April 16,
2002 (the "grace period"), the Company's obligation is considered callable by
the debenture holders and as a consequence the entire balance of the debentures
with the related unpaid interest is classified as a current obligation at
December 31, 2002. For the debentures to be in default, the holders of no less
then 51% in principal amount of the debentures must notify the Company that an
event of default has occurred and may thereafter declare all debentures and
related interest immediately due and payable. As of April 9, 2003, no such
demand has been made by any debenture holder. In addition, unamortized debt
discount on the debentures was recognized as interest expense for the year ended
December 31, 2002. The Company also recognized as expense the unamortized
deferred financing costs associated with the debentures of $320,350.
F-15
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE F - WARRANTS
As of December 31, 2002 outstanding warrants to acquire common stock consisted
of:
Shares of
Type of Warrant Expiration Date Exercise Price Common Stock
--------------- --------------- -------------- ------------
Class A March 2003 $4 600,000
Class B March 2005 $6 600,000
Units (Note E) June 2005 $5 125,000
----------
1,325,000
==========
NOTE G - STOCK OPTION PLANS
In 1990, the Company adopted a stock option plan (the "1990 Plan") for granting
of options to purchase up to 750,000 shares of its common stock, pursuant to
which officers and other key employees are eligible to receive incentive and/or
nonqualified stock options, stock appreciation rights, and restricted stock
awards. Incentive stock options granted under the 1990 Plan are exercisable for
a period of up to 10 years (five years in the case of a 10% or greater
stockholder) from date of grant at an exercise price which is not less than the
quoted market price on date of grant, except that the exercise price of options
granted to a stockholder owning more than 10% of the outstanding capital stock
may not be less than 110% of the quoted market price of the common stock at date
of grant. The 1990 Plan was terminated on June 3, 1999.
On April 23, 1999, the Company adopted a stock option plan (the "1999 Plan") for
granting options to purchase up to 350,000 shares of common stock, pursuant to
which officers and other key employees, directors, independent contractors and
agents are eligible to receive incentive and/or nonqualified stock options.
Options granted under the 1999 Plan are exercisable for a period of up to 10
years from date of grant at an exercise price which is not less than the quoted
market price on date of grant, except that the exercise price of options granted
to a stockholder owing more than 10% of the outstanding capital stock may not be
less than 110% of the quoted market price of the common stock at date of grant.
Stock option activity under the 1990 Plan and 1999 Plan is summarized as
follows:
Year Ended December 31,
-----------------------------------------------------
2002 2001
------------------------ -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- ---------- --------- ----------
Options outstanding at beginning of year 290,000 $ 2.55 490,000 $ 2.09
Options granted during year 20,000 .65
Options cancelled (200,000) 1.41
Options exercised during year (20,000) .65
--------- ---------
Options outstanding at end of year 290,000 $ 2.55 290,000 $ 2.55
--------- ---------
Options exercisable at end of year 200,000 $ 2.55 135,000 $ 2.57
========= =========
F-16
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE G - STOCK OPTION PLANS (CONTINUED)
The following table presents information relating to stock options outstanding
at December 31, 2002
Options Outstanding Options Exercisable
------------------------------------- ---------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Exercise Life in Exercise
Range of Exercise Price Shares Price Years Shares Price
----------------------- ------ -------- --------- ------ --------
$2.25 - $2.50 250,000 2.40 6.27 160,000 2.41
$3.50 40,000 3.50 7.05 40,000 3.50
--------- --------
290,000 $ 2.55 6.86 200,000 $2.63
========= ========
In March 2003, the Company's employees and directors rescinded their interest in
290,000 of the options granted to them.
On May 1, 1999, CareerEngine, Inc., a subsidiary of the Company, adopted a stock
option plan (the "1999 Plan") for granting options to purchase up to 2,000,000
shares of common stock, pursuant to which officers and other key employees are
eligible to receive incentive and/or nonqualified stock options. Options granted
under the 1999 Plan are exercisable for a period of up to 10 years from date of
grant at an exercise price which is not less than the fair value on date of
grant, except that the exercise price of options granted to a stockholder owing
more than 10% of the outstanding capital stock may not be less than 110% of the
fair value of the common stock at date of grant.
Stock option activity under the 1999 Plan is summarized as follows:
Year Ended December 31,
--------------------------------------------------------------
2002 2001
-------------------------- ------------------------------
Weighted
Average Weighted
Exercise Average
Shares Price Shares Exercise Price
---------- --------- ------------ --------------
Options outstanding at
beginning of year 73,500 $ 2.50 1,565,000 $ .79
Options cancelled (21,500) 2.50 (1,491,500) .71
---------- ------------
Options outstanding at end of year 52,000 $ 2.50 73,500 $ 2.50
========== ============
Options exercisable at end of year 51,167 $ 2.50 45,000 $ 2.50
========== ============
F-17
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE G - STOCK OPTION PLANS (CONTINUED)
The following table presents information relating to stock options outstanding
at December 31, 2002:
Options Outstanding Options Exercisable
------------------------------------ -----------------------------------
Weighted
Range Weighted Average Weighted
of Average Remaining Average
Exercise Exercise Life in Exercise
Price Shares Price Years Shares Price
-------- -------- -------- --------- -------- --------
$2.50 52,000 $ 2.50 7.02 51,167 $ 2.50
In March 2003 the Company's employees and directors rescinded their interests in
52,000 of the options granted to them.
NOTE H - 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. 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 year ended
December 31, 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 year ended December 31, 2002.
NOTE I - COMMITMENTS, LITIGATION AND OTHER MATTERS
[1] The Company currently leases, on a month-to-month basis, approximately
1,500 square feet of office space in New York City at a monthly rental
rate of $5,000. This rental arrangement expires April, 2003. The Company
is currently negotiating to lease approximately 1,000 square feet of space
at a different location in New York City at a base rental rate of less
than $3,000 per month for a one or two year lease.
Rental expense amounted to $60,500 and $180,477 for the years ended
December 31, 2002 and 2001, respectively.
[2] The Company has a Retirement Savings Plan for its employees, pursuant to
Section 401(k) of the Internal Revenue Code. Employee contributions to the
plan and the Company's matching contributions vest immediately. The
Company's contribution to the plan amounted to approximately $8,245 and
$26,876, for the years ended December 31, 2002 and 2001, respectively.
F-18
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE I - COMMITMENTS, LITIGATION AND OTHER MATTERS (CONTINUED)
[3] 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 $100,000 and, accordingly, this liability has been reflected
in accounts payable and accrued expenses.
NOTE J - DISCONTINUED OPERATIONS
In 2000, the Board of Directors of the Company decided to discontinue its
merchant banking operations, which consisted of its real estate operations
project with Carmike Cinemas, Inc., and its financial consulting operations.
Results of discontinued operations related thereto have been shown separately in
the accompanying financial statements.
Results of discontinued operations are summarized as follows:
Year Ended December 31,
----------------------------
2002 2001
---------- ------------
Rental income from real estate leased $1,249,710 $ 14,996,520
Gain on extinguishment of debt 3,512,884
Common membership interest transfer fee 294,755
---------- ------------
Total revenue 5,057,349 14,996,520
---------- ------------
Real estate leased expenses, consisting
principally of interest and letter of credit fees 1,249,710 14,996,520
Compensation and other costs 94,755 87,750
---------- ------------
Total expenses 1,344,465 15,084,270
---------- ------------
Income (loss) from discontinued operations $3,712,884 $ (87,750)
========== ============
Description of real estate operations:
In 1997, Movieplex Realty Leasing, L.L.C. ("Movieplex"), a subsidiary of
the Company, entered into an agreement with Carmike Cinemas, Inc.
("Carmike"), to develop and lease an unspecified number of multiplex movie
theaters at a cost not to exceed approximately $75,000,000, plus an amount
equal to any proceeds received by Movieplex from the investment of related
funding prior to the expending of development costs (the "Project
Funding"). Under the terms of the agreement, Carmike was responsible for
construction costs in excess of the Project Funding. The primary
components of the Project Funding were (i) $72,750,000 from Movieplex's
issuance of bonds and (ii) $2,272,500 from an equity investment. Pursuant
to one of the related agreements, Carmike acted as the development agent
for Movieplex over the period November 20, 1997 through November 19, 1999
(the "Development Period"). During the Development Period, eight theaters
(each theater consisting of an acquired parcel of land and the
improvements constructed thereon) were developed at a cost substantially
in excess of the Project Funding. These excess costs were funded by
Carmike. In order to restore the original intent of developing multiple
theaters at an
F-19
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE J - DISCONTINUED OPERATIONS (CONTINUED)
amount not to exceed the Project Funding, on April 11, 2000, Movieplex
transferred title to two theaters to Carmike. The costs relating to the
remaining six properties, after reallocating those costs incurred by
Movieplex pertaining to the two transferred theaters, did not exceed the
cost incurred to develop such remaining theaters. The allocated costs for
each of the six theaters did not exceed their value as determined by an
outside appraiser. In connection with the transfer of the two theaters,
the related lease was amended to (i) increase the purchase option price to
Carmike at the expiration of the initial lease term from 100% to 110% of a
pre-determined future value, (ii) effectively increase the rent payable
during the initial renewal option term of the lease by 10%, and (iii)
increase the current return on Movieplex's common members' equity
investment. These amendments, in the aggregate, increased the Company's
anticipated financial return on this transaction. The Company was also
compensated $188,000 for its consulting services provided with regard to
this matter.
Commencing November 20, 1999, Carmike leased each of the six theaters
under the terms of a triple net, credit type lease with Movieplex, as
lessor. Monthly rental payments received by the lessor primarily
fluctuated with the debt service payments on the related bonds and the
cash return due to the Common and Preferred Members of Movieplex. The
lease required that Carmike, in addition to paying a stipulated monthly
rental to the lessor (i) pay all utilities, insurance, and local real
estate, corporate and franchise taxes; (ii) reimburse the lessor for
substantially all of its necessary and reasonable expenses incurred in
fulfilling its role as lessor; and (iii) assume full operating,
maintenance and environmental responsibilities for the preservation and,
if necessary, restoration of the land and related improvements thereon. At
the end of the initial lease term in 2015, Carmike had the option to
extend the lease, relating to not less than all the theaters, for an
additional term of ten years and, thereafter, for an additional term of
five years at rental rates provided in the lease. Alternatively, at the
end of the initial lease term, Carmike had the option to purchase, not
less than all the theaters, at an amount based on a predetermined future
value.
Bonds payable were secured by irrevocable letters of credit issued by a
group of banks which, in turn, were collateralized solely by the related
land and theaters thereon. In connection therewith the Company entered
into a Reimbursement Agreement with Wachovia, N.A. 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. The bonds bore interest, payable
monthly, at a variable base rate indexed to the 30-day, high-grade
commercial paper rate which was reset weekly. Principal on the bonds was
payable in annual installments, commencing December 1, 2000, in amounts
ranging from $970,000 to $7,775,000 with a final payment due at maturity,
November 1, 2015, of $12,975,000.
The 3% equity investment by the lessor amounted to $2,272,500 of which
$2,250,000 and $22,500 was contributed by the lessor's Preferred and
Common Memberships (or shareholdings), respectively. A third party owns
100% of the Preferred Membership and two subsidiaries of the Company own
100% of the Common Membership of the lessor. The Common and Preferred
Membership interests were entitled to a cash return based on a formula
specified within the lease.
F-20
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002 and 2001
NOTE J - DISCONTINUED OPERATIONS (CONTINUED)
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, on August 15, 2000, 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. On August 15, 2000 the bonds were paid entirely
through draws on the related letters of credit. Accordingly, amounts
previously payable on the bonds became payable to the banks immediately
under the Reimbursement Agreement. 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.
NOTE K - SUBSEQUENT EVENT
The Company is considering entering into a transaction with certain
selling parties with whom it previously signed a letter of intent to
acquire two entities and an intangible asset. The letter of intent has
expired but the Company is attempting to finalize such business
combination. The Company is considering the issuance of a combination of
its securities including its preferred stock, warrants, and notes payable
as consideration. The execution of such purchase agreement would depend,
but is not limited to, the Company's ability to raise appropriate amounts
of capital, and maintain its listing on the American Stock Exchange.
F-21
24
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
25
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
(a) Board of Directors
Under the Company's By-Laws, the Board of Directors is divided into three
classes. Each of the three classes has a term that is staggered by one
year from one another. Members of each class are elected to serve for a
term of three years and until their successors are elected or until their
resignation, removal or ineligibility.
During 2002, the Board had 8 meetings.
The Company's By-Laws provide for an Executive Committee consisting of the
Chairman of the Board and not less than two other Directors to exercise
the powers of the Board during the intervals between meetings of the
Board. During 2002, the Executive Committee consisting of Messrs. George
W. Benoit, Kevin J. Benoit and David W. Dube had 5 meetings.
The Board has an Audit Committee consisting of four outside Directors who
are not employees of the Company. This committee discusses audit and
financial reporting matters with both management and the Company's
independent certified public accountants. To ensure independence, the
independent certified public accountants may meet with the Audit Committee
with or without the presence of management representatives. During 2002,
the Audit Committee consisting of Messrs. Joseph J. Anastasi, Charles W.
Currie, David W. Dube and James J. Murtha had 4 meetings.
The Board has a Compensation Committee for the purpose of reviewing the
compensation of officers and employees of the Company and making
recommendations to the Board with respect thereto. During 2002, the
Compensation Committee consisting of Messrs. G. Benoit, K. Benoit, Currie
and Dube had 2 meetings.
The Board has a Nominating Committee to propose nominees for election to
the Board. During 2002, the Nominating Committee consisting of Messrs. K.
Benoit, Anastasi, Murtha and Currie had 1 meeting. The Nominating
26
Committee will consider suggestions for potential nominees submitted by
stockholders if mailed to the Chairman of the Board.
The Board has an Incentive Compensation Committee for the purpose of
administering and making incentive compensation awards under the Company's
1990 Incentive Compensation Plan. During 2002, the Incentive Compensation
Committee consisting of Messrs. Anastasi, Murtha, Currie, and Dube had 2
meetings.
Each Director attended at least 75% of the aggregate of the total number
of Board meetings, and meetings of all committees of the Board on which he
serves, except for Mr. Murtha.
The members of the Board of Directors of the Company are as follows:
GEORGE W. BENOIT, 66, has been the President, Chief Executive
Officer and a director of CareerEngine Network, Inc. since 1971. In
addition, Mr. Benoit has been Chairman of the Board since 1972. His
term expires in 2003.
KEVIN J. BENOIT, 40, has been a director of CareerEngine Network,
Inc. since August 1999. Since 1995, Mr. Benoit has been the sole
principal of Stratford Capital Management, Inc., an investment
management firm. He was Vice President of Randolph, Hudson & Co.,
Inc., a subsidiary of ours that was responsible for cash management,
from 1995 through 2001. Mr. Benoit is a registered C.T.A. and C.P.O.
and specializes in arbitrage and hedging strategies. Mr. Benoit's
father is George Benoit our President and CEO. His term expires in
2003.
CHARLES W. CURRIE, 60, has been a director of CareerEngine Network,
Inc. since 1986. Mr. Currie is a partner of First American Fund
Services, Inc., a company that provides marketing services to
investment managers, since October 2002. Mr. Currie had been a
partner with Asset Management Services LLC from August 1996 through
September 2002. His term expires in 2003.
JOSEPH G. ANASTASI, 66, has been a director of CareerEngine Network,
Inc. since September 1986. Since 1960 Mr. Anastasi has been the
owner and
27
president of Montgomery Realty Company, Inc., a firm specializing in
commercial sales, development consulting and property management. He
was president of The Anastasi Stephens Group, Inc. which was engaged
in real estate development. The Anastasi Stephens Group, Inc. has
been inactive since 1994. His term expires in 2003.
DAVID W. DUBE, 47, has been a director of CareerEngine Network, Inc.
since June 1996. Mr. Dube is President of Peak Capital Corporation,
a corporate finance and management advisory firm, and Peak
Securities Corporation, a registered broker-dealer. Mr. Dube was
Senior Vice President and Chief Financial Officer of FAB Capital
Corp., a merchant banking and securities investment firm, and served
in various other capacities from 1997 through October 1999. Mr. Dube
was President and Chief Executive Officer of Optimax Industries,
Inc., a publicly-traded company with interests in the horticultural,
decorative giftware and truck parts accessories industries from 1996
to 1997. Mr. Dube serves on the Board of Directors of
publicly-traded GlycoGenesys, Inc. and New World Wine Group, Ltd.
His term expires in 2003.
JAMES J. MURTHA, 54, has been a director of CareerEngine Network,
Inc. since October 1986. Since June 1997, Mr. Murtha has been
self-employed as a real estate investor. From August 1994 to June
1997, Mr. Murtha held the position of President of Kenwood Capital,
L.P., a limited partnership, that specializes in real estate
investments. His term expires in 2003.
EDWARD A. MARTINO, 53, has been a director of CareerEngine Network,
Inc. since October 2000. Mr. Martino has over twenty years of
experience in the IT and wireless industry. He has held numerous
marketing and global sales management positions while at IBM for 18
years. Mr. Martino also served as a Senior Vice President for two
companies, one specializing in global IT outsourcing for large
enterprises and another in the development of wireless solutions and
consulting. Since December 2002 he assumed his present position as
the Northeast Director of Corporate Sales for NEXTEL Communications.
Mr. Martino currently serves on several other boards including the
New York Software Industry Association where he is a Vice
28
Chairman, City University of New York Institute for Software
Development and Design, and the Bronx Museum of the Arts. His term
expires in 2003.
(b) Executive Officers
The Executive officers of the Company are as follows:
GEORGE W. BENOIT has been the President, Chief Executive Officer and
a director of CareerEngine Network, Inc. since 1971. In addition,
Mr. Benoit has been Chairman of the Board since 1972.
ANTHONY S. CONIGLIARO has been the Vice President and Chief
Financial Officer of CareerEngine Network, Inc. since March 1999.
From 1996 to 1999, Mr. Conigliaro was Executive Vice President and
Chief Financial/Operating Officer of InterJet Online Services, Inc.,
New York, a company that developed an aviation "portal" website.
From 1991 through 1996, he was Senior Vice President and Chief
Financial Officer of Akin Bay Company LLC, an investment banking
concern in New York. Prior to 1991 he was Vice President and Chief
Operating Officer of Realty and Equipment Corporation, New York, a
private investment firm primarily specializing in commercial real
estate portfolio. Mr. Conigliaro, a certified public accountant,
began his career with Coopers & Lybrand, New York.
(c) Compliance with Section 16(a) of the Exchange Act
Officers, Directors and persons who own more than ten percent of a
registered class of the Company's equity securities are required by
Section 16(a) of the Exchange Act to file reports of ownership and changes
in ownership with the Commission. Officers, Directors and greater than
ten-percent shareholders are required by the Commission's rules to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company, or representations that no Forms 5 were required, the Company
believes that all Section 16(a) filing requirements were complied with in
a timely manner.
29
Item 10. Executive Compensation.
(a) Executive Officer Compensation
The following table sets forth all compensation awarded to, earned by or
paid to, our Chief Executive Officer and our most highly compensated
executive officers. In 2002, annual salaries of such individuals did not
exceed $100,000. The following table represents annual compensation for
all services rendered in all capacities to us by highly compensated
individuals during 2002, 2001 and 2000.
Summary Compensation Table
--------------------------
Name and Principal All Other
Position Year Salary Bonus Compensation (1)
-------- ---- ------ ----- ----------------
George W. Benoit, President, 2002
Chief Executive Officer and 2001 $160,000 $ 3,212
Chairman 2000 $155,626 $35,807
Anthony S. Conigliaro, Vice 2002
President and Chief 2001 $110,000
Financial Officer 2000 $100,000
----------
(1) Represents the Company's share of insurance premium on Split Dollar Life
Insurance Agreement which was cancelled in 2001.
Executive compensation can vary widely from year to year. The Company may
pay discretionary bonuses to its salaried employees. Bonuses are
determined by the Compensation Committee of the Board of Directors. There
were not bonuses in 2002.
30
(b) Compensation Pursuant to Plans
401(k) Cash or Deferred Compensation Plan. The Company maintains a
tax-qualified 401(k) cash or deferred compensation plan that covers all
employees who have completed one year of service and attained age 21.
Participants are permitted, within the limitations imposed by the Internal
Revenue Code, to make pre-tax contributions to the plan pursuant to salary
reduction agreements. The Company may, in its discretion on an annual
basis, make additional contributions. The contributions of the
participants and the Company are held in separate accounts. Participants
are always fully vested in both accounts.
1990 Incentive Compensation Plan. The stockholders approved the Company's
1990 Incentive Compensation Plan (the "Plan") on June 7, 1990. On June 5,
1996, the Plan was amended to increase the number of shares available for
grant (the "Amended Plan"). Pursuant to the Amended Plan, 750,000 shares
of the Company's Common Stock have been reserved for issuance to officers
and other key employees as incentive or nonqualified stock options, stock
appreciation rights ("SARs") or restricted stock awards. Incentive stock
options must have an exercise price per share equal to no less than the
fair market value of the Company's Common Stock on the date of grant (110%
in the case of a 10% stockholder). Incentive stock options may not be
exercised after 10 years from the date of grant (five years in the case of
a 10% stockholder). Nonqualified stock options cannot be exercised prior
to one year or after ten years from the date of grant. Concurrently with
nonqualified options granted, participants may also receive SARs. SARs
will provide participants with cash equal to the difference between the
fair market value of the number of shares for which the SAR award is
exercised and the exercise price of nonqualified stock options on the date
the SAR award is exercised. Restricted stock will be subject to
restrictions which will render such shares subject to forfeiture.
Additionally, restricted stock will be nontransferable during the period
any restrictions apply. The Board of Directors has established an
Incentive Compensation Committee to administer the Plan. No member of such
committee shall be eligible to receive any type of award under the Plan.
During 1992, options to purchase an aggregate of 150,000 shares were
granted to employees, none of whom were executive officers. During 1996,
options to purchase 50,000 of those shares
31
expired. On April 7, 1999, options to purchase 460,000 shares were granted
to various employees, including George W. Benoit (150,000) and Kevin J.
Benoit (100,000). No other awards have been made under the Plan and no
options have been exercised. The Plan was terminated on June 3, 1999. On
March 14, 2003 the recipients of all outstanding awards under the Plan
waived their rights to such awards.
1999 Stock Option Plan. The Stockholders approved the 1999 Stock Option
Plan (the "99 Plan"), which provides, among other matters, for incentive
and non-qualified stock options to purchase 350,000 shares of Common
Stock. The purpose of the 99 Plan is to provide incentives to officers,
key employees, directors, independent contractors and agents whose
performance will contribute to the long-term success and growth of the
Company, to strengthen the ability of the Company to attract and retain
officers, key employees, directors, independent contractors and agents of
high competence, to increase the identity of interests of such people with
those of the Company's stockholders and to help build loyalty to the
Company through recognition and the opportunity for stock ownership. The
99 Plan is administered by the Incentive Compensation Committee of the
Board.
The 99 Plan permits the granting of both incentive stock options and
non-qualified stock options. Generally, the option price of both incentive
stock options and non-qualified stock options must be at least equal to
100% of the fair market value of the shares on the date of grant. The
maximum term of each option is ten years. For any participant who owns
shares possessing more than 10% of the voting rights of the Company's
outstanding shares of Common Stock, the exercise price of any incentive
stock option must be at least equal to 110% of the fair market value of
the shares subject to such option on the date of grant and the term of the
option may not be longer than five years. Options become exercisable at
such time or times as the Board may determine at the time it grants
options.
Under the 99 Plan, incentive stock options may be granted only to officers
and employees and non-qualified stock options may be granted to officers,
employees as well as directors, independent contractors and agents.
Persons eligible to receive options consist primarily of three (3)
officers and three (3) key employees.
32
The 99 Plan expires on March 31, 2009 unless earlier terminated or
suspended by the Board. The 99 Plan may be amended, terminated or modified
by the Board at any time, except that the Board may not, without approval
by a vote of the stockholders of the Company (i) increase the maximum
number of shares for which options may be granted under the 99 Plan, (ii)
change the persons eligible to participate in the 99 Plan, or (iii)
materially increase the benefits accruing to participants under the 99
Plan. No such termination, modification or amendment may affect the rights
of an optionee under an outstanding option or the grantee of an award.
During 2000, options to purchase 40,000 shares were granted to four (4)
directors of the Company: Charles W. Currie (10,000); Joseph G. Anastasi
(10,000); David W. Dube (10,000); and James J. Murtha (10,000). No other
awards were made under the 99 Plan and no options were exercised. During
2001, 20,000 options were awarded under the 99 Plan and 20,000 options
were exercised. On March 14, 2003 the recipients of all outstanding awards
under the 99 Plan waived their rights to such awards.
(b) Director Compensation
There are no family relationships among any of the Directors or executive
officers of the Company, other than Kevin J. Benoit, who is the son of
George W. Benoit, Chairman of the Company.
The Company does not pay Directors who are employees of the Company any
fees for serving as Directors, but reimburses them for their out-of-pocket
expenses in connection with such duties. The Company pays Directors who
are not employees of the Company an annual retainer of $12,000 plus
expenses incurred for attending meetings of the Board, Annual Stockholders
Meetings and for each meeting of a committee of the Board not held in
conjunction with a Board meeting. No payments were made to the Directors
of the Company in 2002, other than their expenses relating to attending
meetings of the Board. In addition, in 2002 the Directors of the Company
forgave $55,000 of such retainer fees.
33
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 31, 2003, the shares of our
common stock owned beneficially; by each of our current directors; by all
of our current directors and executive officers as a group; and by persons
known to us to own, beneficially, more than five (5%) percent of the
outstanding shares of our common stock:
Percent of Aggregate Voting
Name of Common Stock Power and Outstanding
Beneficial Owner (1) Beneficially Owned (2) Equity Owned (3)
-------------------- ---------------------- ----------------
George W. Benoit 1,634,120 (4)(7) 28.71
Kevin J. Benoit 428,000 (5)(7) 7.52
Charles W. Currie 271,780 (6) 4.86
Joseph G. Anastasi 2,200 *
David W. Dube 4,000 *
Edward A. Martino 15,300 *
Anthony S. Conigliaro 2,000 *
Barry W. Blank 884,400 (8) 14.60
All Directors and Executive
Officers as a group (8 persons) 2,357,400 40.71
* Owns less than one (1%) percent.
(1) The address of all the beneficial owners is: CareerEngine Network, Inc.,
Suite 1103, 200 West 57th Street, New York, New York 10019; except that
the address for Barry W. Blank is P.O. Box 32056, Phoenix, Arizona 85064.
(2) A person is deemed to be a beneficial owner of securities that can be
acquired by such person within 60 days from the filing of this Form 10-KSB
upon the exercise of options and warrants or conversion of convertible
securities. Each beneficial owner's percentage ownership is determined by
assuming that options, warrants and convertible securities that are held
by such person (but not held by any other person) and that are exercisable
or convertible within 60 days from the filing of this Form 10-KSB have
been exercise or converted. Except as otherwise indicated, and subject to
applicable community property and similar laws, each of the persons named
has sole voting and investment power with respect to the shares shown as
beneficially owned.
34
(3) All percentages of beneficial ownership are calculated based the number of
shares outstanding as of March 31, 2003. On such date we had 5,590,944
shares of common stock issued and outstanding.
(4) Includes the following: 90,700 shares of common stock held in George W.
Benoit's 401K Plan.
(5) Includes the following: (a) 31,000 shares of common stock held in the
Kevin J. Benoit 1998 Family Trust, of which Kevin J. Benoit is the
Trustee; and (b) 35,300 shares of common stock held in Kevin J. Benoit's
Individual Retirement Account.
(6) Includes the following: (a) 200 shares of common stock owned by Mr.
Currie's wife; and (b) 9,900 shares of common stock held in Charles W.
Currie's Individual Retirement Account.
(7) Includes 100,000 shares of common stock that can be acquired on the
conversion of certain debentures and related warrants.
(8) Includes 300,000 shares of common stock that can be acquired on the
conversion of certain debentures and related warrants. Also includes
168,000 shares that can be acquired on the conversion of certain
debentures and related warrants issuable upon exercise of placement agent
warrants issued to the placement agent in the private financing completed
in June and August 2000 and promised by the placement agent to Mr. Blank.
35
Item 12. Certain Relationships and Related Transactions
Other than the purchasing of certain units privately offered by the
Company in June and August 2000, amounting to $525,000, in the aggregate,
there have been no material transactions where we were a party, in which
any of our executive officers, directors or principal security-holders had
a direct or indirect interest.
36
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
Certain of the following exhibits, as indicated parenthetically, were
previously filed as exhibits to other reports or registration statements
filed by the Registrant under the Securities Act of 1933 or under the
Securities Exchange Act of 1934 and are hereby incorporated by reference.
3.1 Restated Certificate of Incorporation of the Registrant filed on
July 31, 1987 and amendments thereto filed on June 8, 1989,
September 14, 1990 and December 2, 1991. Certificate of change of
location of registered office and of registered agent filed on May
7, 1992. (Incorporated by reference to the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1997)
3.2 Certificates of Amendment of Certificate of Incorporation
(A) Name change, dated March 23, 2000
(B) Number of shares, dated October 16, 2000
(Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 2000)
3.3 Amended and Restated By-Laws of the Registrant. (Incorporated by
reference to the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 2000)
4.1 Form of CareerEngine Network, Inc. 12% Convertible Subordinated
Debenture due March 31, 2010. (Incorporated by reference to the
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 2000)
4.2 Form of Class A Warrants to Purchase Common Stock of CareerEngine
Network, Inc., dated June 28 and August 7, 2000. (Incorporated by
reference to the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 2000)
37
4.3 Form of Class B Warrants to Purchase Common Stock of CareerEngine
Network, Inc., dated June 28 and August 7, 2000. (Incorporated by
reference to the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 2000)
4.4 CareerEngine Network, Inc. and Dirks and Company, Inc. Placement
Agent's Warrant Agreement, dated June 28, 2000; and related form of
Warrant Certificate. (Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 2000)
10.1 CareerEngine Network, Inc. (formerly Helmstar Group, Inc.) 1999
Stock Option Plan. (Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1999)
10.2 Indenture of Trust between Movieplex Realty Leasing, L.L.C. and
First Union National Bank, as Trustee, dated November 1, 1997.
(Incorporated by reference to the Registrant's Annual Report on Form
10-KSB/A for the year ended December 31, 1997)
10.3 Form of Bond. (Incorporated by reference to the Registrant's Annual
Report on Form 10-KSB/A for the year ended December 31, 1997)
10.4 Master Lease between Movieplex Realty Leasing, L.L.C., as Landlord,
and Carmike Cinemas, Inc., as Tenant, dated November 20, 1997.
(Incorporated by reference to the Registrant's Annual Report on Form
10-KSB/A for the year ended December 31, 1997)(1)
10.5 Reimbursement Agreement, dated as of November 20, 1997, among
Movieplex Realty Leasing, L.L.C, the Lenders, and Wachovia Bank,
N.A., as Agent. (Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB/A for the year ended December 31,
1997)(1)
----------
(1) Portions of this exhibit have been deleted per the Registrant's request
for confidential treatment and filed separately with the Commission
pursuant to Rule 24b-2
38
10.6 Form of Letter of Credit. (Incorporated by reference to the
Registrant's Annual Report on Form 10-KSB/A for the year ended
December 31, 1997)
10.7 Form of Bond Purchase Agreement between Movieplex Realty Leasing,
L.L.C. and {the Purchaser], dated November 20, 1997. (Incorporated
by reference to the Registrant's Annual Report on Form 10-KSB/A for
the year ended December 31, 1997)
10.8 Agency and Development Agreement between Movieplex Realty Leasing,
L.L.C. and Carmike Cinemas, Inc., dated November 20, 1997.
(Incorporated by reference to the Registrant's Annual Report on Form
10-KSB/A for the year ended December 31, 1997)
21.0 Subsidiaries of the Registrant.
(b) No reports on Form 8-K have been filed during the period covered by
this report.
39
Item 14. 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 Annual Report on Form 10-KSB 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.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 15th day of April,
2003.
CareerEngine Network, Inc.
/s/ George W. Benoit
------------------------------------------
George W. Benoit, Chairman of the Board
and Chief Executive Officer
/s/ Anthony S. Conigliaro
------------------------------------------
Anthony S. Conigliaro, Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated on the 15th day of April, 2003.
Signature Title
--------- -----
/s/ George W. Benoit Chairman of the Board, President,
-------------------- Chief Executive Officer
(George W. Benoit)
/s/ Joseph G. Anastasi Director
----------------------
(Joseph G. Anastasi)
/s/ Charles W. Currie Director
---------------------
(Charles W. Currie)
/s/ James J. Murtha Director
-------------------
(James J. Murtha)
/s/ David W. Dube Director
------------------
(David W. Dube)
/s/ Kevin J. Benoit Director
-------------------
(Kevin J. Benoit)
/s/ Edward A. Martino Director
---------------------
(Edward A. Martino)
41
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CareerEngine Network, Inc. (the
"Registrant") on Form 10-KSB for the year ending December 31, 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;
42
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
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: April 15, 2003 George W. Benoit,
Chairman of the Board of Directors,
President, and Chief Executive
Officer
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CareerEngine Network, Inc. (the
"Registrant") on Form 10-KSB for the year ending December 31, 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;
44
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
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: April 15, 2003 Anthony S. Conigliaro,
Vice President and
Chief Financial Officer