As filed with the Securities and Exchange Commission on February 12, 2001
Registration No. 333-52718
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CAREERENGINE NETWORK, INC.
(Name of small Business Issuer in its charter)
Delaware 7361 13-2689850
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
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2 World Trade Center
Suite 2112
New York, New York 10048
(212) 775-0400
(Address and telephone number of Principal Executive Offices)
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GEORGE W. BENOIT
Chief Executive Officer
CareerEngine Network, Inc.
2 World Trade Center, Suite 2112
New York, New York 10048
(212) 775-0400
(212) 775-0901 (Facsimile)
(Name, Address and Telephone Number of Agent For Service)
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Copies to:
M. Ridgway Barker Esq.
Paul McCurdy, Esq.
Barry B. Feiner, Esq. Kelley Drye & Warren LLP
170 Falcon Court Two Stamford Plaza
Manhassett, New York 11030 281 Tresser Boulevard
Stamford, Connecticut 06901
(516) 484-6890 (203) 324-1400
(516) 484-6867(Facsimile) (203) 327-2669 (Facsimile)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
EXPLANATORY NOTE
This registration statement contains two prospectuses: one relating to this
offering of 2,500 units of CareerEngine Network, Inc., plus 375 units to cover
over-allotments, if any, and one relating to the offering of 2,460 units by some
of the securityholders of CareerEngine Network, Inc. Following the prospectus
are certain substitute pages of the selling securityholder prospectus, including
alternate front outside and back outside cover pages, an alternate "The
Offering" section of the "Summary" and sections titled "Private Financing" and
"Selling Securityholders and Plan of Distribution." Each of the alternate pages
for the selling securityholder prospectus is labeled "Alternate Page for Selling
Securityholder Prospectus." All other sections of the prospectus, other than
"Use of Proceeds," "Dilution," and "Underwriting" are to be used for the selling
securityholder prospectus.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
[Prospectus Cover Page Legend]
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY APPLICABLE STATE SECURITIES
COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
Subject to Completion Dated February 12, 2001
[LOGO] CareerEngine
2,500 Units
each Unit consisting of
o $1,000 principal amount of 12% convertible debentures due on March 31,
2010,
o Class A warrants to purchase 250 shares of common stock and
o Class B warrants to purchase 250 shares of common stock.
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Accordingly, we are offering an aggregate of 2,500 debentures, 625,000
Class A warrants and 625,000 Class B warrants. We have also registered an
aggregate of 2,500,000 shares of our common stock issuable upon the conversion
of the debentures and exercise of the warrants.
Our common stock is traded on the American and Pacific Exchanges under
the symbol "CNE." On January 31, 2001 the last reported sale price of our common
stock was $1.31 per share.
Our debentures and our Class A and Class B warrants are not currently
being traded on any market. We will apply to list our units, debentures and
warrants on the American Stock Exchange and the Pacific Exchange under the
symbols "CNEU," "CNED," "CNE_," and "CNE_," respectively.
Selling securityholders are also offering up to 2,640 units through an
alternate prospectus that is dated ___________ , 2001.
Investing in the units involves risks. Consider carefully the risk
factors beginning on page 8 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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Per Unit Total
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Public offering price................................... $ 1,000 $2,500,000
Underwriting discounts and commissions.................. $ 100 $ 250,000
Proceeds before expenses................................ $ 900 $2,250,000
We expect total cash expenses in connection with the offering to be about
$250,000, which will include a nonaccountable expense allowance of 3% of the
gross proceeds of this offering that will be paid to Murphy & Durieu, the
underwriter of this offering. We have granted to the underwriter a 45-day option
to purchase up to 375 additional units to cover over-allotments. We will also
grant to the underwriter a five-year warrant to purchase units equal to 10% of
the units sold in this offering, excluding any units sold to cover
over-allotments, at an exercise price of 120% of the public unit offering price.
Murphy & Durieu expects to deliver the units on or about __________ , 2001
if payment for the units is received by Murphy & Durieu.
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Murphy & Durieu
The date of this Prospectus is __________ , 2001
INSIDE FRONT COVER
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements regarding
o future events,
o our financial performance and operating results,
o our business strategy and
o 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, including the risks described in
the "Risk Factors" section and elsewhere in this prospectus. These factors may
cause our actual results to differ materially from any forward-looking
statements.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus. This summary may not contain all of the information that you
should consider before buying securities in this offering. We urge you to read
the entire prospectus carefully, including the information set forth under "Risk
Factors," before making an investment decision.
Overview
Through our wholly-owned subsidiary, CareerEngine, Inc., we provide
web-based and related software services for employers, job seekers, professional
recruiters and service providers in the rapidly growing online recruitment
business. Using our proprietary software we offer customers the option of both
o utilizing our network of industry and occupation specific career,
or vertical, portal sites to post job offerings and review posted
candidate resumes and
o subscribing to our Application Services Provider or ASP services
where we construct, maintain and host recruitment and career center
sites for the exclusive use of our customers in meeting their human
resource requirements or as an additional revenue stream.
Our Network Division operates 25 portal career sites organized by
o specific job function,
o profession,
o designation,
o work location and
o diversity.
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, receive personalized
advice from our online career counselors 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 offering a prospective client the
opportunity to participate in our network of career sites and having us build a
career center for the client's own website, gives us a flexibility which we
believe is not enjoyed by any of our competitors. We believe that by offering
multiple products and services to address online recruiting needs, we have
established our own unique niche in the online recruiting market.
You should be aware, however, that;
o we have a limited operating history in the online recruiting
industry,
o we have a history of substantial losses and an accumulated deficit
as of September 30, 2000 of approximately $15 million, and
o some of our data bases contain a very limited number of postings.
CareerEngine Network was incorporated on April 27, 1971 under the name of Benoit
and Skrym, Inc. We changed our name to
o Matthews & Wright Group, Inc. on July 7, 1987,
o Helmstar Group, Inc. on December 2, 1991, and
o CareerEngine Network, Inc. on March 27, 2000.
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 which 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.
The number of aggregate postings on our network has fluctuated since we
began building our network in March 1999. As of January 31, 2001, the
approximate number of job postings on our network sites was 53,400. This number
includes duplicate postings which occur when certain job postings appropriately
are posted to more than one website in our network. While many of these postings
are placed by corporations and recruiters, we derive a significant number of
postings through our network of over 40 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
o TMP Worldwide,
o CareerBuilder, Inc.,
o Bernard Hodes,
o Vault.Com,
o Shaker Advertising and
o Recruit USA.
We estimate, based on discussions with our distributors, that there are more
than 5,000 salespersons and/or account executives engaged by our distributors
involved in soliciting job postings. Our distributors pay us our standard
posting fees less a negotiated commission for postings they originate and list
on the CareerEngine network.
Among the services provided 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.
Recently, we have entered into a number of co-branding arrangements,
which as of the date hereof have not provided us any material income, where we
either develop or upgrade a career site for a co-branding client, such as
o CFO.com, the online division of CFO Magazine,
o Crain's NY.com, the online version of the financial news journal,
o Engineering.com, a site serving the engineering community and
o JoC.com, the online version of The Journal of Commerce, an
Economist Group publication.
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These sites participate as members of our CareerEngine Network together with our
own vertical career sites and we share the revenues generated. Another
co-branding client is SmartMoney.com, a popular website offering personal
financial news, tools and investment advice. Users of this site will now have
access to a career center created by us offering confidential resume hosting,
job postings and career specific news.
Revenue from the CareerEngine Network Division is derived from
o job placement advertisements,
o banner advertisement placements for
corporations and other organizations,
o sponsorship advertisements, and
o co-branding arrangements with content providers that generate
revenues of a similar nature as those mentioned above.
Our CareerEngine Solutions Division
Online career centers are becoming increasingly utilized by 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. Early in 2000, we formed our CareerEngine Solutions Division to
offer 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. As of the date hereof, we have
only produced a demonstration site and have not sold a company site.
We develop customized career content for our client's site, and
recommend proprietary "plug-ins" that incorporate the latest technology - such
as job search agents and confidential resume hosting. We do not have any
agreements with third-parties pursuant to which we recommend their plug-ins to
our customers. If the site we construct becomes an important revenue producer
for the company, it has the option of joining the CareerEngine Network and
utilizing the sales representatives of our distributors to sell and market job
postings for the site. We also provide programs to help the company effectively
sell advertising inventory, facilitate site updates and provide customer
service.
Revenues generated by this division include a portion of initial cash
set up fees and monthly subscription-type revenue streams based upon contractual
terms. In the ten months since we started our Solutions Division, we have signed
up seven clients and generated division revenues of $205,000 from building,
hosting and maintaining their career websites.
The Market Opportunity For Online Recruitment
According to industry sources, business in the U.S. spent in excess of
$13 billion in 1997 to hire new employees by advertising job openings in
newspapers and by utilizing headhunters. With the acceptance of the Internet as
an attractive medium for online recruiting, an increasing share of recruiting
efforts will be conducted online. According to Forrester Research, Inc. the size
of the online recruiting market will increase from $105 million in 1998 to $1.7
billion in 2003. We believe that the complementary recruitment services offered
by our two divisions places us in a strong position to take advantage of these
favorable market prospects.
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The Offering
Securities Offered
2,500 units:
Each unit consists of
o a $1,000 principal amount 12% convertible debenture due on March
31, 2010,
o Class A warrants to purchase 250 shares of common stock and
o Class B warrants to purchase 250 shares of common stock.
The debenture and the warrants will trade only as a unit for six months
following this offering, unless we agree with the underwriter that
separate trading may begin sooner. Thereafter, each of the securities will
trade separately. Neither the underwriter nor we are currently aware of
any events that would cause the debentures and warrants to trade
separately prior to six months after the effective date of this offering.
In the event that such trading should occur, we expect that the American
Stock Exchange will post this information on its web site. For more
information, see "Description of Securities."
The Debentures:
Principal Amount of Debenture $1,000.
Annual Interest Rate 12% interest.
Payment of Interest Quarterly in cash on January 1, April 1,
July 1 and October 1 of each year,
commencing July 1, 2001.
Maturity March 31, 2010.
Conversion by Holder A holder may convert all or a portion of
the principal amount of its debenture
outstanding at the time such conversion
is effected into our common stock at any
time before the close of business on the
earlier of March 31, 2010 or the date
that principal and interest under the
debenture has been paid in full. If we
call the debenture for redemption, a
holder may convert its debenture at any
time before the close of business on the
redemption date. The initial conversion
price is $2.00 per share, subject to
adjustment in certain events, which
include:
o stock dividends, splits and
combinations;
o certain below market issuances of
stock;
o reclassifications;
o mergers; or
o the sale of substantially all of our
assets.
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On conversion, no payment or adjustment
for accrued and unpaid interest will be
made. All such interest will be
forfeited.
Redemption by Holder A holder's estate may redeem up to
$50,000 total value of the debentures
owned by that holder upon notice of the
holder's death and redemption election by
his or her estate. This right of
redemption may only be exercised by the
estate of the original holder. It does
not pass to any transferee.
Redemption by Us We can redeem all or part of the
debentures at 100% of their principal
amount, plus accrued interest to the
redemption date, on not less than 30
day's notice, if the closing price of our
common stock equals or exceeds 2.154
times the then conversion price for a
period of 20 consecutive trading days
ending three trading days prior to the
notice of redemption.
Ranking The debentures are second in right of
repayment to all of our senior debt.
Senior debt is any indebtedness payable
to banks or other traditional long-term
institutional lenders such as insurance
companies and pension funds, unless in
the instrument creating or evidencing
such indebtedness, it is provided that
such indebtedness is not senior in right
of payment to the debentures. If we were
to become insolvent, such senior debt
would have a priority of right to
repayment in connection with our
liquidation.
Transferability There are no transfer restrictions on the
debentures. However, the right to
redemption upon death of the initial
holder will terminate on transfer.
Please refer to "Description of Securities - The Debentures and the
Indenture."
Class A Warrants:
The Class A warrants are exercisable at a price of $4.00 per share until
they expire on March 31, 2003, subject to adjustment upon the occurrence
of the events that would cause the adjustment of the conversion price of
the debentures. We may redeem the Class A warrants on not less than 30
days' notice at a redemption price of $0.001 per warrant, provided that
the reported closing price of our common stock equals or exceeds 150% of
the then exercise price of the warrant for a period of 20 consecutive
trading days ending three trading days prior to the notice of redemption.
Please refer to "Description of Securities - Class A Warrants."
Class B Warrants:
The Class B warrants are exercisable at a price of $6.00 per share until
they expire on March 31, 2005, subject to adjustment upon the occurrence
of the events that would cause the adjustment of the conversion price of
the debentures. We may redeem the Class B warrants on not less than 30
days' notice at a redemption price of $0.001 per warrant, provided that
the reported closing price of our common stock equals or exceeds 150% of
the then exercise price of the warrant for a period of 20 consecutive
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trading days ending three trading days prior to the notice of redemption.
Please refer to "Description of Securities - Class B Warrants."
You should be aware that the warrants would only have value if the market
price of the common stock exceeds the respective exercise prices, which
have been arbitrarily determined.Risk Factors:
Risk Factors:
An investment in the units involves a high degree of risk. You should not
consider this offer if you cannot afford to lose your entire investment.
Please refer to "Risk Factors" for factors you should consider.
Use of Proceeds:
The net proceeds from the offering, estimated to be about $2,000,000, will
be used primarily for sales and marketing, continued development and
enhancement of the operations of the two divisions of our wholly-owned
subsidiary, CareerEngine, Inc., and for working capital. For more
information regarding how we will use the proceeds, please refer to "Use
of Proceeds."
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Summary Financial Data
Set forth below are selected financial data for each of the periods
indicated. The selected financial data for the years ended December 31, 1999 and
1998 as well as the nine-month periods ended September 30, 1999 and 2000 and the
selected balance sheet data as of December 31, 1999 and September 30, 2000 have
been derived from the audited and unaudited financial statements included
elsewhere in this prospectus. Results for the nine month period ended September
30, 2000 are not necessarily indicative of the results for the full fiscal year.
These unaudited financial statements reflect all adjustments (consisting of
normal recurring accruals) and disclosures which, in the opinion of our
management, are necessary for a fair statement of results for the periods
presented. All of the information set forth below should be read in conjunction
with our consolidated financial statements, including the notes thereto, "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included in this
prospectus.
Year Ended Nine Months Ended
December 31, September 30,
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1999 1998 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
Continuing Operations:
Revenues $ 1,471,421 $ 1,944,408 $ 2,296,448 $ 1,877,428
Expenses 4,424,308 2,267,067 5,789,443 2,228,529
----------- ----------- ----------- -----------
Loss from continuing operations
before income taxes (2,952,887) (322,659) (3,492,995) (351,101)
Income tax provision 10,098 (108,477) 15,340 12,163
----------- ----------- ----------- -----------
Loss from continuing operations (2,962,985) (214,182) (3,508,335) (363,264)
Loss from discontinued operations (1,089,409) (410,227) (730,318)
----------- ----------- ----------- -----------
Net Loss $(4,052,394) $ (624,409) $(4,238,653) $(1,589,814)
=========== =========== =========== ===========
Per common share - basic and diluted
Loss from continuing operations $ (.55) $ (.03) $ (.65) $ (.06)
Loss from discontinued operations (.20) (.08) (.13) (.23)
Net loss $ (.75) $ (.11) $ (.78) $ (.29)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding - basic and
diluted 5,435,673 5,489,376 5,440,090 5,435,964
=========== =========== =========== ===========
September 30, December 31,
2000 1999
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(Unaudited)
Total assets $ 5,604,841 $ 7,060,445
Total liabilities exclusive of liabilities relating to discontinued $ 3,396,733 $ 1,891,201
operations
Excess of liabilities over assets of discontinued operations $ 3,361,269 $ 3,215,344
Total stockholders' equity $ (1,153,161) $ 1,953,900
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Our principal executive office is located at Two World Trade Center,
Suite 2112, New York, New York 10048. Our telephone number is (212) 775-0400 and
our Web site addresses are www.CareerEngine.com and www.CareerEngine.net.
Information contained on our websites is not a part of this prospectus.
Unless otherwise indicated, all information in this prospectus assumes
that the underwriter will not exercise its over-allotment option.
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RISK FACTORS
This offering involves a high degree of risk. Each prospective investor
should carefully consider the risks described below and other information in
this prospectus before making an investment decision.
We have a limited operating history in the online employment recruitment
business and we may not be successful.
We did not commence operations as an online employment recruiting
service until March 1999 when we began building our network career sites. It was
not until the end of the first quarter of 2000 that we started offering our ASP
services through our newly formed CareerEngine Solutions Division. As a result,
we have a limited operating history upon which you can base an evaluation of our
current business and prospects. During the past five years, we concentrated on
providing merchant and investment banking services, primarily related to real
estate projects, and financial consulting services. In August 2000, we
discontinued these business segments to concentrate our efforts on our online
recruiting business.
Our business model for offering multiple products and services to
address online recruiting needs has only been in place since the beginning of
2000. Accordingly, its effectiveness has not been adequately tested. Thus, we
cannot guarantee that we will be able to generate the profits necessary to
sustain our business expectations. You must consider the risks, expenses and
problems frequently encountered by an early stage business in a rapidly evolving
market, which makes our ability to implement successfully our business plan
uncertain.
We have a history of losses and we expect continued losses.
From January 1, 1999, the approximate commencement date of our online
recruiting activities, through September 30, 2000 our accumulated deficit
increased from $6,605,000 to $14,897,000. The $8,292,000 increase in the
accumulated deficit is comprised of losses from continuing operations amounting
to $6,471,000 and losses from discontinued operations amounting to $1,820,000.
For the year ended December 31, 1999, we generated revenues from
continuing operations of $1,471,000, of which $31,000 related to our online
recruiting operations, and we sustained losses from continuing operations of
$2,963,000. For the first nine months of 2000, we generated revenues from
continuing operations of $2,296,000, of which $930,000 related to our online
recruiting operations, and we sustained losses from continuing operations of
about $3,508,000.
If the revenue from our cash management activities, less related
expenses, were not realized in the year ended December 31, 1999 and the
nine-month period ended September 30, 2000, our losses from continuing
operations would have increased approximately $901,000 and $1,286,000,
respectively. Accordingly, our losses from continuing operations for the year
ended December 31, 1999 and the nine-month period ended September 30, 2000, were
directly attributable to our online recruiting activities.
We expect these losses from continuing operations to continue for the
through the second quarter of 2001 due to our need to incur additional costs and
expenses related to:
o increased marketing and advertising to strengthen brand awareness
and to develop and expand our ASP offerings;
o continued development of our career websites;
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o development of relationships with major content providers; and
o upfront charges to be incurred in developing co-branded websites in
connection with our promotions of this type of business
relationship.
We may not be able to generate and maintain sufficient additional revenues to
makes us profitable because:
o we may be unable to convince a sufficient number of employers and
recruiters to utilize our websites for their online recruiting
needs;
o the Internet may not continue to grow and be accepted as a
recruiting tool;
o the number of job seekers who visit our websites may not increase
in sufficient numbers;
o the number of job opportunities posted on our websites may not
increase in sufficient numbers;
o our Solutions Division may be unable to attract sufficient
additional ASP customers.
If we do achieve profitability, we cannot be certain that we will be
able to sustain or increase profitability on a quarterly or annual basis in the
future. Our inability to achieve or maintain profitability or positive cash flow
could result in disappointing financial results, impede implementation of our
growth strategy or cause the market price of our securities to decrease. We may
not be able to achieve profitability.
We may require additional funding in the event our revenues do not meet our
projections, our expenses are greater than we anticipate, or to finance the
further development of our business. Our inability to obtain additional
financing, if required, would have an adverse effect on our business.
Our success will depend on our ability to induce greater usage by
employers and recruiters of our network services and on securing more widespread
acceptance of our CareerEngine Solutions ASP services. This means having an
adequate advertising and marketing budget and adequate funds to continue to
promote our services. We expect that the net proceeds from this offering
together with our existing resources will be sufficient to meet our cash
requirements for at least the next 12 months. Historically, we have sustained
our operations primarily from our own financial resources, the net proceeds
generated from our cash management activities, and from the proceeds of the
private financing of units
However, if the actual costs of adding to and enlarging our customer
base are higher than projected or our contemplated future revenues fall below
our current expectations, we may require additional financing before the
expiration of 12 months.
We anticipate, but cannot assure, that this additional financing will
come from the exercise of the warrants included in this offering and the private
financing warrants. However, we cannot assure that the price of our common stock
will ever attain sufficient levels to induce the exercise of the warrants.
In the event that the warrants are not exercised within the time period
needed, we will be forced to seek alternate sources of financing, most likely
from one or more additional public or private equity or debt offerings. We
currently have no commitments for any of such additional funding. We may not be
able to raise needed cash on terms acceptable to us or at all. Financings may be
on terms that are dilutive or potentially dilutive to our stockholders. If
10
sources of financing are required, but are insufficient or unavailable, we will
be required to modify our growth and operating plans to the extent of available
funding, which would have an adverse effect on the successful implementation of
our planned business development.
Our untested pricing models may not generate expected revenue.
Because we have limited experience in pricing our online recruitment
servicing we cannot accurately forecast the magnitude, timing or profitability
of future revenues. We have priced our service so that we receive:
o a fixed schedule of fees for job listings on each site in our
network;
o fees based on various pricing models for resume matching through
resume subscription by employers and recruiting firms;
o fees in accordance with three pricing plans for providing ASP
service based on the type and sophistication of the services
offered;
o no up front fees but complete sharing of all revenues for
co-branding arrangements; and
o reduced job posting fees from our distributors to allow for
negotiated commissions.
Until we gain more experience in pricing our services we cannot be sure
that with respect to some or all of our services we have established a pricing
policy that is both competitive with what others are charging and at the same
time sufficient to assure us a fair return. We would expect to fine tune our
pricing policies as we gain more experience in our revenue models. In any event
we cannot assure that our pricing models, even if modified to meet changing
conditions or evaluations, will be sufficient to sustain operations and to
enable us to continue in business.
If we fail to select co-branding clients with followings sufficient to produce a
strong revenue stream we may sustain large and continuing losses.
Another significant pricing risk is in the selection of co-branding
clients. These arrangements are entered into with the understanding that our
co-branding clients have followings sufficient to produce a strong revenue
stream, which they will share with us. Since the cost of all the set up, hosting
and maintenance charges are borne solely by us, if we guess wrong in the
selection of our co-branding clients we may sustain large and continuing losses
in meeting our obligations under these arrangements without any offsetting
return which may in turn threaten our continued viability.
If we are unable to attract and maintain additional job listings on our existing
vertical career sites and target new career destination sites, we may not be
successful in our new business.
The success of our business is dependent upon, in part, on our ability
to attract and maintain additional job listings on our existing vertical career
sites and to target new career destination sites. If we are unable to accomplish
these tasks, we may not be able to attain profitable operations./
If we are unable to maintain current distribution relationships and develop new
distribution relationships with highly trafficked on and off line sites, we may
not be successful in our new business.
11
The success of our business is also dependent upon, in part, on our
ability to maintain current distribution relationships and develop new
distribution relationships with highly trafficked on and off line sites. If we
are unable to maintain and increase our distribution relationships, our
business, results of operations and financial condition could be materially and
adversely affected.
Our earnings may fluctuate seasonally, which may affect our financial results.
As a result of our limited operating history in the online recruitment
business, we do not know if the online recruitment market is subject to seasonal
fluctuations. We believe that revenue from print media, recruiting search firms
and other traditional recruiting services are generally lower in the months of
August, November and December because of reduced recruiting and job search
activity during vacation periods and holiday seasons. As the online recruitment
market develops, we may find that similar seasonal and cyclical patterns
characterize online recruiting or we may discover other seasonal patterns. If
seasonal fluctuations develop in the online recruitment market, our business,
results of operations and financial condition could be materially and adversely
affected.
Our business could be adversely affected by a downturn in the economy.
Online recruitment is a new industry and we do not know how sensitive
our industry is to general economic conditions. Demand for online recruitment
offerings may be significantly and adversely affected by the level of economic
activity and employment in the United States. High economic growth has given
rise to rapid employee turnover. A slowdown in the economy could arrest this
movement and cause employers to reduce or postpone their recruiting efforts
generally, and their online recruiting efforts in particular. Therefore, if a
significant economic downturn or recession occurs in the United States, our
projections and prospects could be materially and adversely affected.
One of our strategies is to establish awareness of our career sites through the
establishment of co-branding relationships with established branded clients. If
these co-branding clients fail to maintain these brands, we may not be able to
sustain or increase the number of employers, recruiters and job seekers using
our websites.
We believe that establishing and maintaining our "co- branded" career
websites is an important aspect of our business. These brand names are critical
in our efforts to establish, maintain and increase the number of employers,
recruiters and job seekers who use our websites. We believe that the importance
of brand recognition will increase due to the continued growth in the number of
competitors entering the online recruiting market. Our ability to promote and
position our sites depends largely on the success of our co-branding clients
continuing marketing efforts and our ability to effectively satisfy the needs of
employers, recruiters and job seekers. To promote our brand names, we intend to
substantially increase our visibility by attending trade shows and placing a few
select targeted print ads and online sponsorships without increasing our
marketing budget. A portion of the net proceeds from this offering will be used
for this purpose. If we fail to successfully promote and maintain our brand
names, or if we incur excessive expenses attempting to promote and maintain
them, we may be unable to implement our business plan and our financial results
may suffer. See "Use of Proceeds."
We have significant competition from a variety of sources.
The market for online recruitment products and services is intensely
competitive and highly fragmented. Our Network Division competes directly with a
number of companies such as CareerBuilder, Inc. which maintains career specific
job sites. Our Solutions Division faces competition with a growing number of
firms offering ASP services for career and job searchers such as BrassRing,
WebHire Inc. and iSearch to name just a few. In addition, we compete with large
12
companies that offer a single database "job board" product, such as Monster.com
and Headhunter.net. We also compete with large Internet information hubs, or
portals, such as Excite.com that maintain career portals. Excite.com's career
portal is called CiteCareer. We may experience competition from potential
customers to the extent that they develop their own online recruitment offerings
internally. In addition, we compete with traditional recruiting services, such
as newspapers and employee recruiting agencies, for a share of employers' total
recruiting budgets. We expect to face additional competition as other
established and emerging companies, including print media companies and employee
recruiting agencies with established brands, enter the online recruitment
market. We may also face competition from organizations that choose to develop
online recruitment offerings internally. It is also possible that, as the online
recruitment market develops and new products and services are introduced, we may
face competition from the members of the network of our distributors.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater brand recognition and a larger installed customer base than
we do. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships to expand their offerings
and to offer more comprehensive products and services.
We believe that there will be rapid business consolidation in the
online recruitment industry. Accordingly, new competitors may emerge and rapidly
acquire significant market share. In addition, new technologies will likely
increase the competitive pressures that we face. The development of competing
technologies by market participants or the emergence of new industry standards
may adversely affect our competitive position.
As a result of these and other factors, if we are not able to compete
effectively with current or future competitors, we will not succeed in our
business plan.
If we are unable to keep pace with technological advances in our industry and
make enhancements to our existing products and services in a timely manner or in
response to changing market conditions or customer requirements, our business
may be adversely affected.
To become and remain profitable we must be able to keep pace with
technological advances in our industry and adapt to changing conditions in a
timely manner. This requires that we continually enhance our existing products
and services in light of new and improved technologies, changing market
conditions and customer requirements. If we are unable to timely adapt our
products and services in response to these factors, our financial position,
results of operations and cash flows could be materially and adversely affected.
The success of our business requires acceptance of our products and services in
the market place.
Our ability to grow and sustain our business is dependent upon our
ability to gain significant acceptance of our products and services in the
marketplace. Without significant market place acceptance, we will not be able to
achieve and sustain profitable operations.
If we lose the services of our executive officers, or if we cannot recruit and
retain additional skilled personnel, our business may suffer.
We depend on the continued services and performance of George W.
Benoit, Chairman and Thomas J. Ferrara, President and Chief Executive Officer
for our future success. We do not have an employment agreement with Messrs.
Benoit or Ferrara. If either Mr. Benoit or Mr. Ferrara becomes unable or
13
unwilling to continue in his current position, our business and financial
conditions could be damaged. We are not the beneficiaries of any key person life
insurance covering them or any other executive.
We depend upon the ability to attract, hire, train and retain highly
skilled technical, sales and marketing, and support personnel, particularly with
expertise in Internet products and services and online recruiting. Competition
for qualified personnel throughout our industry is intense. If we fail to
attract, hire or retain such personnel, our business, results of operations and
financial condition could be materially and adversely affected. We may
experience difficulty providing the proper level of service to our customers or
incur increased costs due to rising salary and benefit levels. If we are
unsuccessful in attracting and training new employees, or retaining and
motivating our current and future employees, our business could suffer
significantly.
We do not have long-term agreements with employers and recruiters, which may
cause our revenue to fluctuate.
We derive a substantial portion of our revenues, approximately $720,000
or 77% of our total revenues for the nine months ended September 30, 2000, from
employers and recruiters who will pay to post job opportunities on our website.
Generally, these employers and recruiters will post their job opportunities on a
monthly basis. They will have no obligation to purchase any upgrades or other
service offerings, or to post any job opportunities for more than a month at a
time. As a result, an employer or recruiter that generates substantial revenue
for us in one month may not do so in a later month. It is, therefore, essential
that we continually maintain existing accounts and establish and develop new
accounts with employers and recruiters. If we fail to attract and maintain a
sufficient level of job postings, our business, results of operations and
financial condition could be materially and adversely affected.
In addition, our agreements with ASP clients, distributors and
co-branding clients have durations of between one and three years. Consequently,
our survival depends in part on our ability to either renew these agreements
when they expire or replace them with arrangements with new clients.
We may be unable to effectively manage rapid growth that we may experience,
which could place a continuous strain on our resources.
We plan to rapidly expand operations in both our divisions which
expansion we believe will be required for us to attain a positive cash flow and
profitability. Our rapid growth, if it occurs, will impose significant demands
on our management, financial, technical and other resources. To manage our
future growth, we must adapt to changing business conditions and improve
existing systems or implement new systems for our financial and management
controls, reporting systems and procedures. Furthermore, in order to achieve
rapid growth, we may need to acquire more advanced technologies or products or
enter into agreements with companies possessing such technologies or products.
For us to succeed, we must make our existing technology, business and systems
work effectively with those of any companies with which we enter technology
and/or product sharing agreements without undue expense, management distraction
or other disruptions to our business. If we fail to manage any of the above
growth challenges successfully, our business, results of operations and
financial condition could be materially and adversely affected.
We depend on third parties to facilitate access to our websites, and face risks
of capacity constraints, which could increase our expenses or reduce our
revenues unexpectedly.
14
We depend on Globix, Inc. and other Internet service providers and
website operators, who may experience Internet connectivity outages. Such
outages may cause users to experience difficulties in accessing our own websites
and for those constructed and hosted by us for others. Any system failures at
these third parties may cause an interruption in service or a decrease in
responsiveness of these websites and may impair users' perceptions of them. Any
failure to handle current or increased volumes of traffic on these websites may
impede our ability and those for whom we construct, host and maintain sites to
sustain or increase the number of employers, recruiters and job seekers who use
these websites.
We anticipate that we will derive a substantial portion of our revenues
from employers and recruiters who pay to post and upgrade their job
opportunities. The amounts they are willing to pay to post and upgrade their job
opportunities will depend to a significant degree on the number of job seekers
who will visit our websites. We will depend on the performance, reliability and
availability of our websites and those of our distributors to attract and retain
these job seekers. Capacity constraints could prevent them from accessing our
websites for extended periods of time and decrease our traffic. Decreased
traffic could result in fewer employers and recruiters posting job opportunities
on our websites or buying fewer upgrades and other enhanced services. This would
result in decreased revenues. In addition, if the number of employers,
recruiters and job seekers on our websites increases substantially, we may
experience capacity constraints and need to expand or upgrade our technology at
a time when we do not have adequate funds to do so, or when that technology is
not readily available.
We rely on technology that is owned by third parties.
We license certain technology that is incorporated into our services
and related products from third parties. Examples include licenses relating to
Server software from Microsoft SQL Server Enterprise, Microsoft Windows NT
Server Enterprise, and Verity Information Server. These licenses are perpetual.
In light of the rapidly evolving nature of Internet technology, we may
increasingly need to rely on technology from other vendors. Technology from
others may not continue to be available to us on commercially reasonable terms,
if at all. The loss or inability to access such technology could result in
delays in our development and introduction of new services and related products
or enhancements until equivalent or replacement technology could be accessed or
developed internally. If we experience such delays, our ability to keep abreast
of technological changes and developments could be severely arrested.
We do not own any patents and may not be able to protect our proprietary rights.
Our success and ability to compete depend to a significant degree on
our internally developed proprietary technology and on our brand, marks and
domain names. We have not applied for nor do we have patent protection for our
technology. We have applied for federal trademark registration for our
CareerEngine name though it has not yet been granted. Aside from our name we
rely on intellectual property laws, and on confidentiality and non-disclosure
agreements with our employees and third parties, to establish and protect our
proprietary rights. We cannot assure you that the steps we have taken to protect
our proprietary rights will be adequate or that we will be able to defend our
marks. If we are unable to secure or protect our marks and systems, we could
suffer a loss of good will standing in the industry and ultimately in revenues.
Claims by third parties that our business activities infringe upon their
proprietary rights could subject us to significant liability and invalidate our
proprietary rights.
Third parties may claim that our business activities infringe upon
their proprietary rights. From time to time in the ordinary course of business
we may be subject to claims of infringement of third parties' trademarks and
other intellectual property rights. Such claims could subject us to significant
liability and result in invalidation of our proprietary rights. These claims
15
could also be time-consuming and expensive to defend, even if we ultimately are
not found liable. In addition, these claims could divert our management's time
and attention from the operation of our business.
Our business may suffer if users confuse similar domain names with those of our
category specific career websites.
There are a number of companies in the online recruiting market with
corporate and domain names similar to ours. We cannot assure you that potential
users of our websites will not confuse our name and the domain names of our
category specific career websites with similar names used by others. If any
confusion occurs, we may lose business to competitors, or some of our users may
have negative experiences with these other companies or websites that they
mistakenly associate with us.
Our business is dependent on the development and maintenance of the Internet
infrastructure.
Our success will depend, in large part, upon the development and
maintenance of the Internet infrastructure as a reliable network backbone with
the necessary speed, data capacity and security, and timely development of
enabling products, such as high speed modems, for providing reliable Internet
access and services. We cannot assure you that the Internet infrastructure will
continue to effectively support the demands placed on it as the Internet
continues to experience increased numbers of users, greater frequency of use or
increased bandwidth requirements of users. Even if the necessary infrastructure
or technologies are developed, we may have to expend considerable resources to
adapt our offerings accordingly. Furthermore, in the past, the Internet has
experienced a variety of outages and other delays. Any future outages or delays
could affect the Internet sites on which our customers' job advertisements are
posted and the willingness of employers and job seekers to use our online
recruitment offerings. If any of these events occur, our business, results of
operations and financial condition could be materially and adversely affected.
Our business depends on the acceptance of the Internet as a recruiting medium
and an accepted means for doing business.
Our future is highly dependent upon a significant increase in the use
of the Internet as a recruiting medium. The online recruitment market is new and
rapidly evolving, and we cannot yet gauge its effectiveness as compared to
traditional recruiting methods. As a result, demand and market acceptance of
online recruitment offerings are uncertain. Many of our current and potential
employer customers have little or no experience using the Internet for
recruiting purposes and have allocated only a limited portion of their
recruiting budgets to online recruiting. The adoption of online recruiting,
particularly by those entities that have historically relied upon traditional
methods of recruiting, requires the acceptance of a new way of conducting
business, exchanging information and advertising for jobs. Such customers may
find online recruiting to be less effective for meeting their hiring needs
relative to traditional methods of recruiting employees. We cannot assure you
that the online recruitment market will continue to emerge or become
sustainable.
Our success also depends on the continued development of the Internet
as an accepted means for doing business; upon continued improvement in the
reliability, speed, security and ease of use of the Internet; and increased
access to the Internet, through personal computers or otherwise.
If the online recruitment market fails to develop or develops more
slowly than we expect or the Internet does not become an accepted means for
doing business, our business, results of operations and financial condition
would be materially and adversely affected.
16
We may be adversely affected by government regulations and legal uncertainties
associated with the Internet.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, but the legislative and
regulatory treatment of the Internet remains largely unsettled. The U.S.
Congress has adopted Internet laws regarding copyrights, taxation and the
protection of children. In addition, a number of other legislative and
regulatory proposals under consideration by federal, state, local and foreign
governments could lead to additional laws and regulations affecting the right to
collect and use personally identifiable information, online content, user
privacy, taxation, access charges and liability for third-party activities,
among other things. For example, the growth and development of the market for
Internet commerce may prompt calls for more stringent consumer protection laws
in the United States that may impose additional burdens on companies conducting
business over the Internet.
Although our transmissions originate from New York, the governments of
other states might attempt to regulate our transmissions or levy sales or other
taxes relating to our activities. Courts may seek to apply existing laws not
explicitly relating to the Internet in ways that could impact the Internet, and
it may take years to determine whether and how laws such as those governing
intellectual property, privacy, libel and taxation will affect the Internet and
the online recruitment industry.
Existing or future laws or regulations affecting the Internet could
lessen the growth in use of the Internet generally and decrease the acceptance
of the Internet as a communications, commercial and advertising medium, and
could reduce the demand for our services or increase our cost of doing business.
Any of these events could cause our business, financial condition and results of
operations to be materially and adversely affected.
Because our business involves the transmission of information, we may incur
liability for information retrieved from or transmitted over the Internet.
We may be sued for defamation, obscenity, negligence, copyright or
trademark infringement or other legal claims relating to information that is
posted or made available on our websites. Other claims may be brought based on
the nature, publication or distribution of our content or based on errors or
false or misleading information provided on our websites. These types of claims
have been brought, sometimes successfully, against online services in the past.
We could also be sued for the content that is accessible from our websites
through links to other Internet sites. We do not have errors and omission
liability insurance. We also offer e-mail marketing services, which may subject
us to potential risks, such as liabilities or claims resulting from unsolicited
e-mail or spamming, lost or misdirected messages, security breaches, illegal or
fraudulent use of e-mail, or interruptions or delays in e-mail service. We do
not have insurance that specifically provides for coverage of these types of
claims and therefore may not adequately protect us against these types of
claims. In addition, we could incur significant costs in investigating and
defending these claims, even if we ultimately are not found liable. If any of
these events occur, our business, results of operations and financial condition
could be materially and adversely affected.
17
Concerns regarding security of transactions and transmitting confidential
information over the Internet may negatively impact our electronic commerce
business.
We believe that concern regarding the security of confidential
information transmitted over the Internet, such as resumes submitted in
confidence and credit card numbers, prevents many potential users of our
services from engaging in online transactions. If we do not have sufficient
security features to our websites, our services may not gain market acceptance
or there may be additional legal exposure to us.
Despite the measures we have taken, our infrastructure is potentially
vulnerable to physical or electronic break-ins or similar problems. If a person
circumvents our security measures, he or she could misappropriate proprietary
information or cause interruptions in our operations. Security breaches that
result in access to confidential information could damage our reputation and
expose us to a risk of loss or liability. We may be required to make significant
investments and efforts to protect against or remedy security breaches.
Additionally, as electronic commerce becomes more prevalent, our customers will
become more concerned about security. If we do not adequately address these
concerns we may incur liability and we may not be able to sustain or increase
the number of employers, recruiters and job seekers using our services.
Our Internet operations are vulnerable to the introduction of computer viruses,
which could cause service interruptions and breakdowns as well as the
destruction of computer programs and systems.
Because we are an Internet business our systems are particularly
vulnerable to the introduction of computer viruses which may not only cause
service interruptions but also the destruction of computer programs and systems.
This could seriously impact our ability to conduct our business. In addition,
the inadvertent transmission of computer viruses could expose us to a material
risk of loss or litigation and possible liability. Moreover, if a computer virus
affecting our system is publicly disclosed, our reputation could be materially
damaged and our visitor traffic may decrease. Our customers and prospective
customers could also lose faith in our ability to serve their needs and choose
more traditional means for posting their ads.
Our operations and services are vulnerable to natural disasters.
Our operations and services depend on the extent to which our computer
equipment and the telecommunications infrastructure of our third-party network
providers is protected against damage from fire, power loss, telecommunications
failures, and similar events. Despite precautions taken by us and our
third-party network providers, over which we have no control, a natural disaster
or other unanticipated problems at our network hub, or a third-party network
provider point of presence could cause interruptions in the services that we
provide. If disruptions occur, we may have no means of replacing these network
elements on a timely basis or at all. We do not currently maintain back-up
Internet services or facilities or other back-up computing and
telecommunications facilities. Extensive or multiple interruptions in providing
users with Internet access are a reason for user decisions to stop using access
services. Accordingly, any disruption of our services due to system failure
could have an adverse effect on our business, results of operations and
financial condition.
Our management has broad discretion over use of proceeds from this offering and
may fail to use them effectively to increase our business.
If all of the units offered hereby are sold, the net proceeds of this
offering are estimated to be about $2,000,000, assuming that no warrants are
exercised. We will retain broad discretion regarding the allocation of these
funds. We intend to use a majority of the net proceeds for increased sales,
advertising and marketing expenses and the development of our websites. You will
18
not have the opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use the proceeds. We may
use the net proceeds ineffectively or for purposes with which you disagree. Our
failure to apply the proceeds effectively could impede our ability to expand our
business.
The market price of our debentures and warrants may be volatile.
The market price of our debentures and warrants which will be closely
tied to the market price of our common stock may fluctuate significantly in
response to the following factors:
o variations in quarterly operating results;
o our announcements of significant contracts, milestones,
acquisitions;
o our relationships with other companies or capital commitments;
o additions or departures of key personnel;
o sales of common stock or termination of stock transfer
restrictions;
o changes in financial estimates by securities analysts; and
o fluctuations in stock market price and volume, which are
particularly common among securities of Internet companies.
The last three factors are beyond our control.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation often has been
instituted against that company. Such litigation is expensive and diverts
management's attention and resources. Any one of the factors noted herein could
have an adverse affect on the value of the debentures and warrants.
Anti-takeover provisions of the Delaware General Corporation Law and in our
Certificate of Incorporation could discourage a merger or other type of
corporate reorganization or a change in control even if they could be favorable
to the interests of our stockholders.
The Delaware General Corporation Law and our Certificate of
Incorporation contain provisions, which may enable our management to retain
control and resist a takeover of us. These provisions generally prevent us from
engaging in a broad range of business combinations with an owner of 15% (20% in
the case of our Certificate of Incorporation) or more of our outstanding voting
stock for a period of three years from the date that this person acquires his
stock. Our Certificate of Incorporation also requires the affirmative vote of at
least 60% or our voting stockholders to effect certain actions, including, under
certain circumstances, the removal of directors, and provides for the election
of different classes of directors with the term of each class ending at
different times. Accordingly, these provisions could discourage or make more
difficult a change in control or a merger or other type of corporate
reorganization even if they could be favorable to the interests of our
stockholders.
Our officers and directors exercise significant control over our affairs, which
could result in their taking actions of which other stockholders do not approve.
19
Our executive officers and directors, and entities affiliated with
them, currently control about 45.0% of our outstanding common stock. After this
offering they will control about 36.0% of our outstanding capital stock,
assuming that the over-allotment option is exercised and that all of the
debentures are converted into shares of our common stock. These stockholders, if
they act together, may be able to exercise substantial influence over all
matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in
control of us and might affect the market price of our common stock.
We do not intend to pay cash dividends in the foreseeable future.
We have not previously paid any cash dividends on our common stock and
currently intend to retain all future earnings, if any, to invest in our
business. We do not anticipate paying cash dividends on our common stock in the
foreseeable future.
There is no prior public trading market for our units, debentures or warrants.
If sustained public trading markets in these securities do not develop, your
ability to sell the securities at acceptable prices may be adversely affected.
In addition, due to the limited number of debentures, it is possible that a
sustained trading market for the debentures will not develop.
Prior to this offering, there was no public trading market for our
units, debentures or warrants and there can be no assurance that a public
trading market for these securities will be developed or maintained in the
future. Although we anticipate that these securities will be approved for
listing on the American Stock Exchange, the development of a public market
depends upon the presence in the marketplace of a sufficient number of willing
buyers and sellers at any given time, over which we have no control. There can
be no assurances that:
o you will be able to liquidate your investment without considerable
delay, if at all,
o quotations will be available on the American Stock Exchange as
contemplated, or
o if a market develops, that such market will continue.
The trading volume for these securities may have a significant impact on their
respective market prices.
In addition, since only a limited number of debentures and a limited
principal amount of debentures will be issued, there is a good chance that a
sustained market for the debentures will not develop. In such an event, you may
not be able to sell your debentures and you may be required to hold on to them
until maturity. See "Description Of Securities."
Because the debentures are subordinate to our senior indebtedness, and are not
rated, secured or guaranteed, you could lose your entire investment.
The debentures are our general unsecured obligations and are
subordinate to all of our senior indebtedness except indebtedness which by its
term is subordinate or equal in right of payment to the debentures. Our ability
to make payments of interest on the debentures and to repay the principal
thereof at maturity may be affected by the success of our operations and the
amount of our other indebtedness. We are permitted to incur additional
indebtedness in the future without limitation or restriction by reason of the
debentures. This additional indebtedness, subject to limited exceptions, could
be superior to or equal in right of payment with the indebtedness of the
debentures. The debentures will not be personally guaranteed or rated by any
agency, and there will be no sinking fund with respect thereto. Accordingly, an
investment in the debentures is speculative, involves a high degree of risk, and
should be purchased only by persons who can afford an entire loss of their
investment.
20
Default on senior indebtedness would adversely affect our ability to service the
debentures.
If we default on any senior indebtedness, such senior indebtedness must
be discharged in full before any payments can be made for principal, interest,
or otherwise on account of the debentures. Senior indebtedness includes any bank
or similar debt we may incur in the future.
You are restricted in you ability to call a default on the debentures.
Default on any senior indebtedness does not itself constitute a default
under the debentures or the indenture. A default with respect to the debentures
occurs only upon the failure to timely make a payment required with respect to
the debentures or the occurrence of other specific events enumerated as defaults
in the debentures. Inasmuch as payments under the debentures are due only
quarterly, we could experience financial difficulties months before a payment
due date on the debentures, and the debenture holders would be unable to declare
a default with respect to the debentures until the next payment due date passed
without payment being made under the debentures. In any event, should a default
occur under the terms of the debentures, unless the holders of more than 50% of
the principal amount of the debentures elect to declare a default, no individual
debenture holder will have the right to pursue his or her remedies thereunder.
If you convert your debenture you will lose your accrued but unpaid interest.
If a debenture is surrendered for conversion, the holder of such
debenture will not receive the accrued but unpaid interest on the debenture.
Under certain circumstances you could receive a taxable dividend without
receiving the cash to pay the tax.
If we were to make a distribution of property to our stockholders which
would be taxable to the stockholders as a dividend for federal income tax
purposes and the conversion price of the debentures were to be decreased
pursuant to the anti-dilution provisions of the debentures, such decrease could
be deemed for federal income tax purposes to be payment of a taxable dividend to
debenture holders. An example of such a distribution would be a distribution of
our evidences of indebtedness or assets, but generally not stock dividends on
common stock or rights to holders of common stock to subscribe for common stock.
Because we have arbitrarily determined the conversion and exercise prices, they
bear no relationship to any objective criteria of value.
We have arbitrarily determined the conversion price of the debentures
and the exercise prices of the warrants in consultation with the underwriter.
These prices bear no relationship to our assets, earnings or lack thereof, book
value or other such criteria of value.
Because our Board can issue common stock without stockholder approval, you could
experience substantial dilution.
Our Board of Directors has the authority to issue up to 20,000,000
shares of common stock and to issue options and warrants to purchase shares of
our common stock without stockholder approval. Future issuance of our additional
shares of common stock could be at values substantially below the price at which
21
you convert your debenture and, therefore, could represent further substantial
dilution to investors in this offering. In addition, our Board could issue large
blocks of our common stock to fend off unwanted tender offers or hostile
takeovers without further stockholder approval.
The underwriter's unit warrant may restrict our ability to raise additional
capital.
When we complete the offering we will sell to the underwriter and/or
its designees, for $25.00, a warrant to purchase 250 units. For the life of the
underwriter's warrant, the holders will have, at a nominal cost, the opportunity
to profit from a rise in the market price of our common stock with a resulting
dilution in the interest of our existing security holders. As long as the
underwriter's warrant remains unexercised, our ability to obtain additional
financing may be limited. The underwriter may exercise its warrant at a time
when we would, in all likelihood, be able to obtain any needed capital by a new
offering of securities on terms more favorable than those provided for by the
warrant.
You cannot sell the shares underlying the warrants if we do not have an
effective registration statement.
You cannot exercise the warrants and sell the underlying shares unless
we keep a prospectus effective and the shares underlying the warrants are
qualified or exempt in the states in which exercising warrant holders reside. We
have registered these shares and have qualified them in the states where we plan
to sell the units unless the state does not require qualification. We have also
filed an undertaking with the Securities and Exchange Commission to maintain a
current prospectus relating to these shares until the expiration of the
warrants. The warrants may be deprived of any value if we fail to satisfy this
undertaking. The debentures and warrants are detachable and separately
transferable six months after the effective date of this offering unless we
agree with the underwriter that trading may begin sooner. Purchasers may buy
warrants in the aftermarket or may move to jurisdictions in which the shares
underlying the warrants are not so registered or qualified during the period
that the warrants are exercisable. In that event, we would be unable to issue
shares to those persons desiring to exercise their warrants, and warrant holders
would have no choice but to offer to sell the warrants in a jurisdiction where a
sale is permitted or allow them to expire unexercised.
You could lose your right to exercise your warrants if we exercise our right to
redeem the warrants.
We may redeem all of the warrants at nominal cost if the closing price
of the common stock equals or exceeds 150% of the then exercise price of the
warrants for 20 consecutive trading days ending three days before the notice of
redemption.. If you are a warrant holder and we call for redemption, to the
extent we redeem your warrants, you will lose your right to purchase shares
pursuant to your warrants. Furthermore, the threat of redemption could force you
to:
o exercise your warrants at a time when it may be disadvantageous for
you to do so;
o sell your warrants at the then current market price when you might
otherwise wish to hold them; or
o accept the redemption price which will be substantially less than
the market value of your warrants at the time of redemption.
We will not call the warrants for redemption if a current prospectus is not
available for the exercise of the warrants.
The underwriter has no experience as an underwriter of public offerings of
securities which may have a negative impact on the liquidity and price of our
securities.
22
This offering is the first public offering in which Murphy & Durieu,
the underwriter, will be acting as an underwriter. In addition, there will not
be a syndicate of underwriters involved with the offering. These factors may
have a negative impact on the liquidity and price of our securities following
the completion of this offering.
23
PRICE RANGE OF COMMON STOCK
Our common stock trades on the American Stock Exchange and the Pacific
Stock Exchange under the symbol "CNE."
Fiscal Years (Quarterly) Common Stock
- --------------------------------------------------------------------------------
1998 High Sales Price Low Sales Price
---- ---------------- ---------------
1st Quarter $ 1.00 $ 0.75
2nd Quarter 0.9375 0.6875
3rd Quarter 0.875 0.625
4th Quarter 1.25 0.75
1999
1st Quarter 2.625 1.00
2nd Quarter 9.50 2.1875
3rd Quarter 5.00 2.50
4th Quarter 6.00 3.50
2000
1st Quarter 5.00 2.75
2nd Quarter 3.0625 1.75
3rd Quarter 2.1875 1.1875
4TH Quarter 1.9375 0.9375
For a recent closing sale price of our common stock, please see the
cover page of this prospectus.
As of January 31, 2001 we had 235 holders of record of our common stock
which includes brokerage firms and/or clearing houses holding our shares for
their clientele. Although each of these brokerage houses and/or clearing houses
hold the shares for a number of their clients, each such firm is considered as
only one holder.
24
USE OF PROCEEDS
The net proceeds to us from the sale of units being offered by this
prospectus are estimated to be $2,000,000 after deducting the underwriting
discounts and estimated offering expenses. The following table sets forth the
principal categories of expense for which the offering proceeds are to be used,
based on our current budget.
Approximate Percent
Allocation of Net Proceeds Approximate Dollar Amount of Net Proceeds
- -------------------------- ------------------------- ---------------
Sales and marketing(1) $ 500,000 25.0
Product development and enhancement of 500,000 25.0
the services offered(2)
Information technology 300,000 15.0
General corporate purposes including
working capital(3) 700,000 35.0
------- ----
Total $2,000,000 100.0
========== =====
- -------------------
1. Sales and marketing includes hiring additional sales personnel,
electronic, print media and direct mail advertising as well as
marketing efforts directed at advertisers, employers and recruiters,
and prospective distributors and co-branding clients.
2. Product development and enhancement includes developing ancillary
products, expanding site capability, creating more services for users,
and making sites more attractive.
3. The remaining net proceeds will be used for general corporate purposes,
including working capital and capital expenditures. The amounts we
actually expend for general corporate purposes may vary significantly
and will depend on a number of factors, including the amount of our
future revenues and the other factors described under "Risk Factors."
We expect that our actual allocation of proceeds will vary, possibly
substantially, from our current budget as a result of unforeseen developments.
Possible material events that could cause a change in the allocation of proceeds
include:
o increased marketing expenses,
o increased information technology costs and
o longer product development times.
Our management will retain broad discretion in the allocation of the
net proceeds of this offering. A portion of the net proceeds may also be used
for seeking agreements with companies that we believe can help us in
establishing and maintaining our business by, among other things, providing us
with the right to use and market advanced technology or products, or to acquire
or invest in complementary businesses, technologies or product lines. We have no
current
25
agreements or commitments and we are not currently engaged in any negotiations
with respect to any acquisitions.
We believe that the net proceeds from the sale of the units and cash
generated by our operations will suffice to satisfy our contemplated cash
requirements through December 31, 2001. We may seek additional funding at some
point in 2001. In the event that we do require additional financing, we cannot
assure that this financing will be available to us on acceptable terms, if at
all. In this regard, see the risk factor entitled "We may require additional
funding in the event our revenues do not meet our projections, our expenses are
greater than we anticipate, or to finance the further development of our
business. Our inability to obtain additional financing, if required, would have
an adverse effect on our business."
We plan to invest the proceeds that we do not immediately use mostly in
United States government securities, short-term certificates of deposit, money
market funds or other short-term interest bearing investments.
Dividend Policy
We intend to retain future earnings, if any, to finance the expansion
of our business and do not expect to pay any cash dividends in the foreseeable
future.
Private Financing
In June and August 2000, we completed the sale of 48 debenture and
warrant units at a price of $50,000 per unit, or an aggregate amount of $2.4
million, in a private financing transaction. We relied on the exemption from the
registration provisions of the Securities Act provided by Section 4 (2) thereof
and Rule 506 promulgated thereunder to effect this transaction. We sold 39.5
units on June, 28, 200 and 8.5 units on August 8, 2000.
Each private financing unit consisted of securities substantially
similar to the units offered in this prospectus, except that each private
financing unit included:
o $50,000 principal amount of convertible debenture due on March 31,
2010 bearing annual interest of 12% payable on January 1, April 1,
July 1 and October 1 of each year;
o class A warrants to purchase 12,500 shares of our common stock; and
o class B warrants to purchase 12,500 shares of our common stock.
We granted the holders of these private financing units the right to register
their units for public sale. To this end, on the date of this prospectus, we
will retire the private units in exchange for the issuance to holders of private
units 50 units identical to those offered hereby for each private unit. These
units have been registered for public sale pursuant to this registration
statement and are being sold by selling securityholders pursuant to another
prospectus.
Dirks & Company, Inc. acted as the placement agent in the private
financing. We paid Dirks a fee of $240,000, which was equal to 10% of the
aggregate purchase price of the units sold, and a non-accountable expense
allowance of $72,000, which was equal to 3% of the aggregate purchase price of
the units sold. We also granted Dirks, for $10.00, a warrant, exercisable over a
five year period which commenced on the closing date of the private financing,
to purchase 5 private financing units, which equaled approximately 10% of the
number of units sold in the private financing, at a price equal to 120% of the
per unit offering price or $60,000 per unitg. The units underlying the
securities acquired by Dirks as placement agent have been registered pursuant to
this registration statement for public sale pursuant to another prospectus.
26
Barry W. Blank purchased six private financing units in June 2000. Mr.
Blank was employed by Dirks as a registered representative at the time of the
private financing and he participated in the sale of the private financing
units. Currently he is employed by the underwriter and will participate in the
sale of the units in this offering. Dirks has granted Mr. Blank the right to 70%
or 3.5 of the units underlying the placement agent warrant.
27
Capitalization
The following table sets forth our capitalization as of September 30,
2000:
o on an actual basis;
o on an as-adjusted basis to give effect to;
o the sale of the 2,875 units offered by us in this prospectus
assuming a public offering price of $1,000.00 per unit and the
exercise of the underwriter's over-allotment option; and
o payment by us of the underwriting discounts and estimated offering
expenses.
Actual As Adjusted
------ -----------
Debentures payable, net of unamortized discount of $643,972
and $1,403,272 $ 1,756,028 $ 3,871,728
------------ ------------
Excess of liabilities over assets of discontinued operations 3,361,269 3,361,269
------------ ------------
Stockholders' equity:
Common stock - authorized 20,000,000 shares,
par value $.10; issued 6,749,600 shares 674,960 674,960
Preferred stock - authorized 1,000,000 shares,
par value $.10; none issued
Paid-in surplus 16,096,808 16,856,108
Deficit (14,896,533) (14,896,533)
------------ ------------
1,875,235 2,634,535
Less treasury stock, at cost -
1,305,594 shares (3,028,396) (3,028,396)
------------ ------------
Total stockholders' equity (1,153,161) (393,861)
------------- -------------
Total capitalization $ 3,964,136 $ 6,839,136
============ ============
28
Management Discussion And Analysis Of Financial
Condition And Results Of Operations
In this section, we explain our financial condition and results of
operations. As you read this section, you may find it helpful to refer to our
Financial Statements at the end of this prospectus and the information contained
in the section entitled "Summary Financial Data." This discussion contains
forward-looking statements that involve risk and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this prospectus.
Overview
In August 2000, we discontinued our merchant banking operations, which
consisted of our real estate project with Carmike Cinemas, Inc., and our
financial consulting operations. Accordingly, our remaining operations are
solely from our e-recruiting segment. Our financial resources and our
management's efforts are now focused entirely on this segment.
E-recruiting activities are derived from the operations of the two
divisions of our wholly-owned subsidiary, CareerEngine, Inc. These divisions,
CareerEngine Network and CareerEngine Solutions, provide on- and off-line
companies with products and services addressed to meeting on-line recruiting
problems.
Results of Operations
In this section, we discuss our earnings for the periods indicated and
the factors affecting them that resulted in changes from one period to the
other.
Nine Months Ended September 30, 2000
Compared with Nine Months Ended September 30, 1999
Revenues
Total revenues increased to $2,296,448 for the nine months ended
September 30, 2000 from $1,877,428 for the nine months ended September 30, 1999,
due primarily to increases in E-recruiting service revenues and income on cash
management activities.
E-recruiting related services increased to $929,718 for the nine months
ended September 30, 2000 from $16,031 for the nine months ended September 30,
1999, as our e-recruiting subsidiary, CareerEngine, Inc., commenced operations
in the quarter ended September 30, 1999.
Income on securities transactions, net decreased to $1,266,294 for the
nine months ended September 30, 2000 from $1,332,960 for the nine months ended
September 30, 1999. We believe that the principal reason for this decrease was
the results of our cash management and investing activities. These activities
include transactions involving futures, puts, calls, equities, municipal
securities and other securities.
Interest income decreased to $98,412 for the nine months ended
September 30, 2000 from $300,187 for the nine months ended September 30, 1999,
due to the reduced amount of funds available for investment.
29
Other income decreased to $2,024 for the nine-months ended September
30, 2000 from $228,190 for the nine months ended September 30, 1999 primarily
due to our collection of a reserved receivable relating to the sale of a former
subsidiary.
Expenses
Total expenses increased to $5,789,443 for the nine months ended
September 30, 2000 from $2,228,529 for the nine months ended September 30, 1999,
principally due to the increased compensation and selling costs associated with
our e-recruiting operations.
Compensation and related costs increased to $2,482,190 for the nine
months ended September 30, 2000 from $1,007,069 for the nine months ended
September 30, 1999. The increase is due principally to the approximately 26
additional employees hired by CareerEngine, Inc. in connection with our
Internet-based e-recruiting activities. These employees were primarily related
to our information technology and sales and marketing efforts. Compensation
costs increased moderately in the last three months of 2000.
Advertising expense increased to $1,357,774 for the nine months ended
September 30, 2000 from $412,695 for the nine months ended September 30, 1999.
This significant increase was due to CareerEngine, Inc.'s commencement, in late
1999, of a comprehensive communications program, which primarily included costs
associated with print and Internet advertising, public relations, and direct and
trade marketing.
General and administrative expenses increased to $1,702,604 for the
nine months ended September 30, 2000 from $808,765 for the nine months ended
September 30, 1999, due primarily to the increased operations of CareerEngine,
Inc.
The $246,875 non-recurring interest expense for the nine months ended
September 30, 2000 represents the charge required to recognize the beneficial
conversion feature related to the issuance of debentures payable and the related
warrants in June 2000.
Operating Loss
On a pre-tax basis, we had a loss of $3,492,995 for the nine months
ended September 30, 2000 from continuing operations, compared with a loss of
$351,021 from continuing operations due to the expenses associated with
CareerEngine, Inc. In the nine months ended September 30, 2000, we had a tax
expense of $15,340 compared to a tax expense of $12,123 for the nine months
ended September, 30 2000. For Federal income tax purposes, as of December 31,
1999, we had net operating loss carryforwards of about $17,311,000 available to
reduce future taxable income. These carryforwards expire in the years 2005
through 2019.
Our net loss for the nine months ended September 30, 2000 from
continuing operations was $3,508,335 compared with a net loss of $363,264 from
continuing operations for the nine months ended September 30, 1999. For the nine
months ended September 30, 2000, loss per share from continuing operations
(basic and diluted) was $.65 per share. For the nine months ended September 30,
1999, net loss per share from continuing operations (basic and diluted) was $.06
per share.
Our net loss for the nine months ended September 30, 2000 from
discontinued operations was $730,318 compared with a net loss of $1,226,550 from
discontinued operations for the nine months ended September 30, 1999. For the
nine months ended September 30, 2000 loss per share from discontinued operations
(basic and diluted) was $.13 per share. For the nine months ended September 30,
1999, net loss per share from discontinued operations (basic and diluted) was
$.23 per share.
30
Our net loss for the nine months ended September 30, 2000 was
$4,238,653, compared with a net loss of $1,589,814 for the nine months ended
September 30, 1999. For the nine months ended September 30, 2000, loss per share
(basic and diluted) was $.78 per share. For the nine months ended September 30,
1999, net loss per share from (basic and diluted) was $.29 per share.
Year Ended December 31, 1999
Compared to Year Ended December 31, 1998
Revenues
Total revenues from continuing operations decreased to $1,471,421 in
1999 from $1,944,408 for 1998.
E-recruiting related services increased to $30,980 in 1999 from nil in
1998 as the operations of our subsidiary, CareerEngine, Inc., commenced.
Income on securities transactions, net decreased to $836,549 for 1999
from $1,526,873 for 1998. This revenue category includes the net profit from our
cash management and our investing in futures, puts, calls, municipals and other
securities.
Interest income decreased to $374,522 in 1999 from $417,535 in 1998 due
to the reduced amount of funds available for investment.
Other income increased to $229,370 for 1999 from $22,101 in 1998 due to
our collection of a reserved receivable relating to the sale of a former
subsidiary.
Expenses
Total expenses from continuing operations increased to $4,424,308 for
1999 from $2,267,067 in 1998.
Compensation and related costs increased to $1,725,074 for 1999 from
$1,223,597 for 1998. The increase is due principally to the additional employees
hired by CareerEngine, Inc. in connection with its Internet-based job search
services venture.
Advertising expense increased to $1,235,778 for 1999 from $77,515 for
1998 as CareerEngine, Inc. commenced its comprehensive communications program in
1999.
General and administrative expenses increased to $1,336,215 for 1999
from $567,378 for 1998 due primarily to the increased operations of
CareerEngine, Inc.
Interest expense decreased to $127,241 for 1999 from $398,577 for 1998
primarily because we computed interest due on our outstanding tax assessment
based on one year in 1999 and several years in 1998.
Operating Loss
On a pre-tax basis, we had a loss of $2,952,887 for the year ended
December 31, 1999 from continuing operations compared with a loss of $322,659
from continuing operations due to the expenses associated with CareerEngine,
Inc. For Federal income tax purposes, as of December 31, 1999, we had net
31
operating loss carryforwards of about $17,311,000 available to reduce future
taxable income. These carryforwards expire in the years 2005 through 2019.
Our net loss for the year ended December 31, 1999 from continuing
operations was $2,962,985 compared with a net loss of $214,182 from continuing
operations for the year ended December 31, 1998. For the year ended December 31,
1999, loss per share from continuing operations, basic and diluted, was $.55 per
share. For the year ended December 31, 1998, net loss per share from continuing
operations, basic and diluted, was $.03 per share.
Our net loss for the year ended December 31, 1999 from discontinued
operations was $1,089,409 compared with a net loss of $410,227 from discontinued
operations for the year ended December 31, 1998. For the year ended December 31,
1999, loss per share from discontinued operations, basic and diluted, was $.20
per share. For the year ended December 31, 1998, net loss per share from
discontinued operations, basic and diluted, was $.08 per share.
Our net loss for the year ended December 31, 1999 was $4,052,394,
compared with a net loss of $624,409 for the year ended December 31, 1998. For
the year ended December 31, 1999, loss per share, basic and diluted, was $.75
per share. For the year ended December 31, 1998, net loss per share, basic and
diluted, was $.11 per share.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended, which is required to be adopted in years beginning after June 15, 2000.
We are required to adopt the new Statement effective January 1, 2001. The
Statement will require us to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. We do not anticipate
that the adoption of the new Statement will have a significant effect on the
financial statements.
Liquidity and Capital Resources
We operated at a negative monthly cash flow rate of approximately
$800,000 and $500,000 for the months of November and December 2000,
respectively. We initiated a cost reduction strategy consisting primarily of a
27% staff reduction since December 14, 2000, and an approximately 30% reduction
in our advertising expenditures commencing January 1, 2001 and operated at a
monthly negative cash flow rate of approximately $300,000 in January 2001. We
expect to operate at a negative cash flow rate of approximately $200,000 in
February 2001 and be cash flow neutral by the third quarter of 2001.
We estimate that we need to generate monthly cash receipts from all
revenue sources in an amount aggregating about $350,000 to equal our projected
cash disbursements relating to our operating expenses and capital 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.
However, if the actual costs of our business are higher than projected or our
contemplated future revenues fall below our current expectations, we may require
additional financing. We
32
anticipate, but cannot assure, that this additional financing will come
primarily from the exercise of the warrants from the private financing and this
offering. However, we cannot assure that the price of our common stock will ever
attain sufficient levels to induce the exercise of the warrants.
In the event that the warrants are not exercised within the time period
needed, we will be forced to seek alternate sources of financing, most likely
from one or more additional public or private equity or debt offerings. We
currently have no commitments for any of such additional funding. We may not be
able to raise needed cash on terms acceptable to us or at all. Financings may be
on terms that are dilutive or potentially dilutive to our stockholders. If
sources of financing are required, but are insufficient or unavailable, we will
be required to modify our growth and operating plans to the extent of available
funding, which would have an adverse effect on the successful implementation of
our planned business development.
The transaction relating to our six movie theaters and Carmike Cinema,
Inc., a discontinued operation, is and always has been cash flow neutral (rent
is equal to interest expense, principal amortization and other related expenses
that are our responsibility). Carmike's filing of a petition under Chapter 11 of
the United States Bankruptcy Code has not changed this financial relationship as
our exposure related to this real estate project is and always has been limited
solely to our interest in the theaters.
We do not have any material commitments for capital expenditures as of
September 30, 2000.
33
Business
CareerEngine Network was incorporated on April 27, 1971 under the name of Benoit
and Skrym, Inc. We changed our name to
o Matthews & Wright Group, Inc. on July 7, 1987,
o Helmstar Group, Inc. on December 2, 1991, and
o CareerEngine Network, Inc. on March 27, 2000
We offer a range of online career services and products to employers, recruiters
and job seekers through our wholly-owned subsidiary, CareerEngine, Inc. We
operate our network of occupation specific career portal sites on which
employers and recruiters may post job offerings and utilize our other
recruitment services. In addition, we offer Application Services Provider or ASP
services to those customers who seek to have us construct, maintain and host
career centers on their own websites. We also actively manage our excess cash
and during the last two years, we have generated revenues from these activities.
The Market Opportunity
Recruiting Market
We believe there are several factors that may cause an increase in
spending on recruiting efforts:
Increased Labor Shortage. The demographic trends such as the aging of
the Baby Boomers and decreasing birth rates, together with the continued growth
in the U.S. economy, are combining to cause a tight labor market. According to a
1998 recruiting survey prepared by Interbiznet.com, over 60% of the recruiters
surveyed experienced labor shortages. As a result, the recruiting process now
focuses less on selecting qualified employees from a ready pool of candidates
and more on managing a scarce resource. As of the date hereof, however, this
change in focus has not materially affected our business.
Increased Employee Turnover. Employees currently change jobs more often
then they have in the past and even satisfied employees are increasingly
investigating job opportunities. According to the U.S. Bureau of Labor
Statistics, the average person entering the workforce today will work for
between eight and ten different employers. In the 80's executives may have
changed employers once or twice per career. Now the average employee stays at
one company for about four years, down from the 10 years averaged during the
60's. This makes it more difficult for employers to retain qualified,
experienced individuals and increases the number of hires that must occur each
year in order to maintain or increase an employer's workforce.
Increased Urgency To Reduce Time To Hire. Forrester Research, Inc.
estimates that unemployment among "knowledgeable workers" is less than 1%
relative to overall unemployment of 4.0%. Because of the shortage in highly
skilled job seekers, qualified candidates must be hired quickly or they may be
lost to competitors.
Online Recruiting Market
With the acceptance of the Internet as an attractive medium for online
recruiting, an increasing share of recruiting efforts is being conducted online.
International Data Corporation estimates that the total number of individual
Internet users worldwide will grow from about 69 million in 1997 to 320 million
in 2002. As Internet usage becomes more widespread, companies from a broad range
of industries are expected to conduct an increasing percentage of their
recruiting over the Internet. We believe that online recruiting has the
34
following advantages over the more traditional means of recruiting and job
searching:
o it is interactive, allowing immediate links to additional
information;
o it provides information about local and geographically dispersed
job seekers and job opportunities;
o it allows employers, recruiters and job seekers to conduct more
focused searches;
o it allows employers, recruiters and job seekers to research and
gather information anonymously;
o it is more cost-effective;
o it is accessible at any time by employers, recruiters and job
seekers; and
o it reduces the time to conduct and close a successful job search.
Our Entry into the Online Recruiting Market
The online recruitment business looked to us as a particularly
attractive market opportunity and in 1998 we repositioned ourselves to enter
this market. We did this in the first instance by developing a network of
category specific career oriented websites which enabled employers to post job
offerings addressed to candidates in specific career or destination areas and
qualified individuals in these categories to post resumes for potential
employers to review. Later we followed up the establishment of our network of
career sites with the formation of our CareerEngine Solutions Division which was
created to construct, maintain and host career service sites on an ASP basis to
corporations and others seeking to add career centers to their websites.
Our CareerEngine Network Division
The principal players in the online recruiting business are those that
provide aggregate job postings on online job boards. Many of these sites, while
widely known and with large followings, are broadly based. By covering all types
of jobs in many industries, every employer and applicant who accesses these
sites must search through broad menus of options. This approach diminishes the
usefulness of these sites by requiring users to undertake inefficient and more
lengthy search processes. Additionally, these sites typically do not allow job
seekers to restrict access to their resumes. This feature is vital in a tight
labor market as most job seekers are employed and do not want their current
employer to know of their search for another job.
When we entered this market in early 1999 we sought to overcome the
problems inherent in broad-based job posting sites by concentrating on creating
a network of industry and occupation specific career, or "vertical" websites
that were skill- or diversity-based. Our business model is still relatively new
within this highly fragmented recruiting industry. Today, after establishing 25
sites with specialized features that allow people with similar skills and career
goals to learn about developments in their field and gain access to resources
and training, we have become one of the leading proponent of this type of
approach to online recruiting. The career websites other than co-branded
websites currently in our network are:
------------------------------------ ----------------------------------
ITClassifieds.com SalesClassifieds.com
------------------------------------ ----------------------------------
MedCareers.com CollegeGradClassifieds.com
------------------------------------ ----------------------------------
35
------------------------------------ ----------------------------------
RetailClassifieds.com MgmtClassifieds.com
------------------------------------ ----------------------------------
LawListings.com AdminClassifieds.com
------------------------------------ ----------------------------------
EducationClassifieds.com ClassifiedsforWomen.com
------------------------------------ ----------------------------------
MarketingClassifieds.com GovernmentClassifieds.com
------------------------------------ ----------------------------------
MBAClassifieds.com ExecuClassifieds.com
------------------------------------ ----------------------------------
ArchitectClassifieds.com Advertising-PR.com
------------------------------------ ----------------------------------
The following websites also on our network, represent co-branding
clients. We pay approximately 50% of the revenues generated by these
sites to our clients except for SmartMoney.CareerEngine.com to whom we
pay a monthly fee but retain all of the revenue.
-----------------------------------------------------------------------
FinancialPositions.com SmartMoney.CareerEngine.com
-----------------------------------------------------------------------
EngineeringClassifieds.com CFOPositions.com
-----------------------------------------------------------------------
AccountingClassifieds.com CrainsNYCareers.com
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TBWCareers.com 1NOLCareers.com
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1NOLCareers.com JOCCareers.com
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For the three month period from November 2000 through January 2001 the
sites listed in the above tables posted a monthly average of
approximately 12,000 unique job listings coming from a monthly average
of to an average of approximately 550 employers. Our customers are not
located in any specific geographical areas.
Contrasted to other online recruiting sites, CareerEngine's
vertical sites allow employers to search targeted resume databases
easily and to focus recruiting efforts on select communities of
potential employees in specific fields. Similarly, potential employees
are able to focus their searches on precise vocations. For both
employer and candidate, vertical sites make it easier to locate,
compare, evaluate, and consummate engagements, one with the other. Our
online recruiting sites have the benefit of being confidential,
vocation-specific, and free to job seekers.
A job posting by an employer consists of a full-page template
in which the employer has the ability to present, in detail:
o its corporate profile;
o the job type being offered;
o job skills required;
o employment location;
o contract length (if applicable); and
o salary range.
We provide our corporate clients with fields to input this
information but the clients determine the information to be posted.
Accordingly, not all of the information listed above appears in all of
the postings.
Each job posting includes an e-mail link directly to the
employer's preferred e-mail address, as well as a fax number through
which it will receive all resumes for that posting. Employers are
encouraged to select as many of our career websites as applicable for
36
the given position to help them target the right candidates and to
increase the likelihood that job seekers will find more jobs that match
their skills. Job postings remain active for a maximum of 60 days or
until the position is filled.
Personalized professional consultants are available to job
seekers through "career advisors" who are skilled in areas including
resume development, salary negotiations and market trends. Job seekers
can, among other services available to them, post their resumes, log
employment criteria into a CareerEngine search engine site and
automatically receive e-mail notification when a job matching those
criteria is listed. Notices can be sent to the job seeker's wireless
phone or pager. Our resume connections service gives companies the
opportunity to mine our confidential resume base containing resumes of
candidates who trust us to keep their credentials secure and are
reluctant to post their resumes elsewhere. Recruiters and companies are
now able to enter criteria for the candidates they seek and
automatically receive e-mail alerts when a job seeker meeting those
criteria posts a resume. They, too, can be sent a wireless
notification. We do not charge job seekers but only potential employers
for the services described in this paragraph.
Our sites automate much of the recruiting process while
providing more information and personal interaction, through e-mail and
our message board, between job seekers and employers than do most other
e-recruiting sites
Of the 25 sites offered by us, our most highly developed sites
are SalesClassifieds.com, ITClassifieds.com, CFO positions,
AccountingClassifieds.com, and FinancialPostions.com. We have focused
our initial efforts on these sites, and are expanding our platform to
ensure its attractiveness to firms seeking specific audiences in these
categories. We are actively seeking co-branding clients for the
following other sites: AdminClassifieds.com, Advertising-PR.com,
ArchitectClassifieds.com, ClassifiedsforWomen.com,
CollegeGradClassifieds.com, EducationClassifieds.com, LawListings.com,
MarketingClassifieds.com, MBAClassifieds.com, and MgmtClassifieds.com.
We expect to use a portion of the moneys raised in this offering to
further enhance these sites and to actively seek appropriate clients
for the underutilized other sites in our network. In addition, we
expect to further expand our network to cover additional sites that
address new job functions, industry, and geographic areas. With the
continuing expansion of employer and employee traffic to our site,
CareerEngine anticipates becoming one of the Internet's most robust
players in online recruiting.
Our Distributors
As of January 31, 2001, the number of aggregate postings on
our network sites were 53,400. This number includes duplicate postings
which occur when certain job postings appropriately are posted to more
than one website in our network. While many of these postings are
placed by corporations and recruiters, approximately 85% of these
postings are placed through more than 40 of our distributors consisting
of major online and offline recruitment advertising firms and major
recruitment and placement agencies that aggregate and republish job
listings either on- or offline. In contracting with us they seek to
expand the reach of their clients' listings by posting them on one or
more of our career specific sites. In lieu of our assembling a large
in-house sales force, we pay these distributors sales commissions on
job postings ranging from 25% to 50% of the job posting sales price.
Each of these distributors has its own sales force. Our distribution
agreements do not have any exclusivity provisions. The term of these
agreements generally extends for two years, with one-year renewals
unless terminated by either party. We have formed distribution
alliances with RecruitUSA Inc.,; and over 30 recruitment advertising
firms. Other distributors include online recruiters CareerBuilders,
Inc. and Vault.Com and offline recruiters Shaker Advertising, TMP
Worldwide and Bernard Hodes.
Our Co-Branding Clients
Central to our plan for increasing the business and our resume
database is the forming of co-branded alliances with other companies
having career-based and special interest destination sites. These
agreements generally provide, among other things, we will be the sole
career site provider for the co-brand client during the term of the
agreement which is for two years with one year renewals unless one
party terminates. We have entered into co-branding agreements with
CrainsNY, the Journal of Commerce, an EconomistPublication, a website
37
serving the engineering professional community, and with
SmartMoney.com, a popular website offering personal financial news,
tools and investment advice. We bear all the up front costs in building
or modifying these sites to reflect the look and feel of our
co-branding clients and when the sites are operational we share in all
revenues generated by the sites.
We also entered into an agreement with Vulcan Ventures'
Click2learn, creating a co-branded e-learning portal. Through this
portal, we receive a commission on sales to companies and individual
professionals of training materials including books, videos, online and
certification courses. The amount of the commission ranges from 5% to
70% depending on the products and the amount sold. As of the date
hereof, this agreement has not generated any significant revenue for
us.
Revenues
Our revenues from our network career sites are derived from
the following sources:
Job Posting Fees. These are fees for position ads on one or
more of our vertical career sites. These fees are charged to potential
employers and not to job seekers. We offer our posting clients the
opportunity to post on our websites in single units, in units of 10, 25
and 100 and for unlimited amounts for annual and semi-annual periods.
We charge the same fees for posting by our distributors before
deducting a negotiated commission due them.
Co-branding Fees. We share in all revenues generated by our
co-branded websites.
Fees From Advertisements On Our Websites. Additional revenues
are generated by banner and button advertising by our recruiting
clients on our websites.
Sponsorships and Market Research. Commencing sometime in the
second half of 2001, we expect to be able to derive a separate revenue
stream for including names and URL's of companies in recruiting
directories and from writing advertorials featuring our clients and
from providing market research and reporting services. An advertorial
is an advertisement which also contains an article created by the
prospective employer or product offeror which contains information
about the company and/or its products. We do not currently provide
these services.
Our CareerEngine Solutions Division
Building on the experience, technology and knowledge gleaned
from the successful implementation of our network career sites, in
March 2000 we began offering corporations and others the opportunity to
have us construct, maintain and host on an ASP basis career centers on
their websites. With this service, we can enhance the content of an
online site by adding a career center that will provide relevant career
information to visitors and additional revenue to the owners of the
website from advertising, banners and job postings. For offline
companies looking to boost their employment recruitment effort we can
construct a career site that instantly introduces online job seekers to
these offline firms. In both cases, with the Standard model described
below, we provide a career site to meet their needs which requires
minimal customization. We believe that we are able to do this more
effectively, quickly and at considerably less cost then would be the
case if they built and maintained their own online career centers.
We also have consultants on staff that work with ASP clients in
planning and developing their career sites and in optimizing their use.
They will recommend the most appropriate of our models to meet their
needs and suitable "plug-ins" that incorporate the latest technology -
such as job search agents and confidential resume hosting. In addition
to building, hosting and maintaining career sites, we also offer
training
38
We offer our services in the Standard and Enterprise models,
which vary in price and scope based on the clients' needs and desired
level of sophistication. The costs for such services consist of an
initial set up fee varying in amount from $2,500 to $50,000 and monthly
maintenance charges varying from $1,000 to $6,000 respectively.
Standard service, which requires almost no customization,
includes the following features among others:
o proprietary search technology that helps job seekers better match
their qualifications to career opportunities with keyword-specific
searches;
o resume posting and searching services;
o daily backups of both job postings and resume data;
o tell-a-friend referral service to increase site traffic;
o performance tracing service that provides site activity reports and
statistics;
o world-class traffic management capabilities that ensure adequate
site bandwidth;
o periodic software upgrades to provide access to emerging job search
technologies; and
o features that keep the site secure and visitors' data confidential.
The more advanced Enterprise Services, which are customized to meet the
specific needs of the customer, will include the additional features:
o additional enhancements that give the website a more customized
look and feel and enhanced functionality;
o sophisticated technology for more extensive search functions;
o search agent capabilities that notify visitors and clients when a
job or person meeting a prescribed criteria is found;
o site searches powered by high-speed Verity(TM)search technology;
o customized reports; and
o ongoing seminars and training to help you maximize the value of
your site.
We also offer all ASP clients if their career sites have a
sufficiently large following, the option of joining our CareerEngine
Network by posting our distributors on their sites and benefiting from
their sales and revenue.
39
In addition to the regular features, each of our model plans
offer the following optional plug-ins for additional charges:
o Site Advisor section;
o Job Search Agent;
o Message Board;
o Universal registration for site and Career section;
o Resume faxing service;
o Personalization;
o Content package featuring news and feature articles;
o Credit Card processing for advertising sales;
o Reporting for advertisers;
o Resume Search Agent for recruiters;
o One click posting of jobs to multiple sites; and
o Featured Employer advertising programs.
All of the foregoing are our proprietary plug-ins except for the faxing
service and the wireless service noted below. We do not have any
agreements with third-parties with respect to recommending plug-ins to
our customers.
Pursuant to our standard ASP agreement, we develop a career service
website for the client and provide the client with related ASP
services. The agreements generally run for a two-year period and
automatically renews fro sucessive one-year periods, unless terminated
by either party on at least 60 days' written notice before the
expiration of the agreement or any renewal period. We receive an
initial set up fee and a monthly hosting and maintenance fee. These
fees are calculated based upon which of the standard and additional
features described above the client selects. The agreements are
terminable by either party upon not less than 30 days' written notice
to the defaulting party of
o a material breach under the agreement by the defaulting party,
which breach is not cured with in 30 days after the notice of
default;
o the defaulting party's bankruptcy, receivership or any similar
event under laws for the protection of creditors; or
o the defaulting party's liquidation or dissolution.
The agreements also contain a cross indemnification provision and a
provision that confirms our ownership rights to our intellectual
property and the client's ownership rights to its intellectual
property.
Recent Initiatives
During the last six months we have announced the following
initiatives:
o Offered a wireless job search service, which alerts job seekers via
wireless technology about job opportunities that match their
specifications. The Wireless Job Search Agent alerts candidates to
the most current job listings through their cellular phones. The
service speeds the career search process, enabling users to
leverage the instant notification of wireless technology.
o Created a career search section for CFO.com, the online division of
CFO Magazine.
o Created a career search section for SmartMoney.com, the online
division of SmartMoney Magazine.
o Created a career search section for JoC.com, the online version of
The Journal of Commerce, an Economist Group publication.
40
o Enhanced our Job Search Agent to include an 'Auto-Apply'
functionality. Auto-Apply allows a registered user to have their
resume automatically submitted as new job postings become active on
our sites.
Our 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, HeadHunter.net, 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, including CareerBuilder, 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.
Intellectual Property
Our success and ability to compete depends significantly on
our internally developed proprietary technology and on our brand names
and marks. We rely upon trademark and other intellectual property laws,
and on confidentiality and non-disclosure agreements with our employees
and third parties to establish and protect our proprietary rights. We
have applied for a federal registered trademark for "CareerEngine." We
cannot assure you that our trademark application will be approved or
granted or, if granted, that will not be successfully challenged by
others or invalidated through administrative process or litigation. If
our registration of CareerEngine is not approved or granted due to the
prior issuance of trademarks to third parties or for other reasons, we
cannot assure you that we will be able to enter into arrangements on
commercially reasonable terms to allow us to continue to use that
trademark. We do not have and have not sought any patent protection on
our proprietary technology.
We cannot assure you that our confidentiality and
non-disclosure agreements will provide adequate protection for our
proprietary rights if there is any unauthorized use or disclosure of
our proprietary information or if our employees, consultants, advisors
or others fail to maintain the confidentiality of our proprietary
information. We also cannot assure you that our proprietary information
will not otherwise become known, or be independently developed, by
competitors. See "Risk Factors - We may not be able to protect and
enforce our intellectual property rights, which could result in the
loss of our rights, loss of business or increased costs."
Employees
As of January 31, 2000, we had 36 full-time employees,
including six in sales, two in marketing, two in business development,
nine in administration, three in operations and 14 in information
technology. We are not subject to any collective bargaining agreements
and we believe that our relations with our employees are good.
41
Facilities
We currently lease approximately 7,000 square feet of office
space at 2 World Trade Center, Suite 2112, New York, New York for our
executive offices. The lease on this space is due to expire on February
28, 2006. The minimal annual base rents payable for the period of March
1, 2000 through February 28, 2006 are as follows:
For Years Annual Rent Per Year
- -------------------------------------------------------------------------------
2000 through 2004 $139,100
2005 and 2006 $162,200
Our Discontinued Operations
During the past five years we concentrated in providing merchant and
investment banking services, primarily related to real estate projects, and
financial consulting services. In August 2000 we discontinued these business
segments to concentrate our efforts on our online recruiting business. Please
see Note 4 to our unaudited financial statements for the nine-month period ended
September 30, 2000 for information related to our discontinued operations.
On August 16, 2000, our Board of Directors decided to discontinue our
merchant banking operations, which consisted of our real estate project with
Carmike Cinemas, Inc., and our financial consulting operations.
In 1997, Movieplex Realty Leasing, L.L.C., one of our subsidiaries,
entered into an agreement with a major film exhibitor, Carmike Cinemas, Inc., 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 by Movieplex. The 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 on the land. In connection therewith we
entered into a Reimbursement Agreement with Wachovia, N.A. as agent for the
banks, under which we were 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 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 of our subsidiaries own 100% of the Common
Membership of the lessor. The Common and Preferred Membership interests are
entitled to a cash return based on a formula specified within the lease.
Pursuant to one of the related agreements, Carmike acted as the
development agent for Movieplex over a development period from November 20, 1997
through November 19, 1999. During this 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
42
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 our anticipated financial return on this
transaction. We were also compensated for 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 fluctuate with the debt
service payments on the related bonds and the cash return due to the Common and
Preferred Members of Movieplex. The lease requires 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 has 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 has
the option to purchase, not less than all the theaters, at an amount based on a
predetermined future value.
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, we 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 us 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. We anticipate that title to the
six theaters will be transferred to the banks in payment of the non-recourse
debt under the Reimbursement Agreement. At such time, we will recognize a gain
to the extent of the excess of the liabilities over the carrying value of the
assets related to the real estate leased to Carmike.
The transaction relating to our six movie theaters and Carmike Cinema,
Inc., is and always has been cash flow neutral (rent is equal to interest
expense, principal amortization and other related expenses that are our
responsibility). Carmike's filing of a petition under Chapter 11 of the United
States Bankruptcy Code has not changed this financial relationship as our
exposure related to this real estate project is and always has been limited
solely to our interest in the theaters.
Legal Proceedings
In November 2000 one of our subsidiaries, Matthews & Wright Inc., was
served with a summons and complaint in connection with an action commenced in
October 2000, by the Housing Authority of the County of Riverside, California
against multiple defendants. This action was filed in the Superior Court of
California County of Riverside and is currently pending. The name of the action
is Housing Authority of the County of Riverside, a California State Agency,
Plaintiff, v. Ironwood Apartments, Ltd., a California limited partnership, et
al, Case No. 349877.
43
The plaintiffs issued certain bonds, the interest on which was to be
treated as tax-exempt. The Internal Revenue Service later determined that the
interest on these bonds was not tax-exempt. The plaintiffs alleged in connection
with the issuance and underwriting of the bonds, that various defendants
including our subsidiary, negligently and fraudulently misrepresented to the
plaintiffs that the interest on the bonds would be tax-exempt. The plaintiffs
are seeking damages as a result of such misrepresentation in the amount of
$1,100,000, which damages the plaintiffs have requested be trebled as permitted
by statute. The plaintiffs are also seeking punitive damages in an unspecified
amount. Our subsidiary plans to vigorously defend against the action.
44
Management
Executive Officers and Directors
Directors serve for a term of three years or until their successors are
elected and qualified. We have different classes of directors with the term of
each class ending at different times. See the table for the date that each
director's term ends.
Our executive officers and directors and their respective ages and
expiration of their terms are as follows:
Directors
---------------------------
Name Age Position Since Term Expires
George W. Benoit (1)(2)(4) 64 Chairman of the Board, President 1971 2001
and Chief Executive Officer
Anthony S. Conigliaro 50 Vice President and Chief Financial N/A N/A
Officer, Treasurer and Secretary
Thomas J. Ferrara 30 Director, President and Chief 2000 2001
Executive Officer, CareerEngine,
Inc.
Sarah Choi 29 Chief Operating Officer, N/A N/A
CareerEngine, Inc.
John S. Diefendorf 30 Chief Information Officer, N/A N/A
CareerEngine, Inc.
Kevin J. Benoit (1)(2)(5) 38 Director 1999 2003
Charles W. Currie(2)(3)(4)(5)(6) 58 Director 1986 2003
Joseph G. Anastasi (3)(5)(6) 64 Director 1986 2002
David W. Dube (3)(4)(5)(6) 45 Director 1996 2001
James J. Murtha (3)(5)(6) 52 Director 1986 2002
Edward A. Martino 51 Director 2000 2001
- ----------------------
(1) George W. Benoit is the father of Kevin J. Benoit.
(2) Serves on the Executive Committee.
(3) Serves on the Audit Committee.
(4) Serves on the Compensation Committee.
(5) Serves on the Nominating Committee.
(6) Serves on the Incentive Compensation Committee.
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
45
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.
THOMAS J. FERRARA has been employed by our subsidiary, CareerEngine,
Inc. since June 1998. He has been a director of CareerEngine Network, Inc. since
October 2000. Mr. Ferrara is a founder of our online recruiting business. He is
the President and Chief Executive Officer of our subsidiary, CareerEngine, Inc.
As the President and Chief Executive Officer he is responsible for business
development, seeking relationships with companies that can help us establish and
maintain our business and the overall growth of the subsidiary. From January
1996 to June 1998, Mr. Ferrara served as Executive Vice President of Remote
Lojix, New York, an information technology company. From September 1993 to
January 1996, he was employed in various executive capacities at Computer
Maintenance, Inc., a computer integration and consulting organization.
SARAH CHOI joined our subsidiary, CareerEngine, Inc. in October 2000
after serving , since October 1995, as co-founder of and Senior Vice President
of Operations at Remote Lojix, a national information technology company. Ms.
Choi brings to CareerEngine her experience in establishing corporate
infrastructure, project management and acquisitions. She is responsible for
overall operations of the organization, which includes Project Management and
Administration.
JOHN S. DIEFENDORF joined our subsidiary, CareerEngine, Inc. in June
2000 after serving as Director of Information Technology at John Hancock
Financial Services in Boston from June 1998 through June 2000. He brings to
CareerEngine extensive senior-level technology experience in software
development, training and management for Fortune 100 firms. From May 1997
through June 1998 he was employed as Director of Engineering at Systron
Consulting Group, Inc, New York, where he supervised technology development for
leading corporations including Merrill Lynch, Citibank, Chase Manhattan Bank and
KPMG. From January 1994 through February 1997. Mr. Diefendorf worked as a
systems analyst at Microsoft Corporation in New York..
KEVIN J. BENOIT 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, and Vice President of
Randolph, Hudson & Co., Inc., a subsidiary of ours responsible for cash
management. Mr. Benoit is a registered C.T.A. and C.P.O. and specializes in
arbitrage and hedging strategies. His business experience includes employment
with Prudential Securities, Inc. (1987- 1995) as Vice President of Arbitrage and
Hedging in their Municipal bond Department, and Bear Stearns, Inc. (1984-1987)
where he served in a similar capacity. Mr. Benoit's father is George Benoit our
President and CEO.
CHARLES W. CURRIE has been a director of CareerEngine Network, Inc.
since 1986. Mr. Currie has been a partner with Asset Management Services LLC, a
company that provides marketing services to investment managers, since August
1996. From June 1993 to July 1996, he was a Senior Vice President with Pryor,
McClendon, Counts & Co., Inc., investment bankers.
JOSEPH G. ANASTASI has been a director of CareerEngine Network, Inc.
since September 1986. Since 1960 Mr. Anastasi has been the owner and 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 and was the
general partner of Muirkirk Manor Associates Limited Partnership. Muirkirk Manor
filed bankruptcy in December 1994 and it was discharged in December 1995. The
Anastasi Stephens Group, Inc. has been inactive since that time.
46
DAVID W. DUBE has been a director of CareerEngine Network, Inc. since
June 1996. Mr. Dube is a private investor with active interests in various real
estate, financial services and giftware companies. He 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. From 1996 to 1997, Mr. Dube was President and Chief
Executive Officer of Optimax Industries, Inc., a publicly-traded company with
operating interests in the horticultural, decorative giftware and truck parts
accessories industries. From February 1991 to June 1996, he was the principal of
Dube & Company, a financial consulting firm. Mr. Dube serves on the Boards of
Directors of publicly-traded Kings Road Entertainment, Inc., New World Wine
Communications, Ltd., and SafeScience, Inc. and several privately-held
enterprises.
JAMES J. MURTHA has been a director of CareerEngine Network, Inc. since
December 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.
EDWARD A. MARTINO has been a Director of CareerEngine Network, Inc.
since October 2000. Mr. Martino is the Senior Vice President for IT Solutions,
Inc., a systems integration and consulting services company. Prior to joining IT
Solutions, Inc. in May 2000, Mr. Martino held numerous management positions in
marketing and sales for 18 years at IBM. His most recent position was IBM
Solution Executive - Global Systems Integrator Unit. Mr. Martino currently
serves on several boards including the New York Software Industry Association,
where he is the Vice Chairman, City University of New York Institute for
Software Design and Development, and the Bronx Museum of the Arts.
Each non-employee director receives an annual fee of $12,000 plus
expenses incurred for attending meetings of our board, annual stockholders
meetings and for each meeting of a committee of our board not held in
conjunction with a board meeting.
Our board of directors has established the following committees:
o an Executive Committee;
o an Audit Committee;
o a Compensation Committee;
o a Nominating Committee; and
o an Incentive Compensation Committee.
The Executive Committee exercises the powers of our board during the
intervals between meetings of the board. The Audit Committee discusses audit and
financial reporting matters with both management and our independent public
accountants to determine the adequacy of internal controls and other financial
reporting matters. The Compensation Committee reviews and recommends to our
board the compensation and benefits for all of our officers and employees. The
Nominating Committee nominates candidates for election to our board. The
Incentive Compensation Committee reviews and recommends to our board the
incentive compensation for all of our officers and employees and administers the
issuance of stock options to officers, employees, directors and consultants.
Executive Compensation.
The following table sets forth all compensation awarded to, earned by
or paid to, our Chief Executive Officer and our other two most highly
compensated executive officers whose annual compensation exceeded $100,000 in
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1999 for all services rendered in all capacities to us during 1999, 1998 and
1997.
Summary Compensation Table
Long Term
Annual Compensation Compensation
All Other
Name and Salary Bonus Compensation(1)
Principal Position Year ($) ($) ($)
George W. Benoit 1999 201,571 36,067
President, Chief 1998 201,414 50,000 36,344
Executive Officer and 1997 201,830 200,000 36,576
Chairman
Kevin J. Benoit 1999 143,750 145,000
Director and Vice
President of Randolph,
Hudson & Co., Inc., a
wholly-owned subsidiary
of CareerEngine
Thomas J. Ferrara 1999 132,259 50,000
Director, President and 1998 62,307
Chief Executive Officer
of CareerEngine, Inc., a
wholly-owned subsidiary
of CareerEngine
- -----------------
(1) Represents our share of insurance premium on Split Dollar Life Insurance
Agreement.
48
Stock Options
The following tables show information with respect to incentive and
non-qualified stock options granted in 1999 to the executives and the aggregate
value at January 1, 2001 of those options. The per share exercise price of all
options is equal to the fair market value of a share of common stock on the date
of grant. No options granted to any named executives have been exercised.
Option Grants in 1999
Individual Grants(1)
Name and Number of Percent of Total Exercise
Principal Position Shares of Options Granted Price Expiration Date
(1) Common Stock Employees in to ($/Sh)
Underlying 1999
Option
George W. Benoit 150,000 33% 2.50 April 7, 2004
Kevin J. Benoit 100,000 22% 2.25 April 7, 2009
Thomas J. Ferrara 100,000 22% 2.25 April 7, 2009
Aggregated 1999 Year End Options Values
Number of Value of Exercisable/
Shares of Unexercised In- Unexercisable
Common Stock The-Money
Options
Underlying at January 1, 2001
Unexercised
Options
at 1/1/2001
George W. Benoit 150,000 -0- 37,500/112,500
Kevin J. Benoit 100,000 -0- 20,000/80,000
Thomas J. Ferrara 100,000 -0- 20,000/80,000
- --------------------------------------------------------------------------------
(1) Granted under the 1990 Incentive Stock Option Plan.
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Stock Option Plans
1990 Incentive Compensation Plan.
The 1990 Incentive Compensation Plan, as amended, was adopted by our
board and stockholders on June 7, 1990. We reserved 750,000 shares of our common
stock for issuance upon exercise of stock options, stock appreciation rights, or
restricted stock awards granted under the incentive compensation plan. The
incentive compensation plan is intended to assist us in securing the long-term
success and growth of CareerEngine by allowing our officers and other key
employees to share in the ownership and growth of CareerEngine in return for
their continued loyalty and service.
Our Incentive Compensation Committee administers the incentive
compensation plan in accordance to its provisions. The Committee determines 1)
who receives options, appreciation rights or restricted stock, 2) the number of
shares of common stock that may be purchased under the options, the time, manner
of exercise and exercise price of options, and 3) the number of shares of
restricted stock. Under the incentive compensation plan, we may grant incentive
and non-qualified stock options, stock appreciation rights, or restricted stock
awards to our officers and employees.
The term of options and stock appreciation rights granted under the
incentive compensation plan may not exceed ten years or five years for an
incentive stock option granted to an optionee owning more than 10% of our voting
stock. The exercise price for incentive stock options shall be equal to or
greater than 100% of the fair market value of the shares of our common stock on
the date of grant; provided that incentive stock options granted to a 10% holder
of our voting stock shall be exercisable at a price equal to or greater than
110% of the fair market value of our common stock on the date of the grant. The
exercise price for non-qualified options will be set by the Committee, in its
discretion, but in no event shall the exercise price be less than the fair
market value of shares of our common stock on the date of grant. The stock
appreciation rights may only be granted in conjunction with the Non-Qualified
Stock Options. The exercise of the stock appreciation rights will
proportionately reduce the number of shares of common stock issuable upon
exercise of the Non-Qualified Stock Options. Shares of our common stock received
upon exercise of options granted, or grants of restricted stock under the
incentive compensation plan will be subject to restrictions on sale or transfer.
The incentive compensation plan was terminated on June 3, 1999.
As of the date of this prospectus, we have granted incentive stock
options to purchase 610,000 shares of our common stock under the incentive
compensation plan. Of these options,
o 50,000 have expired, and
o options to purchase 350,000 shares have been granted to our
officers and directors.
The 1999 Stock Option Plan.
In April 1999, the board of directors and stockholders adopted our 1999
Stock Option Plan. We have reserved 350,000 shares of common stock for issuance
upon exercise of options granted from time to time under the option plan. The
stock option plan is intended to assist us in attracting, securing and retaining
key employees, directors and consultants by allowing them to participate in our
ownership and growth through the grant of incentive and non-qualified options.
Our Incentive Compensation Committee administers the stock option plan
in accordance with its provisions. The Committee will determine who shall
receive options, the number of shares of our common stock that may be purchased
under the options, the time, manner of exercise and exercise price of options.
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Under the stock option plan, we may grant incentive stock options only
to our officers and employees, and non-qualified options to our officers,
employees, directors, consultants, agents and independent contractors. The term
of options granted under the stock option plan may not exceed ten years or five
years for an incentive stock option granted to an optionee owning more than 10%
of our voting stock. The exercise price for incentive stock options shall be
equal to or greater than 100% of the fair market value of the shares of our
common stock on the date of grant; provided that incentive stock options granted
to a 10% holder of our voting stock shall be exercisable at a price equal to or
greater than 110% of the fair market value of our common stock on the date of
the grant. The exercise price for non-qualified options will be set by the
committee, in its discretion, but in no event shall the exercise price be less
than the fair market value of shares of common stock on the date of grant.
Shares of common stock received upon exercise of options granted under the plan
will be subject to restrictions on sale or transfer.
As of the date of this prospectus, we have granted stock options to
purchase 40,000 shares of our common stock under this option plan, of which all
have been granted to directors of our Company.
401(k) Cash or Deferred Compensation Plan.
We have established a tax-qualified 401(k) cash or deferred
compensation plan that covers all of our employees who have completed one year
of service and attained age 21. The 401(k) plan is intended to qualify under
Section 401 of the Internal Revenue Code so that contributions by qualified
participants and by us, and the income earned on such contributions, are not
taxable until withdrawn. Our contributions to the 401(k) plan are tax
deductible.
The 401(k) plan permits our participating employees to contribute up to
15% of his or her pre-tax gross salary, within the limitations imposed by the
Internal Revenue Code, to the plan. We may, in our discretion on an annual
basis, make contributions, under the 401(k) plan. The employees are fully vested
immediately in the contributions we make.
Split Dollar Life Insurance Agreement
Our Chairman, George W. Benoit, is currently the beneficial owner and
holder of 1,771,620 shares of our common stock. He has advised us that, on his
death, his estate may be required to publicly sell all or substantially all of
such shares to satisfy estate tax obligations. The public sale of all such
shares might destabilize the market for our publicly traded stock. Accordingly,
potentially to avoid the necessity of his estate selling his shares, as of
January 20, 1995, we entered into an agreement, commonly known as a split dollar
life insurance agreement, with a trust created by Mr. Benoit. Under the terms of
the agreement, we will pay the premiums for a $1,000,000 life insurance policy
on the life of Mr. Benoit. The Trust has granted an interest in the policy to us
to the extent of the sum of all premium payments made by us. These arrangements
are designed so that if the assumptions made as to mortality experience, policy
dividends and other factors are realized upon Mr. Benoit's death or the
surrender of the policy, we will recover all of our insurance premium payments.
The portion of the premium paid by us in 1999 pursuant to this arrangement was
$36,067.
Limitation on Liability and Indemnification Matters
As authorized by the Delaware General Corporation Law, our certificate
of incorporation provides that none of our directors shall be personally liable
to us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for:
o Any breach of the director's duty of loyalty to us or our
stockholders;
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o Acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o Unlawful payments of dividends or unlawful stock redemptions or
repurchases; or
o Any transaction from which the director derived an improper
personal benefit.
This provision limits our rights and the rights of our stockholders to
recover monetary damages against a director for breach of the fiduciary duty of
care except in the situations described above. This provision does not limit our
rights or the rights of any stockholder to seek injunctive relief or rescission
if a director breaches his duty of care.
Our certificate of incorporation further provides for the
indemnification of any and all persons who serve as our directors, officers,
employees or agents, to the fullest extent permitted under the Delaware General
Corporation Law.
Under our bylaws, we must indemnify any director or officer who was, is
or is threatened to be made, a party to any legal proceeding, whether civil,
criminal, administrative or investigative (including any action or suit by or in
our right) because such person is or was a director or officer, against
liability incurred in such proceeding. Unless a court orders that we indemnify
the director or officer, we do not indemnify her or him for any liability
incurred in a proceeding in which the director or officer is adjudged to be
liable to us for negligence or misconduct in the performance of his or her duty
to us.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable.
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Principal Stockholders
The following table sets forth, as of January 31, 2001, the shares of our
common stock owned beneficially;
o by our current directors and executive officers individually;
o by all of our current directors and executive officers as a group;
and
o by persons known to us to own more than five (5%) percent of the
outstanding shares of our common stock:
% of Aggregate voting
Power and
Common Stock Outstanding Equity
Name of Beneficial Owner(1) Position Beneficially Owned(2) Owned(3)
- ---------------------------------------------------------------------------------------------------------------------
George W. Benoit President,
Chairman and Chief
Executive Officer 1,771,620 (4)(8) 31.75
Kevin J. Benoit Director 448,000 (5)(6)(8) 8.05
Charles W. Currie Director 276,780 (7)(11) 4.99
Joseph G. Anastasi Director 7,200 (11) *
David W. Dube Director 9,000 (11) *
James J. Murtha Director 5,000 (11) *
Edward A. Martino Director 300 *
Anthony S. Conigliaro Vice President and
Chief Financial Officer -0- 0
Thomas J. Ferrara Director, President and
Chief Executive Officer
of CareerEngine, Inc. 46,500 (5)(9) *
Chief Operating Officer
Sarah Choi of CareerEngine, Inc. -0- 0
Chief Information Officer
John S. Diefendorf of CareerEngine, Inc. -0- 0
Barry W. Blank N/A 884,400 (10) 14.96
All Directors and Executive
Officers as a group (11 persons) 2,564,400 44.63
- --------------------------------------------------------------------------------
* Owns less than one (1%) percent.
53
(1) The address of all the beneficial owners is: CareerEngine Network, Inc., 2
World Trade Center, New York, New York 10048; 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 Registration
Statement 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
Registration Statement 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.
(3) All percentages of beneficial ownership are calculated based the number of
shares outstanding as of January 31, 2001. On such date we had 5,444,006
shares of common stock issued and outstanding.
(4) Includes the following: (a) options to purchase 37,500 shares of common
stock; and (b) 90,700 shares of common stock held in George W. Benoit's
401K Plan.
(5) Includes options to purchase 20,000 shares of common stock.
(6) Includes the following: (a) 21,000 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.
(7) 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.
(8) Includes 100,000 shares of common stock that can be acquired on the
conversion of certain debentures and related warrants.
(9) Includes 25,000 shares of common stock that can be acquired on the
conversion of certain debentures and related warrants.
(10) Includes 300,000 shares of common stock that can be acquired on the
conversion of debentures and related warrants purchased in the private
financing. Also includes 168,000 shares that can be acquired on the
conversion of debentures and related warrants issuable upon exercise of
placement agent warrants issued to the placement agent in the private
financing and promised to Mr. Blank. See "Private Financing."
(11) Includes options to purchase 5,000 shares of common stock.
Certain Transactions
There have been no material transactions during the past two fiscal
years or from the end of the last fiscal year to the date of this prospectus to
which we were a party, in which any of our executive officers, directors or
principal securityholders has a direct or indirect interest.
54
Description of Securities
UNITS
We are offering 2,500 units. Each unit consists of one debenture, 250
class A warrants and 250 class B warrants. These securities are described below.
Another 2,640 units have been registered for public sale and are being
sold by selling securityholders pursuant to another prospectus. See "Private
Financing."
Unit holders may trade the debentures and warrants separately
commencing six months after the effective date of this offering unless we agree
with the underwriter that trading may begin sooner. Prior to that date, the
debentures and warrants will trade only as a unit. Neither the underwriter nor
we are currently aware of any events that would cause the debentures and
warrants to trade separately prior to six months after the effective date of
this offering. In the event that such trading should occur, we expect that the
American Stock Exchange will post this information on its web site.
THE DEBENTURES AND THE INDENTURE
General
The debentures will be issued under an indenture to be dated as of
________ __, 2001, between CareerEngine Network, Inc. and Continental Stock
Transfer & Trust Company as trustee. The terms of the debentures include those
stated in the indenture. The following summary of material provisions of the
indenture and the debentures does not restate those documents in their entirety.
A copy of the indenture, which includes the debenture, is filed as an exhibit to
the registration statement of which this prospectus is a part. To obtain a copy
of the indenture see "Available Information."
Principal Amount of Debenture
The principal amount of each debenture will equal $1,000.
Quarterly Payment of Interest and Payment of Principal at Maturity
We will pay interest on the debentures from the date of their delivery
at the rate of 12% per annum. We will make interest payments quarterly on
January 1, April 1, July 1 and October 1 of each year, commencing July 1, 2001.
We will repay the principal amount of the debentures on March 31, 2010,
unless the debentures are redeemed prior to their maturity.
We will make all payments of principal and interest on the debentures
at the offices of the trustee located at 2 Broadway, New York, New York 10004.
However, we may pay interest by check mailed to the holder at the holder's
address listed with the trustee in the debenture register.
Repayment of Debentures Before Maturity
Redemption by Holder's Estate. Upon the death of a debenture holder, the
holder's estate may require us to repay a maximum of $50,000 in principal amount
of and accrued interest on the debentures owned by the deceased holder. This
right to require repayment is known as a right of redemption. This right of
redemption is limited to the estate of the initial holder. If a holder transfers
55
the debentures, the subsequent holder of the debentures is not entitled to this
right of redemption. If spouses are joint record owners of debentures, the
election to redeem will apply when either record owner dies. In other cases of
debentures jointly held, the election will not apply.
Redemption by Us. We can redeem all or part of the debentures at 100% of their
principal amount, plus accrued interest to the redemption date, if the closing
price of our common stock equals or exceeds 2.154 times the then conversion
price for a period of 20 consecutive trading days ending three trading days
prior to the notice of redemption.
If we decide to redeem the debentures, we are required to provide the
holder with written notice of such intention at least 30 days before we redeem
the debentures.
If we redeem less than all of the outstanding debentures, the trustee
will determine which debentures will be redeemed either by pro rating or
choosing by lot.
Conversion by Holder
A holder may convert all or a portion of the principal amount of its
debenture outstanding at the time such conversion is effected into our common
stock at any time before the close of business on the earlier of March 31, 2010
or the date that principal and interest under the debenture has been paid in
full. If we call the debenture for redemption, a holder may convert its
debenture at any time before the close of business on the redemption date. The
initial conversion price is $2.00 per share, subject to adjustment in certain
events, which include:
o Stock dividends, splits and combinations;
o Certain below market issuances of stock;
o Reclassifications;
o Mergers; or
o The sale of substantially all of our assets.
On conversion, no payment or adjustment for accrued and unpaid interest
will be made. All such interest will be forfeited.
Ranking of Debentures
The debentures will rank below our senior debt, which we may incur in
the future. This means that we will be required to make payments of principal,
premiums, if any, and interest on our senior debt before we make such payments
on the debentures. Senior debt includes indebtedness for money that we borrowed
that is outstanding on the day that we execute the indenture and money that we
borrow after we execute the indenture, where we borrow the funds from banks or
other traditional long-term institutional lenders such as insurance companies
and pension funds. Such debts will rank below the debentures only if the note or
other document that creates the debt provides that such debt is not senior in
right of payment to the debentures. At December 15, 2000, we had no senior debt.
We expect that from time to time we will borrow additional funds that
rank senior to the debentures. We are not limited in the amount of additional
indebtedness that we can borrow. The more that we borrow, the greater our debt
service. If we are unable to meet our debt service and we are required to pay or
distribute our assets to creditors due to our dissolution, winding up of
affairs, liquidation, bankruptcy or other similar event, we will be required to
56
make all payments due upon all senior debt before we can make payments to the
debenture holders or the trustee.
Modification of the Indenture
With the consent of the holders of not less than a two-thirds in
principal amount of outstanding debentures, we and the trustee may modify the
indenture by:
o adding, changing or eliminating any provisions of the indenture; or
o modifying the rights of the debenture holders under the indenture.
However, no modification may be made without the consent of all of the
debenture holders affected to:
(a) reduce the amount of debentures whose holders must consent to an
amendment;
(b) reduce the rate of or change the time for payment of interest on any
debenture;
(c) reduce the principal of or change the fixed maturity of any debenture;
(d) make any debenture payable in money other than that stated in the
debenture;
(e) make any change in the provisions related to waiving past defaults,
receiving payments under the debentures or bringing suit to enforce such
payments;
(f) alter the manner in which the indenture may be amended in such a way that
it adversely affects the rights of holders; or
(g) alter the provisions of the indenture so as to adversely affect the junior
ranking of the debentures to senior debt.
We and the trustee do not require the consent of any holders to amend
the indenture to:
o fix any ambiguity, omission, defect or inconsistency;
o provide for the assumption by a successor corporation of our
obligations under the indenture; or
o make any other change that does not adversely affect the rights of
any holder of the debentures.
We are required to mail to all holders a notice briefly describing any
amendment to the indenture promptly after the amendment is effected. However,
our failure to give such notice to all holders or any defect in such notice will
not impair the validity of the amendment.
Events of Default, Notice and Waiver
57
Each of the following constitutes an event of default under the
indenture:
o If we fail to pay principal or interest when due and we do not cure
such failure for a period of 15 days after any holder has given us
written notice of such failure;
o If we fail to comply with any other material obligation in the
indenture and such failure continues for at least 30 days after we
have received written notice of such failure from the trustee or
the holders of at least a majority in principal amount of the
outstanding debentures;
o If we become subject to certain events of bankruptcy, insolvency or
reorganization.
If the trustee knows that an event of default has occurred and has not
been rectified, it is required to mail to each debenture holder a notice of the
event of default within 90 days after it occurs. However, except for an event of
default in the payment of principal or accrued interest on any debenture, the
trustee need not send such notice if and for as long as a committee of its trust
officers determines that withholding notice is not against the interest of the
debenture holders.
We are required to deliver to the trustee, within 120 days after the
end of each fiscal year, a certificate indicating whether we know of any event
of default that has occurred during the previous year.
If an event of default occurs and has not been rectified, either the
trustee or the holders of a majority of the principal amount of the outstanding
debentures, by giving us notice, may declare the principal and any accrued
interest on the principal of all of the debentures to be due and payable. In the
event of such acceleration, all debentures would become due and payable. There
are no provisions under New York law to permit minority debenture holders to
accelerate the debentures in the event that the trustee or a majority of the
holders fails to accelerate the payment of the principal and any accrued
interest to be due and payable in the event of a default. However, each
debenture holder has the right to sue us for unpaid principal and/or interest on
his or her debenture in the event these payments are not made when due.
Holders of at least a majority of the principal amount of all
outstanding debentures may:
o waive any default other than a default in payment of principal or
interest or a default under the conversion provisions; and
o direct the time, method and place of conducting any proceeding for
any remedy available to the trustee, or exercising any power of
trust conferred on the trustee.
A holder may bring an action to collect any interest or principal under
the debenture that has come due but not been paid. A holder's right to institute
a proceeding with respect to any other matter under the indenture is limited. A
debenture holder may institute such a proceeding only if:
o he or she notifies the trustee in writing of a continuing event of
default;
o holders of at least a majority in principal amount of the
outstanding debentures deliver a written request to the trustee to
pursue a remedy;
o holders provide the trustee with indemnification that the trustee
deems satisfactory against any loss, liability or expense;
o the trustee fails to comply with the request to institute
proceedings within 60 days of receiving the request; and
58
o the trustee does not receive written instructions that are
inconsistent with the request from the holders of at least a
majority in principal amount of the outstanding debentures during
the 60 day period.
Our Covenants
In the indenture, we agree to abide by certain covenants while the
debentures are outstanding. These covenants include our obligation to:
o pay all interest and principal when due;
o deliver to the trustee copies of all of our filings with the
Securities and Exchange Commission;
o certify in writing to the trustee within 120 days after the end of
each fiscal year whether we were in default under the indenture
and, if so, the status of such default and our efforts to correct
it;
o not declare or pay any cash dividend on outstanding stock or
purchase or otherwise acquire any of our stock during any period in
which an event of default exists;
o refrain from entering into certain transactions with our
affiliates, unless our board of directors determines in good faith
that the terms of such transactions are at least as good as we
could have obtained had we entered into such transactions with
non-affiliated persons; and
o comply with certain general covenants concerning the operation of
our business.
The Trustee
Continental Stock Transfer & Trust Company will be the trustee under
the indenture. The trustee is also the transfer agent and registrar for our
common stock and the warrant agent for our warrants.
No Personal Liability Of Directors, Officers, Employees And Stockholders
None of our directors, officers, employees or stockholders, acting in
such capacities, shall have any liability for any of our obligations under the
indenture or the debenture. Each debenture holder waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the debentures. Such waiver might not be effective to waive liabilities under
the federal securities laws because it is the view of the Securities and
Exchange Commission that such a waiver is against public policy.
Governing Law
The indenture provides that it and the debentures will be governed by
the laws of the State of New York.
CAPITAL STOCK
Our authorized capital stock consists of 20,000,000 shares of common
stock, $.10 par value per share, and 1,000,000 shares of preferred stock.
59
Common Stock
Under our certificate of incorporation, our board is authorized,
subject to limitations prescribed by law, without further stockholder approval,
from time to time to issue up to an aggregate of 20,000,000 shares of common
stock. Holders of our common stock are entitled to:
o one vote per share;
o share in all dividends that our board, in its discretion, declares
from legally available funds; and
o participate pro rata in all assets that remain after payment of
liabilities, in the event of our
o liquidation, dissolution or winding up.
Holders of our common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to common
stock.
Preferred Stock
Our board has the authority, without further stockholder approval, to
issue up to 1,000,000 shares of preferred stock in one or more series. Each
series may have different rights, preferences and designations and
qualifications, limitations and restrictions.
No preferred stock has been issued as of the date of this prospectus.
Warrants
General.
We will issue 500,000 redeemable class A warrants and 500,000
redeemable class B warrants as part of the units sold in this offering.
Exercise Period and Initial Exercise Price
The class A warrants are exercisable from their date of issue through
March 31, 2003 at an initial exercise price of $4.00 per share.
The class B warrants are exercisable from their date of issue through
March 31, 2005 at an exercise initial price of $6.00 per share.
A warrant holder will not be deemed to be a holder of the underlying
common stock for any purpose until the warrant has been exercised.
The following provisions are applicable to both the class A and class B
warrants:
Redemption. We have the right to redeem the warrants at a redemption
price of $.001 per warrant after providing 30 days' prior written notice to the
warrant holders, if the closing price of the common stock equals or exceeds 150%
of the then exercise price of the warrants for 20 consecutive trading days
ending three days before the notice of redemption. We will send the written
notice of redemption by first class mail to warrant holders at their last known
addresses appearing on the registration records maintained by the warrant agent
for our warrants. No other form of notice or publication or otherwise will be
60
required. If we call the warrants for redemption, they will be exercisable until
the close of business on the business day next preceding the specified
redemption date when the right to exercise will lapse.
Exercise. A warrant holder may exercise the warrants only if an
appropriate registration statement is then in effect with the Securities and
Exchange Commission and if the shares of common stock underlying the warrants
are qualified for sale under the securities laws of the state in which the
holder resides.
Our warrants may be exercised by delivering to our warrant agent the
applicable warrant certificate on or prior to the expiration date or the
redemption date, as applicable, with the form on the reverse side of the
certificate executed as indicated, accompanied by payment of the full exercise
price for the number of warrants being exercised. Fractional shares of common
stock will not be issued upon exercise of the warrants.
Anti-dilution Adjustments. The warrants contain provisions that protect
against dilution by adjustment of the exercise price and the number of shares
issuable upon exercise in some events. These events include, but are not limited
to:
o dividends payable in stock;
o stock splits or combinations;
o certain below market issuances of stock;
o reclassifications;
o mergers; or
o a sale of substantially all of our assets.
Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and
By-Laws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. That section provides, with exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or his affiliate or associate who is an owner of 15% or more of the
outstanding voting stock of the corporation for a period of three years from the
date that this person became an interested stockholder. Our Certificate of
Incorporation contains provisions similar to those in Section 203. It also
requires the affirmative vote of at least 60% or our voting stockholders to
effect certain actions, including, under certain circumstances, the removal of
directors, and provides for the election of different classes of directors with
the term of each class ending at a different time.
Transfer Agent and Warrant Agent
The registrar and transfer agent for our common stock and warrant agent
for our warrants is Continental Stock Transfer & Trust Company, 2 Broadway, New
York, New York 10004.
61
Underwriting
The underwriter, Murphy & Durieu, has agreed, subject to the terms and
conditions contained in an underwriting agreement with us, to purchase 2,500
units from us at the price set forth on the cover page of this prospectus
Nature of Underwriting Commitment. The underwriting agreement provides
that the underwriter is committed to purchase all the units offered by this
prospectus if any units are purchased. This commitment does not apply to 375
units subject to the over-allotment option granted by us to the underwriter to
purchase additional units in this offering.
Conduct of the Offering. We have been advised by Murphy & Durieu that
it proposes to offer the units to be sold in this offering directly to the
public at the public offering price set forth on the cover page of this
prospectus, and to certain securities dealers at that price less a concession of
not more than $100.00 per unit. The underwriter may allow, and those dealers may
re-allow, a concession not in excess of $50.00 per unit to certain other
dealers. After the units are released for sale to the public, the offering price
and other selling terms may be changed from time to time by the underwriter. No
change in those terms will change the amount of proceeds to be received by us as
set forth on the cover page of this prospectus.
The underwriter has informed us that it does not expect to confirm
sales of shares offered by this prospectus on a discretionary basis.
Overallotment Option. We have granted the underwriter an option,
expiring 45 days after the date of this prospectus, to purchase up to 375
additional units from us on the same terms as set forth in this prospectus with
respect to the 2,500 units offered hereby. The underwriter may exercise this
option, in whole or in part, only to cover over-allotments, if any, in the sale
of the units offered by this prospectus.
Offering Discounts and Expenses. The following table shows the per unit
and total underwriting discounts to be paid by us to the underwriter. These
amounts are shown assuming no exercise and full exercise, respectively, of the
underwriter's over-allotment option described above:
Total without Total with
Over-Allotment Over-Allotment
Per Unit Option Option
------------------------------------------
Total underwriting discount to be paid by us.. $100 $250,000 $287,500
The expenses of this offering, not including the underwriting
discounts, are estimated to be about $250,000 and will be paid by us. Expenses
of this offering, exclusive of the underwriting discounts, include the 3%
non-accountable expense allowance payable to Murphy & Durieu, the Securities and
Exchange Commission filing fee, the NASD filing fee, AMEX and Pacific Exchange
listing fees, printing expenses, legal and accounting fees, transfer agent and
registrar fees, trustee and warrant agent fees and other miscellaneous fees and
expenses.
We have agreed that if this offering is successfully completed we will
pay to Murphy & Durieu, a non-accountable expense allowance equal to 3% of the
initial public offering price of the sale of the units in this offering
62
(including sales on exercise of the underwriters' over-allotment option). The
underwriter has no right to designate or nominate a member of our board of
directors.
Underwriter's Warrant. On completion of this offering, we will issue
the underwriter's warrant to Murphy & Durieu, entitling it to purchase from us
up to 10% of the number of units sold in this offering, excluding any units sold
to cover over-allotments, for $1,200 per unit. The warrant is exercisable during
the four-year period beginning one year from the date of issuance. The warrant,
and the securities underlying the warrant, are not transferable for one year
following the effective date of the registration, except to an individual who is
an officer or partner of the underwriter, by will or by the laws of descent and
distribution, and are not redeemable.
The holder of the underwriter's warrant will have, in that capacity, no
voting, dividend or other stockholder rights. Any profit realized by the
underwriter on the sale of the units issuable upon exercise of the underwriter's
warrant may be deemed to be additional underwriting compensation. The securities
underlying the underwriter's warrant are being registered pursuant to the
registration statement of which this prospectus is apart. During the term of the
underwriter's warrant, the holder thereof is given the opportunity to profit
from a rise in the market price of our securities. We may find it more difficult
to raise additional equity capital while the underwriter's warrant is
outstanding. At any time at which the underwriter's warrant is likely to be
exercised, we may be able to obtain additional equity capital on more favorable
terms.
Indemnification. We have agreed to indemnify the underwriter against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments that the underwriter may be required to make in respect
thereof.
Stabilization and Other Transactions. The rules of the Securities and
Exchange Commission generally prohibit the underwriter from trading in our units
on the open market during this offering. However, the underwriter is allowed to
engage in some open market transactions and other activities during this
offering that may cause the market price of our common stock to be above or
below that which would otherwise prevail in the open market. These activities
may include stabilization, short sales and over-allotments.
o Stabilizing transactions consist of bids or purchases made by the
underwriter for the purpose of preventing or slowing a decline in
the market price of our units while this offering is in progress.
o Short sales and over-allotments occur when the underwriter sells
more of our units than it purchases from us in this offering. In
order to cover the resulting short position, the underwriter may
exercise the over-allotment option described above and/or it may
engage in covering transactions. There is no contractual limit on
the size of the covering transaction. The underwriter will deliver
a prospectus in connection with these short sales. Purchasers of
units sold short by the underwriter are entitled to the same
remedies under the federal securities laws as any other purchaser
of units covered by the registration statement.
If the underwriter commences these activities, it may discontinue them at any
time without notice. The underwriter may carry out these transactions on the
AMEX, in the over-the-counter market or otherwise.
Passive Market Making. Prior to the pricing of this offering, and until
the commencement of any stabilizing bid, underwriters and dealers who are
qualified market makers on the AMEX may engage in passive market making
transactions. Passive market making is allowed during the period when the
Securities and Exchange Commission's rules would otherwise prohibit market
activity by the underwriter and dealers who are participating in this
63
offering. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
our common stock; but if all independent bids are lowered below the passive
market maker's bid, the passive market maker must also lower its bid once it
exceeds specified purchase limits. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in our common stock during a specified period and
must be discontinued when such limit is reached. Underwriters and dealers are
not required to engage in passive market making and may end passive market
making activities at any time.
Legal Matters
The validity of the securities being offered hereby will be passed upon
on our behalf by Barry B. Feiner, Esq., 170 Falcon Court, Manhasset, New York
11030. Legal matters relating to this offering will be passed upon for the
underwriter by Kelley Drye & Warren LLP, 101 Park Avenue, New York, New York
10178. Mr. Feiner's wife owns an aggregate of 35,000 shares of our common stock.
Experts
The financial statements as of December 31, 1999 and for each of the
years in the two-year period then ended , included in this prospectus have been
included in reliance on the report of Richard A. Eisner & Company LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Available Information
We have filed a registration statement on Form SB-2 under the
Securities Act with the Securities and Exchange Commission with respect to the
units offered hereby. This prospectus filed as a part of the registration
statement does not contain all of the information contained in the registration
statement and exhibits and reference is hereby made to such omitted information.
Statements made in this registration statement are summaries of the terms of
these referenced contracts, agreements or documents and are not necessarily
complete. Reference is made to each exhibit for a more complete description of
the matters involved and these statements shall be deemed qualified in their
entirety by the reference.
In addition, we file annual, quarterly, and special reports, proxy
statements, and other information with the Securities and Exchange Commission.
You may read and copy our registration statement on Form SB-2, the
exhibits thereto, any reports, statements and other information we file at the
Securities and Exchange Commission's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the operations of the Public
Reference Room. Our Securities and Exchange Commission filings are also
available on the Securities and Exchange Commission's Internet site which is
http://www.sec.gov
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent accountants.
64
Index To Financial Statements
(Information with respect to the nine-months ended
September 30, 1999 and 2000 is unaudited)
Page
Report of Independent Accountants F-2
Financial Statements:
Financial Statements as of December 31, 1999
and for each of the years in the two-year period then ended:
Balance Sheet as of December 31, 1999 F-3
Statements of Operations for the years ended
December 31, 1999 and December 31, 1998 F-4
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1999 and December 31, 1998 F-5
Statements of Cash Flows for the years ended
December 31, 1999and December 31, 1998 F-6
Notes to Financial Statements F-7
Unaudited Financial Statements as of September 30, 2000
and for each of the nine-month periods ended September 30, 2000 and 1999:
Balance Sheet as of September 30, 2000 F-20
Statements of Operations for the nine-months
ended September 30, 2000 and 1999 F-22
Statements of Cash Flows for the nine-months
ended September 30, 2000 and 1999 F-25
Notes to Financial Statements F-27
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
CareerEngine Network, Inc.
New York, New York
We have audited the consolidated balance sheet of CareerEngine Network, Inc. and
subsidiaries (formerly Helmstar Group, Inc. and subsidiaries) as of December 31,
1999, and the related consolidated statements of operations, changes in
stockholders' equity 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 generally accepted auditing
standards. 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 referred to above present fairly, in
all material respects, the consolidated financial position of CareerEngine
Network, Inc. and subsidiaries as of December 31, 1999, 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 generally accepted
accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
March 10, 2000
With respect to Note A
March 28, 2000
With respect to Note G
August 16, 2000
With respect to Note H
August 30, 2000
With respect to Note F[3]
November 22, 2000
F-2
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1999
ASSETS
Cash and cash equivalents $ 1,006,276
Marketable securities 4,888,610
Fixed assets, net 600,541
Other assets 565,018
-------------
$ 7,060,445
=============
LIABILITIES
Accrued expenses and other liabilities $ 1,891,201
Excess of liabilities over assets of discontinued operations 3,215,344
-------------
5,106,545
-------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock - authorized 10,000,000 shares, par value $.10;
issued 6,749,600 shares 674,960
Paid-in surplus 14,984,510
Deficit (10,657,861)
-------------
5,001,609
Less treasury stock, at cost - 1,313,927 shares (3,047,709)
-------------
1,953,900
-------------
$ 7,060,445
=============
See notes to financial statements
F-3
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended December 31,
-------------------------------
1999 1998
--------------- -------------
Revenues:
E-recruiting related services $ 30,980
Income on securities transactions, net 836,549 $ 1,526,873
Interest income 374,522 417,535
Other income 229,370
----------- -----------
1,471,421 1,944,408
----------- -----------
Expenses:
Compensation and related costs 1,725,074 1,223,597
Advertising 1,235,778 77,515
General and administrative 1,336,215 567,378
Interest 127,241 398,577
----------- -----------
4,424,308 2,267,067
----------- -----------
Loss from continuing operations before income taxes (2,952,887) (322,659)
Income tax provision (benefit) 10,098 (108,477)
----------- -----------
Loss from continuing operations (2,962,985) (214,182)
Discontinued operations:
Loss from operations of discontinued real estate
and consulting activities (1,089,409) (410,227)
----------- -----------
Net loss $(4,052,394) $ (624,409)
=========== ===========
Per common share - basic and diluted:
Loss from continuing operations $ (.55) $ (.03)
Loss from discontinued operations (.20) (.08)
----------- -----------
Net loss per common share $ (.75) $ (.11)
=========== ===========
Weighted average number of common shares outstanding - basic and diluted 5,435,673 5,489,376
=========== ===========
See notes to financial statements
F-4
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Common Stock Treasury Stock
------------------- Paid-in --------------
Shares Amount Surplus Deficit Shares Amount Total
------ ------ ------- ------- ------ ------ -----
Balance - January 1, 1998 6,749,600 $ 674,960 $14,984,510 $ (5,981,058) 1,233,227 $(2,928,598) $ 6,749,814
Treasury stock acquired at cost 63,000 (95,931) (95,931)
Net loss (624,409) (624,409)
--------- --------- ----------- ------------ --------- ----------- -----------
Balance - December 31, 1998 6,749,600 674,960 14,984,510 (6,605,467) 1,296,227 (3,024,529) 6,029,474
Treasury stock acquired at cost 17,700 (23,180) (23,180)
Net loss (4,052,394) (4,052,394)
--------- --------- ----------- ------------ --------- ----------- -----------
Balance - December 31, 1999 6,749,600 $ 674,960 $14,984,510 $(10,657,861) 1,313,927 $(3,047,709) $ 1,953,900
========= ========= =========== ============ ========= =========== ===========
See notes to financial statements
F-5
CAREERENGINE NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
-------------------------------
1999 1998
---- ----
Cash flows from operating activities:
Loss from continuing operations $ (2,962,985) $ (214,182)
Adjustments to reconcile loss from continuing operations to net cash
(used in) provided by operating activities:
Depreciation and amortization 168,211 42,630
Gain on sale of furniture and equipment (166)
Purchase of marketable securities (14,772,852) (26,361,024)
Sale of marketable securities 17,740,652 25,739,476
Changes in:
Other assets (99,132) 52,196
Accrued expenses and other liabilities 566,340 457,429
------------ -------------
Cash provided by (used in) continuing operations 640,234 (283,641)
Cash (used in) provided by discontinued operations (2,308,205) 825,316
------------ -------------
Net cash (used in) provided by operating activities (1,667,971) 541,675
------------ -------------
Cash flows from investing activities:
Purchase of furniture and equipment (544,182) (94,074)
Other 17,493
------------ -------------
Cash used in continuing operations (544,182) (76,581)
Cash provided by (used in) discontinued operations 1,450,654 (727,592)
------------ -------------
Net cash provided by (used in) investing activities 906,472 (804,173)
------------ -------------
Cash flows from financing activities:
Purchase of treasury stock (23,180) (95,931)
Cash provided by discontinued operations 750,000 597,032
------------ -------------
Net cash provided by financing activities 726,820 501,101
------------ -------------
(Decrease) increase in cash and cash equivalents (34,679) 238,603
Cash and cash equivalents at beginning of year 1,040,955 802,352
------------ -------------
Cash and cash equivalents at end of year $ 1,006,276 $ 1,040,955
=========== =============
Supplemental disclosures of cash flow information related to
continuing operations:
Cash paid during the year for:
Interest $ 241 $ 6,815
Income taxes $ 31,175 $ 71,763
See notes to financial statements
F-6
NOTE A - THE COMPANY
Effective March 28, 2000, Helmstar Group, Inc. changed its name to CareerEngine
Network, Inc. CareerEngine Network, Inc. is engaged in the e-recruiting business
through its subsidiary CareerEngine, Inc. which was formed in 1998. 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 have been restated to reflect
merchant banking activities and financial consulting services as discontinued
operations. The Company's only remaining operating segment after giving effect
to discontinued operations is the e-recruiting business.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO CONTINUING OPERATIONS
[1] Principles of consolidation:
The accompanying consolidated financial statements include the accounts
of CareerEngine Network, Inc. and its subsidiaries (the "Company"). All
significant intercompany balances and transactions have been
eliminated.
[2] Revenue recognition:
E-recruiting related fees are earned on the placement of banner
advertisements, job placement advertisements and sponsorship
advertisements on the Company's web site. Such fees 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 are recognized over the period during which the
advertisements are exhibited. No revenues were earned from sponsorship
advertisements or co-branding arrangements during 1999 or 1998.
[3] Depreciation and amortization:
Furniture, fixtures and equipment are being depreciated using both
straight-line and accelerated methods over estimated lives of five to
seven years. Leasehold improvements are amortized on a straight-line
basis over the shorter of the term of the lease or their estimated
useful lives.
[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, 1999, cash equivalents consist principally of an
investment of approximately $853,000 in a money market account.
[5] Net 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.
Outstanding employee stock options did not have an effect on the
computation as they were anti-dilutive.
[6] Start-up activities:
Costs of activities to start-up the e-recruiting business are expensed
as incurred.
F-7
NOTE B - SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO
CONTINUING OPERATIONS (CONTINUED)
[7] 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, 1999 was fully reserved since the
likelihood of realization of future tax benefits cannot be established.
[8] Marketable securities:
The Company's marketable securities, which have a cost of $4,848,780,
consist of United States Treasury Bills and Municipal Bonds which are
classified as trading securities and are recorded at market value.
Gains and losses on the trading securities are included in operations.
[9] Derivative financial instruments:
As part of its investment strategies to profit from anticipated market
movements, the Company maintains trading positions in a variety of
derivative financial instruments consisting principally of futures
contracts in treasuries, stocks and municipal securities. All positions
are reported at fair value, and changes in fair value are reflected in
operations as they occur. The Company realized net gains from
derivatives sold in 1999 and 1998 of approximately $837,000 and
$1,527,000, respectively. Such amounts are included in income on
securities transactions in the accompanying statements of operations.
At December 31, 1999, no derivative financial instruments were held by
the Company and the average fair value of such instruments held during
the years was not material.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, which is required to be adopted in years beginning after
June 15, 2000. The Company is required to adopt the new Statement
effective January 1, 2001. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings. The ineffective
portion of a derivative's change in fair value will be immediately
recognized in earnings. Management does not anticipate that the
adoption of the new Statement will have a significant effect on the
financial statements.
[10] Stock-based compensation:
The Company has elected to continue to account for its stock-based
compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB25"). Under APB25, compensation cost for
stock options is measured as the excess, if any, of the quoted market
price of the Company's common stock at the date of the grant or other
measurement date over the amount an employee must pay to acquire the
stock.
F-8
[11] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
F-9
NOTE B - SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO
CONTINUING OPERATIONS (CONTINUED)
[12] Advertising costs:
Advertising costs, which relate primarily to the e-recruiting business,
are expensed as incurred.
[13] Software development costs:
External direct costs of materials and services incurred to develop the
Company's website during the application development stage were
capitalized. Such costs, which amounted to approximately $38,000 in the
year ended December 31, 1999, are being amortized using the
straight-line method over an estimated useful life of three years.
[14] 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, 1999 and 1998.
NOTE C - INCOME TAXES
The income tax provision (benefit) applicable to continuing operations, all of
which is current, consists of the following:
Year Ended
December 31,
---------------------------
1999 1998
---- ----
Federal $ 0 $ (22,143)
State and local 10,098 (86,334)
--------- ----------
$ 10,098 $ (108,477)
========= ==========
At December 31, 1999, the Company has a net operating loss carryforward for
federal income tax purposes of approximately $17,311,000, which expires in the
years 2005 through 2019.
F-10
The Company's deferred tax asset consists of the following as of December 31,
1999:
Deferred tax assets:
Net operating loss carryforward $ 7,963,000
Liability for interest and state taxes related to federal
tax settlement 266,000
Other 39,000
------------
Total deferred tax assets, before valuation allowance 8,268,000
Valuation allowance (8,002,000)
------------
Total deferred tax assets 266,000
Deferred tax liability:
Deferred rental income (266,000)
------------
Net deferred tax assets $ 0
============
The valuation allowance increased by approximately $2,027,000 during 1999 and
$650,000 during 1998.
F-11
NOTE C - INCOME TAXES (CONTINUED)
The effective tax rate applicable to continuing operations varied from
the statutory federal income tax rate as follows:
Year Ended
December 31,
----------------
1999 1998
---- ----
Statutory rate (34.0)% (34.0)%
State and local taxes, net of federal income tax effect (12.0) 4.3
Nondeductible expenses 1.8 3.9
Tax exempt interest (5.5)
Reversal of prior year tax overaccrual (7.2)
Valuation allowance 50.0 18.2
------- --------
Effective rate .3% (14.8)%
======= ========
The Internal Revenue Service 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. As of
December 31, 1997, the Company had recorded a liability for income tax and
interest related to the years under examination and during 1998 and 1999, the
Company accrued additional interest expense of $312,000 and $125,000,
respectively, related to the tax deficiency, thereby increasing the liability to
$984,000 at December 31, 1999, including related additional state and local tax
deficiencies.
NOTE D - FIXED ASSETS
Fixed assets consist of the following:
Furniture and fixtures $ 163,701
Computer and equipment 855,795
Leasehold improvements 86,807
-------------
1,106,303
Less accumulated depreciation 505,762
-------------
$ 600,541
=============
NOTE E - 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
F-12
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% stockholder) 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
owning 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.
NOTE E - STOCK OPTION PLANS (CONTINUED)
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 are eligible to receive incentive and/or
nonqualified stock options. Options granted under the 1999 Plan are exercisable
for a period of up to 5 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 1990 Plan and 1999 Plan is summarized as
follows:
Year Ended December 31,
----------------------------------------------------
1999 1998
------------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Options outstanding at beginning of year 100,000 $ .56 100,000 $.56
Granted 460,000 2.33
------------ ---------
Options outstanding at end of year 560,000 2.02 100,000 .56
============ =========
Options exercisable at end of year 100,000 .56 100,000 .56
============ =========
The following table presents information relating to stock options outstanding
at December 31, 1999:
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Exercise Life in Exercise
Range of Exercise Price Shares Price Years Shares Price
----------------------- ------ ----- ----- ------ -----
$.56 100,000 $ .56 2.92 100,000 $.56
$2.25 - $2.50 460,000 2.33 9.27
------- -------
560,000 2.02 8.14 100,000 .56
======= ==== =======
F-13
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. During 1999, CareerEngine, Inc.
granted 1,580,000 options of which 15,000 options are exercisable at December
31, 1999 at $2.50.
F-14
NOTE E - STOCK OPTION PLANS (CONTINUED)
The following table presents information relating to stock options outstanding
at December 31, 1999:
Options Outstanding Options Exercisable
------------------------------------- ---------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Exercise Life in Exercise
Shares Price Years Shares Price
------ ----- ----- ------ -----
1,075,000 $.01 9.34 15,000 $2.50
505,000 2.50 9.87
--------- ------
1,580,000 $.55 9.51 15,000 $2.50
========= ==== ==== ====== =====
The fair value of options at date of grant was estimated using the Black-Scholes
option pricing model utilizing the following assumptions:
CareerEngine CareerEngine,
Network, Inc. Inc.
1999 1999
---- ----
Risk-free interest rates 5.12% to 6.59% 5.15% to 6.30%
Expected option life in years 5 to 7 5
Expected stock price volatility 134% 46%
Expected dividend yield 0% 0%
Had the Company elected to recognize compensation cost based on the fair value
of the options at the date of grant as prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", net
loss in 1999 would have been approximately $(4,274,049) or $(.79), per basic and
diluted loss per share.
NOTE F - COMMITMENTS AND LITIGATION
[1] The Company occupies office space under a lease expiring on February 28,
2006. Rental expense relating to the lease amounted to $167,966 and
$164,819 for the years ended December 31, 1999 and 1998, respectively.
Minimum future annual rental payments at December 31, 1999 are as follows:
2000 $ 139,100
2001 139,100
2002 139,100
2003 139,100
2004 139,100
Thereafter 162,200
-----------
$ 857,700
F-15
NOTE F - COMMITMENTS AND LITIGATION (CONTINUED)
[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, in accordance with the plan's top
heavy provisions, amounted to approximately $10,100 and $9,800, in the
years ended December 31, 1999 and 1998, respectively.
[3] In February 2000, the Company, in exchange for a nominal amount obtained a
release from claims arising from a 1996 litigation.
In connection with the above litigation, on November 22, 2000, the Company
was served with a Summons and Complaint in connection with an action
commenced in October 2000, by the Housing Authority of the County of
Riverside, California against multiple defendants. The Plaintiffs alleged
in connection with the issuance and underwriting of certain bonds that
various defendants negligently and fraudulently misrepresented to the
Plaintiffs that the interest on the bonds would be tax exempt. The
Plaintiffs are seeking damages as a result of such misrepresentation in
the amount of $1,100,000. The Plaintiffs are also seeking punitive damages
in an unspecified amount. Management is vigorously opposing those claims,
however, the outcome of the litigation is not presently determinable.
NOTE G - DISCONTINUED OPERATIONS
On August 16, 2000, the Board of Directors of the Company decided to discontinue
its merchant banking operations, which consisted of its real estate project with
Carmike Cinemas, Inc., and its financial consulting operations. The financial
statements have been restated to reflect the discontinued operations of the
periods presented and to reclassify the assets and liabilities related thereto.
Results of discontinued operations are summarized as follows:
Year Ended December 31,
-----------------------
1999 1998
---- ----
Rental income from real estate leased $ 996,405 $
Consulting fees 615,314 1,040,000
Interest income 3,212
Other income 22,101
------------ ------------
Total revenues 1,614,931 1,062,101
------------ ------------
Real estate leased expenses, net 1,568,029 1,093,435
Compensation and other costs 917,532 377,566
General and administrative expense 218,779 1,327
------------ ------------
Total expenses 2,704,340 1,472,328
------------ ------------
Loss from discontinued operations $ (1,089,409) $ (410,227)
============ ============
F-16
NOTE G - DISCONTINUED OPERATIONS (CONTINUED)
Assets and liabilities of the discontinued operations at December 31, 1999 are
as follows:
Real estate leased, net $ 70,336,022
Deferred financing and leasing costs, net 1,707,279
Deferred rental income 577,485
---------------
Total assets 72,620,786
---------------
Bonds payable 72,750,000
Accrued interest 836,130
Due to preferred member 2,250,000
---------------
Total liabilities 75,836,130
---------------
Excess of liabilities over assets of
discontinued operations $ (3,215,344)
===============
[1] Description of real estate operations:
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 by Movieplex.
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.
F-17
NOTE G - DISCONTINUED OPERATIONS (CONTINUED)
[1] Description of real estate operations: (continued)
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
fluctuate with the debt service payments on the related bonds and the
cash return due to the Common and Preferred Members of Movieplex. The
lease requires 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 has 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 has 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 are interest, payable
monthly, at a variable base rate (6.46% at December 31, 1999) 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 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. The Company anticipates
that title to the six theaters will be transferred to the banks in
payment of the non-recourse debt under the Reimbursement Agreement. At
such time, the Company will recognize a gain to the extent of the excess
of the liabilities over the carrying value of the assets related to the
real estate leased to Carmike.
F-18
NOTE G - DISCONTINUED OPERATIONS (CONTINUED)
[2] Other information with respect to real estate operations:
As of December 31, 1999 real estate leased consists of the following:
Land $ 14,637,500
Improvements 55,857,449
------------
70,494,949
Less accumulated depreciation 158,927
------------
$ 70,336,022
============
Expenses related to real estate leased, net consist of the following:
Year Ended December 31,
---------------------------
1999 1998
---- ----
Interest expense on bonds $ 2,799,381 $ 4,595,202
Interest income on restricted investments (1) (1,393,946) (3,502,350)
----------- -----------
Interest expense, net 1,405,435 1,092,852
Depreciation expense 158,927
Other 3,667 583
----------- -----------
$ 1,568,029 $ 1,093,435
=========== ===========
(1) The Trust Indenture pursuant to which the bonds were issued,
restricted the term and the investment instruments in which the
bond proceeds would be invested until spent for the purposes
defined in the indenture. Interest income earned on the
investments is being shown as an offset to the interest expense on
the bonds.
During the Development Period, interest, related fees and amortization of
deferred financing costs related to the bonds were capitalized, except
those amounts attributable to funds not yet expended to either purchase
land or construct the improvements thereon. During the years ended
December 31, 1999 and 1998, respectively, approximately $3,051,629 and
$516,000 of interest, letter of credit fees and amortization of deferred
financing costs, were capitalized and included in real estate
leased-improvements.
NOTE H - INCREASE IN AUTHORIZED STOCK
On August 30, 2000, the Board of Directors increased the number of authorized
shares of common stock from 10,000,000 to 20,000,000 shares and authorized
1,000,000 shares of preferred stock with a par value of $0.10 per share.
Preferred stock may be issued in one or more series in the discretion of the
Board of Directors.
F-19
CareerEngine Network, Inc. and Subsidiaries
Consolidated Balance Sheet
September 30,
2000
(Unaudited)
-----------
ASSETS
Cash and cash equivalents $ 953,714
Marketable securities 2,533,153
Fixed assets, net 657,906
Other assets 1,460,068
------------
$ 5,604,841
============
LIABILITIES
Debentures payable $ 1,756,028
Accrued expenses and other liabilities 1,640,705
------------
Total liabilities 3,396,733
------------
Excess of liabilities over assets of discontinued operations 3,361,269
------------
Commitments
STOCKHOLDERS' EQUITY
Common stock - authorized 20,000,000 shares,
par value $.10; issued 6,749,600 shares 674,960
Preferred stock - authorized 1,000,000 shares,
par value $.10; none issued
Paid-in surplus 16,096,808
Deficit (14,896,533)
------------
1,875,235
Less treasury stock, at cost -
1,305,594 shares (3,028,396)
------------
(1,153,161)
============
$ 5,604,841
============
The accompanying notes are an integral part of the financial statements.
F-20
CareerEngine Network, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Nine Months Ended
September 30,
----------------------------------
2000 1999
Revenues
E-recruiting related services $ 929,718 $ 16,091
Income on securities transactions, net 1,266,294 1,332,960
Interest income 98,412 300,187
Other income 2,024 228,190
------------ ------------
2,296,448 1,877,428
------------ ------------
Expenses
Compensation and related costs 2,482,190 1,007,069
Advertising 1,357,774 412,695
General and administrative 1,702,604 808,765
Beneficial conversion feature of debentures payable 246,875
------------ ------------
5,789,443 2,228,529
------------ ------------
Loss from continuing operations
before income taxes (3,492,995) (351,101)
Income tax provision 15,340 12,163
------------ ------------
Loss from continuing operations (3,508,335) (363,264)
------------- -------------
Discontinued operations:
Income (loss) from operations of discontinued
real estate and consulting activities 74,349 (1,226,550)
Write-off of unamortized financing costs (804,667)
------------- -------------
Loss from discontinued operations (730,318) (1,226,550)
------------- -------------
Net Loss $ (4,238,653) $ (1,589,814)
============= =============
Per common share - basic and diluted
Loss from continuing operations $ (.65) $ (.06)
Loss from discontinued operations (.13) (.23)
------- --------
Net loss $ (.78) $ (.29)
======= ========
Weighted average number of common shares
outstanding - basic and diluted 5,440,090 5,435,964
============ ============
The accompanying notes are an integral part of the financial statements.
F-21
CareerEngine Network, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
----------------------------------
2000 1999
---- ----
Cash flows from operating activities
Loss from continuing operations $(3,508,335) $(363,264)
Adjustments to reconcile loss from continuing operations to
net cash (used in) provided by operating activities:
Depreciation and amortization 232,144 191,651
Beneficial conversion feature of debentures payable 246,875
Sale of marketable securities, net 2,355,457 1,528,540
Issuance of treasury stock for services 18,483
Changes in:
Other assets (688,397) 7,743
Accrued expenses and other liabilities (250,496) 939,478
--------------- --------------
Cash provided by (used in) continuing operations (1,594,269) 2,304,148
Cash provided by (used in) discontinued operations (584,393) 8,462,072
--------------- --------------
Net cash (used in) provided by operating activities (2,178,662) 10,766,220
--------------- --------------
Cash flows from investing activities
Purchase of furniture and equipment (273,900) (557,471)
--------------- ---------------
Cash provided by (used in) continuing operations (273,900) (557,471)
Cash provided by (used in) discontinued operations (10,879,253)
--------------- ---------------
Net cash provided by (used in) investing activities (273,900) (11,436,724)
--------------- ---------------
Cash flows from financing activities
Purchase of treasury stock (23,180)
Proceeds from issuance of debentures 1,756,028
Additional paid in capital from sale of debentures 643,972
-------------- --------------
Cash provided by (used in) continuing operations 2,400,000 (23,180)
Cash provided by (used in) discontinued operations 750,000
--------------- --------------
Net cash provided by (used in) financing activities 2,400,000 726,820
--------------- --------------
Increase (decrease) in cash and cash equivalents (52,562) 56,316
Cash and cash equivalents at beginning of period 1,006,276 1,040,955
-------------- --------------
Cash and cash equivalents at end of period $953,714 $1,097,271
============== ==============
Supplemental disclosures of cash flow information from continuing
operations
Cash paid during the period for:
Interest $45,336 --
Income taxes $30,684 $7,375
Issuance of warrants in connection with debentures payable $222,282 --
The accompanying notes are an integral part of the financial statements.
F-22
CareerEngine Network, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
1. Significant Accounting Policies
The accounting policies followed by the Company are set forth in the
notes to the Company's financial statements included in its Form
10-KSB, for the year ended December 3l, 1999, which was filed with the
Securities and Exchange Commission.
In the opinion of management, the unaudited financial statements
include all adjustments necessary for a fair presentation of the
Company's financial position as of September 30, 2000 and the results
of its operations and its cash flows for the nine-month periods ended
September 30, 1999 and 2000. The financial statements as of September
30, 2000 and for the nine months then ended are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2000.
Certain amounts have been reclassified in the financial statements for
the nine-month period ended September 30, 1999 to conform to the
presentation of the nine-month period ended September 30, 2000. In
addition, the 1999 financial statements have been restated to reflect
the discontinued operations.
Revenue Recognition
E-recruiting related fees related to the CareerEngine Network Division
are earned on the placement of banner advertisements, job placement
advertisements and sponsorship advertisements on the Company's web
site. Such fees 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 are
recognized over the period during which the advertisements are
exhibited.
E-recruiting related revenue related to the CareerEngine Solutions
Division, whose activities commenced in approximately March 2000,
consists primarily of non-refundable up-front website construction fees
as well as monthly fees to host and maintain these sites. The up-front
fees are recognized ratably over the construction period. The monthly
hosting and maintenance fees are recognized ratably over the period of
the underlying contract.
Start-up Activities:
Costs of activities to start-up the e-recruiting business are expensed
as incurred.
2. Income (Loss) Per Share
Basic income (loss) per share is based on the weighted average number
of common shares outstanding. Employee stock options did not have an
effect on the computation of diluted earnings per share since they were
anti-dilutive.
F-23
3. Excess of Liabilities over Assets of Discontinued Operations
In August 2000, the Company discontinued its merchant banking
operations, which consisted of its real estate project with Carmike
Cinemas, Inc., and its financial consulting operations. Accordingly,
the Company's remaining operations are solely from its e-recruiting
segment.
The Company will recognize a gain in an amount approximately equal to
Excess of Liabilities over Assets of Discontinued Operations
($3,361,269 at September 30, 2000) when title relating to six
properties leased to Carmike is transferred pursuant to the direction
of Wachovia, N. A., as agent to the holders of the non-recourse debt
under the Reimbursement Agreement referred to below. However, due to
various proceedings relating to Carmike's petition under Chapter 11 of
the United States Bankruptcy Code, no such transfer, as yet, has been
made. The Company's exposure related to this real estate project is and
always has been limited solely to the Company's interest in the six
properties.
F-24
4. Discontinued Operations
In 1997, the Company entered into a triple net, credit type lease with
Carmike, pursuant to which the Company leased to Carmike six parcels of
land and the improvements thereon. Concurrently, the Company issued
$72,750,000 principal amount of its adjustable rate tender securities
due November 1, 2015 (the "Bonds"). The Bonds were secured by
irrevocable letters of credit issued by a group of banks. In connection
therewith the Company entered into a Reimbursement Agreement with
Wachovia, as agent for the banks, under which the Company was obligated
to remit all rent received under the lease to Wachovia to reimburse the
banks for the Bond payments made by draws on their letters of credit.
On August 8, 2000, Carmike filed a petition under Chapter 11 of the
United States Bankruptcy Code. As a result of that filing and Carmike's
subsequent failure to pay rent to date under the lease, the Company
failed to make required payments to Wachovia under the Reimbursement
Agreement. Accordingly, Wachovia declared a default under the
Reimbursement Agreement and accelerated all amounts due by the Company
thereunder. Wachovia also directed the Trustee under the related
Indenture to redeem the Bonds. Such amounts were paid entirely through
draws on the related letters of credit and were not paid with funds of
the Company. However, as the Bonds are no longer outstanding, all
unamortized financing costs (amounting to $804,667) relating thereto
were expensed. In addition, Carmike has not disaffirmed the lease and
continues to occupy the six theaters.
The financial statements have been restated to reflect the discontinued
operations of the periods presented and to reclassify the assets and
liabilities related thereto.
Excess of Liabilities over Assets of Discontinued Operations at
September 30, 2000 consists of the following:
September 30,
-----------------
2000
Real estate leased, net $ 69,510,631
Other assets 2,643,780
Reimbursement obligations (72,750,000)
Other liabilities (515,680)
Due to preferred member (2,250,000)
------------------
$ (3,361,269)
Loss from discontinued operations for the nine-month period ended
September 30, 2000 and 1999 are as follows:
Nine Months Ended
----------------------------
September 30,
2000 1999
Revenues $ 5,804,374 $ 1,768,759
Expenses (5,730,025) (2,995,309)
Write-off of unamortized financing costs (804,667)
------------ ------------
$ (730,318) $(1,226,550)
============ ============
F-25
5. Litigation
In February 2000, the Company, in exchange for a nominal amount
obtained a release from claims arising from a 1996 litigation.
In connection with the above litigation, on November 22, 2000, the
Company was served with a Summons and Complaint in connection with an
action commenced in October 2000, by the Housing Authority of the
County of Riverside, California against multiple defendants. The
Plaintiffs alleged in connection with the issuance and underwriting of
certain bonds that various defendants negligently and fraudulently
misrepresented to the Plaintiffs that the interest on the bonds would
be tax exempt. The Plaintiffs are seeking damages as a result of such
misrepresentation in the amount of $1,100,000. The Plaintiffs are also
seeking punitive damages in an unspecified amount. Management is
vigorously opposing those claims, however, the outcome of the
litigation is not presently determinable.
6. Debentures Payable
On June 28, 2000, the Company privately placed 39.50 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. On August 7, 2000, the
Company privately placed an additional 8.50 units under the same terms
and conditions as set forth above.
The Company incurred a non-recurring non-cash interest charge of
$246,875 due to the beneficial conversion feature of the debentures. In
addition, the Company valued the warrants, which were treated as debt
discount utilizing the Black-Scholes Pricing Model, at $643,972 which
will be amortized over the life of the debentures. The amounts ascribed
to the beneficial conversion feature and the warrants aggregating
$890,847 were credited to paid-in surplus.
7. Income Taxes
Commencing in August 2000, pursuant to an understanding with the IRS,
the Company began paying $30,000 per month until the assessed tax deficiency
relating to the years 1985 through 1989 and interest thereon which together
amounted to $924,000 (included in "allowed Expenses and other Liabilities"), is
fully satisfied. Utilizing current IRS interest rates, the assessment and
related interest would be satisfied in approximately July 2004.
- --------------------------------------------------------------------------------
F-26
================================================================================
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of the units
means that the information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy the units in any circumstances under which the offer or
solicitation is unlawful.
TABLE OF CONTENTS
Page
Prospectus Summary.................................
Risk Factors.......................................
Price Range of Common Stock........................
Use of Proceeds....................................
Dividend Policy....................................
Private Financing..................................
Capitalization.....................................
Management's Discussion and Analysis of
Financial Condition and
Results of Operations.........................
Business.
Management.........................................
Principal Stockholders.............................
Certain Transactions...............................
Description of Securities..........................
Underwriting.......................................
Legal Matters......................................
Experts............................................
Available Information..............................
Index to Financial Statements...................F-1
================================================================================
2,500 Units
CareerEngine Network, Inc.
--------------
PROSPECTUS
--------------
MURPHY & DURIEU
_______, 2001
================================================================================
F-22
ALTERNATE PAGE OF SELLING SECURITYHOLDER PROSPECTUS
Subject to Completion Dated __________, 2001
[LOGO] CareerEngine
2,640 Units
each Unit consisting of
o $1,000 principal amount of $12% convertible debentures due on March
31, 2010,
o class A warrants to purchase 250 shares of common stock and
o class B warrants to purchase 250 shares of common stock.
------------
$2,640,000 aggregate principal amount of $12% convertible
debentures due on March 31, 2010
------------
Class A warrants to purchase an aggregate of 660,000 shares of common stock
------------
Class B warrants to purchase an aggregate of 660,000 shares of common stock
------------
An aggregate of 1,320,000 shares of common stock issuable upon the
exercise of the Class A and Class B warrants
------------
The debentures and warrants will trade separately commencing six months
from the effective date of this offering unless we agree with the underwriter
that trading may begin sooner. Prior to that date, the debentures and warrants
will trade only as a unit.
Selling securityholders may sell the units and the component parts of
the units using this prospectus.
Using an alternate prospectus, we are offering 2,500 units plus up to
an additional 375 units to cover over-allotments, if any, in an underwritten
public offering. The selling securityholders are not selling their units as part
of our underwritten offering.
Our common stock is traded on the American and Pacific Stock Exchanges
under the symbol "CNE." On January 31, 2001 the last reported sale price of our
common stock was $1.31 per share.
For a description of the terms of the debentures and the warrants see
"Prospectus Summary - The Offering" on page 1.
Our units, debentures and class A and class B warrants currently are
not being traded on any market. We have applied to list our units, debentures
and warrants on the American Stock Exchange and Pacific Stock Exchange under the
symbols "CNEU," "CNED," "CNE_" and "CNE_," respectively.
Investing in our securities involves risks. Consider carefully the risk
factors beginning on page 8 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is ___________ , 2001
ALTERNATE PAGE OF SELLING SECURITYHOLDER PROSPECTUS -- (CONTINUED)
The Offering
Securities Offered
This prospectus relates to the offering of 2,640 units by selling
securityholders. It also relates to up to 1,320,000 shares of our common
stock that we may issue to them upon the exercise of the warrants. See
"Description of Securities" and "Selling Securityholders and Plan of
Distribution."
Each unit consists of
o a $1,000 principal amount 12% convertible debenture due on March 31,
2010,
o class A warrants to purchase 250 shares of common stock and
o class B warrants to purchase 250 shares of common stock
The debenture and the warrants will trade only as a unit for six months
following this offering, unless we agree with the underwriter that
separate trading may begin sooner. Thereafter, each of the securities will
trade separately. Neither the underwriter nor we are currently aware of
any events that would cause the debentures and warrants to trade
separately prior to six months after the effective date of this offering.
In the event that such trading should occur, we expect that the American
Stock Exchange will post this information on its web site For more
information, see "Description of Securities."
The Debentures:
Principal Amount of Debenture $1,000.
Annual Interest Rate 12% interest.
Payment of Interest Quarterly in cash on January 1, April 1,
July 1 and October 1 of each year,
commencing July 1, 2001.
Maturity March 31, 2010.
Conversion by Holder A holder may convert all or a portion of
the principal amount of its debenture
outstanding at the time such conversion
is effected into our common stock at any
time before the close of business on the
earlier of March 31, 2010 or the date
that principal and interest under the
debenture has been paid in full. If we
call the debenture for redemption, a
holder may convert its debenture at any
time before the close of business on the
redemption date. The initial conversion
price is $2.00 per share, subject to
adjustment in certain events, which
include:
o Stock dividends, splits and
combinations;
o Certain below market issuances of
stock;
o Reclassifications;
o Mergers; or
o The sale of substantially all of
our assets.
On conversion, no payment or adjustment
for accrued and unpaid interest will be
made. All such interest will be
forfeited.
Redemption by Holder A holder's estate may redeem up to
$50,000 total value of the debentures
owned by that holder upon notice of the
holder's death and redemption election by
his or her estate. This right of
redemption may only be exercised by the
estate of the original holder. It does
not pass to any transferee.
Redemption by Us We can redeem all or part of the
debentures at 100% of their principal
amount, plus accrued interest to the
redemption date, on not less than 30
day's notice, if the closing price of our
common stock equals or exceeds 2.154
times the then conversion price for a
period of 20 consecutive trading days
ending three trading days prior to the
notice of redemption.
Ranking The debentures are second in right of
repayment to all of our senior debt.
Senior debt is any indebtedness payable
to banks or other traditional long-term
institutional lenders such as insurance
companies and pension funds, unless in
the instrument creating or evidencing
such indebtedness, it is provided that
such indebtedness is not senior in right
of payment to the debentures. If we were
to become insolvent, such senior debt
would have a priority of right to
repayment in connection with our
liquidation.
Transferability There are no transfer restrictions on the
debentures. However, the right to
redemption upon death of the initial
holder will terminate on transfer.
Please refer to "Description of Securities - The Debentures and the
Indenture."
Class A Warrants:
The Class A warrants are exercisable at a price of $4.00 per share until
they expire on March 31, 2003, subject to adjustment upon the occurrence
of the events that would cause the adjustment of the conversion price of
the debentures. We may redeem the Class A warrants on not less than 30
days' notice at a redemption price of $0.001 per warrant, provided that
the reported closing price of our common stock equals or exceeds 150% of
the then exercise price of the warrant for a period of 20 consecutive
trading days ending three trading days prior to the notice of redemption.
Please refer to "Description of Securities - Class A Warrants."
Class B Warrants:
The Class B warrants are exercisable at a price of $6.00 per share until
they expire on March 31, 2005, subject to adjustment upon the occurrence
of the events that would cause the adjustment of the conversion price of
the debentures. We may redeem the Class B warrants on not less than 30
days' notice at a redemption price of $0.001 per warrant, provided that
the reported closing price of our common stock equals or exceeds 150% of
the then exercise price of the warrant for a period of 20 consecutive
trading days ending three trading days prior to the notice of redemption.
Please refer to "Description of Securities - Class B Warrants."
You should be aware that the warrants would only have value if the market
price of the common stock exceeds the respective exercise prices, which
have been arbitrarily determined.
Risk Factors:
An investment in the units involves a high degree of risk. You should not
consider this offer if you cannot afford to lose your entire investment.
Please refer to "Risk Factors" for factors you should consider.
Use of Proceeds:
We will not receive any of the proceeds from the sale of securities by the
selling securityholders. We will receive proceeds from the exercise of the
warrants. We will use the net proceeds from warrant exercises for working
capital and general corporate purposes.
ALTERNATE PAGE OF SELLING SECURITYHOLDER PROSPECTUS -- (CONTINUED)
Private Financing
In June and August 2000, we completed the sale of 48 debenture and
warrant units at a price of $50,000 per unit, or an aggregate amount of $2.4
million, in a private financing transaction. We relied on the exemption from the
registration provisions of the Securities Act provided by Section 4 (2) thereof
and Rule 506 promulgated thereunder to effect this transaction. We sold 39.5
units on June, 28, 200 and 8.5 units on August 8, 2000
Each private financing unit consisted of securities substantially
similar to the units offered in this prospectus, except that each private
financing unit included:
o $50,000 principal amount of convertible debenture due on March 31,
2010 bearing annual interest of 12% payable on January 1, April 1,
July 1 and October 1 of each year;
o class A warrants to purchase 12,500 shares of our common stock; and
o class B warrants to purchase 12,500 shares of our common stock.
We granted the holders of these private financing units the right to register
their units for public sale. To this end, on the date of this prospectus, we
retired the private units in exchange for the issuance to holders of private
units 50 units identical to the units offered in our underwritten public
offering for each private unit. Each unit offered in our underwritten public
offering includes:
o $1,000 principal amount of convertible debenture due on March 31,
2010 bearing annual interest of 12% payable on January 1, April 1,
July 1 and October 1 of each year;
o class A warrants to purchase 250 shares of our common stock; and
o class B warrants to purchase 250 shares of our common stock.
These units have been registered for public sale and are being sold by selling
securityholders pursuant to this prospectus. See "Selling Securityholders and
Plan of Distribution" for information relating to the securityholders who are
offering these securities for sale.
Dirks & Company, Inc. acted as the placement agent in the private
financing. We paid Dirks a fee of $240,000, which was equal to 10% of the
aggregate purchase price of the units sold, and a non-accountable expense
allowance of $72,000, which was equal to 3% of the aggregate purchase price of
the units sold. We also granted Dirks, for $10.00, a warrant, exercisable over a
five year period which commenced on the closing date of the private financing,
to purchase five private financing units, at a price equal to 120% of the per
unit offering price or $60,000 per unit. The units underlying the securities
acquired by Dirks as placement agent have been registered pursuant to this
registration statement for public sale and are included in this prospectus.
Barry W. Blank purchased six private financing units in June 2000. Mr.
Blank was employed by Dirks as a registered representative at the time of the
private financing and he participated in the sale of the private financing
units. Currently he is employed by Murphy & Durieu, the underwriter of our
concurrent underwritten unit offering. He will participate in the sale of the
units in the underwritten offering. Dirks has granted Mr. Blank the right to 70%
or 3.5 of the units underlying the placement agent warrant.
ALTERNATE PAGE OF SELLING SECURITYHOLDER PROSPECTUS -- (CONTINUED)
Selling Securityholders And Plan Of Distribution
The registration statement, of which this prospectus forms a part,
relates to the registration by us for the account of selling securityholders, of
an aggregate of:
o 2,640 units;
o 2,640 debentures;
o 660,000 class A warrants;
o 660,000 class B warrants;
o 1,320,000 shares of our common stock that we may issue upon
exercise of the warrants.
The tables below sets forth information with respect to the selling
securityholders as of January 31, 2001. We will not receive any of the proceeds
from the sale of these securities. We will receive proceeds only for shares sold
by us pursuant to warrants exercised. There are no material relationships
between us or our affiliates and any of the selling securityholders except as
disclosed in the tables below. Based on information provided to us by the
selling securityholders, all securities are beneficially owned.
We assume that the selling securityholders will sell all of their
securities. However, beneficial ownership after the offering will depend upon
the actual number of securities sold by each selling securityholder.
Taking into account the shares of our common stock issuable upon
conversion of debentures and the exercise of warrants owned by Mr. Blank, Mr.
Blank is the beneficial owner of more than 10% of our common stock. All
CareerEngine Network securities owned by Mr. Blank will not be sold except in
compliance with the provisions of Section 16(b) of the Securities Exchange Act
of 1934. The share table includes the shares issuable on the conversion of
debentures and on the exercise warrants owned by each selling securityholder.
Mr. Blank was employed by Dirks, the placement agent for our private
financing, as a registered representative. He participated in the sale of the
private financing. Currently, he is employed by Murphy & Durieu, the underwriter
of our concurrent public unit offering. He will participate in the sale of the
units in that offering.
Debentures
- ---------------------------------------------------------------------------------------------------------------
Percentage Owned
- ---------------------------------------------------------------------------------------------------------------
Debentures Debentures
Beneficially Beneficially
Owned Number of Owned Before After
Before Debentures After Offering Offering
Name Offering Offered Offering
- ---------------------------------------------------------------------------------------------------------------
Barry W. Blank TTEE for Barry W. Blank 300 (4) 300 0 11.32 0
Trust Dated 11-13-96 as
amended 12-23-96 (1)
- ---------------------------------------------------------------------------------------------------------------
Bernard R. Bober 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
Richard A. Michaelson 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
Compass Bank CSDN FBO Renaissance US
Growth and Income Trust PLC
250 250 0 9.43 0
- ---------------------------------------------------------------------------------------------------------------
Compass Bank CSDN FBO
Renaissance Capital Growth and
Income Fund III, Inc.
250 250 0 9.43 0
- ---------------------------------------------------------------------------------------------------------------
George W. Benoit (2) 100 100 0 3.77 0
- ---------------------------------------------------------------------------------------------------------------
Alec G. Land 25 25 0 0.94 0
- ---------------------------------------------------------------------------------------------------------------
Tenaire Inc. Profit Sharing Trust U/A/D
1-30-69 86-6042651 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
Dr. Robert Brod, Profit Sharing Plan
50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
Kevin (2) and Nadine Benoit 100 100 0 3.77 0
- ---------------------------------------------------------------------------------------------------------------
Barry A. Friedman 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
Daniel Charlton Williams 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
Robert W. Wahl 100 100 0 3.77 0
- ---------------------------------------------------------------------------------------------------------------
Everett A. Sheslow 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
Peter R. Harvey 200 200 0 7.58 0
- ---------------------------------------------------------------------------------------------------------------
Kaufman II Limited Family Partnership
25 25 0 0.94 0
- ---------------------------------------------------------------------------------------------------------------
Ben Shirley Branch 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
John S. Price Trustee Wilson Price
Barranco Billingsley Keough Plan FBO
Bill Barranco 100 100 0 3.77 0
- ---------------------------------------------------------------------------------------------------------------
Delaware Charter Guarantee & Trust Co.
TTEE FBO Connie S. Shaw IRA
321-30194-11, Tax ID
No. 51-0099493 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
Dan N. Williams 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
Gilbert Sandler 25 25 0 0.94 0
- ---------------------------------------------------------------------------------------------------------------
Thomas J. Ferrara (2) 25 25 0 0.94 0
- ---------------------------------------------------------------------------------------------------------------
Kathleen J. Blank (1) 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
The Violet M. Blank Living
Trust(2) 25 25 0 0.94 0
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
John L. Mozley Trust, John L. Mozley,
Trustee U/A/D 1/18/83 100 100 0 3.77 0
- ---------------------------------------------------------------------------------------------------------------
Brod Living Trust, Albert T. Brod & Lois
Anne Brod, Trustees 25 25 0 0.94 0
- ---------------------------------------------------------------------------------------------------------------
Ben Shirley Branch 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
R. George Cranmer 10 10 0 0.38 0
- ---------------------------------------------------------------------------------------------------------------
Delaware Charter Guarantee & Trust Co.
TTEE FBO R. George Cranmer IRA Tax ID
No. 51-0099493, Account No. 321-30125-15
40 40 0 1.51 0
- ---------------------------------------------------------------------------------------------------------------
Robert & Josephine Tomasulo JTROS
25 25 0 0.94 0
- ---------------------------------------------------------------------------------------------------------------
Robert Cohen 50 50 0 1.89 0
- ---------------------------------------------------------------------------------------------------------------
Charles R. Hoover & Shirley A. Hoover,
Common Property with Right of
Survivorship 25 25 0 0.94 0
- ---------------------------------------------------------------------------------------------------------------
Dirks & Company, Inc. (3) 240 240 0 9.43 0
- ---------------------------------------------------------------------------------------------------------------
(1) Kathleen Blank is the daughter of Barry Blank and Violet Blank is the
mother of Barry Blank.
(2) This individual is one of our directors and executive officers. See
"Management."
(3) Assumes exercise of Placement Agent Warrants. See "Private Financing."
Dirks & Company, Inc. is a broker-dealer and, as such, may be deemed an
underwriter within the meaning of Section 2(11) of the Securities Act.
(4) Does not include debentures issuable upon the exercise of 70% of the
Placement Agent Warrants. Mr. Blank has the right to 70% of the Placement
Agent Warrants. See "Private Financing."
Common Stock
- -----------------------------------------------------------------------------------------------------------------------
Percentage Owned
- -----------------------------------------------------------------------------------------------------------------------
Shares Shares
Beneficially Beneficially
Owned Number of Owned Before After
Before Shares After Offering Offering
Name Offering Offered Offering
- -----------------------------------------------------------------------------------------------------------------------
Barry W. Blank TTEE for Barry
W. Blank Trust Dated 11-13-96 as
amended 12-23-96 410,100 0 410,100 7.53 7.53
- -----------------------------------------------------------------------------------------------------------------------
Bernard R. Bober 13,200 0 13,200 0.24 0.24
- -----------------------------------------------------------------------------------------------------------------------
Richard A. Michaelson 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Compass Bank CSDN FBO Renaissance US
Growth and Income Trust PLC 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Compass Bank CSDN FBO
Renaissance Capital Growth and
Income Fund III, Inc. 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
George W. Benoit 1,671,620 0 1,671,620 30.04 30.04
- -----------------------------------------------------------------------------------------------------------------------
Alec G. Land 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Tenaire Inc. Profit Sharing Trust U/A/D
1-30-69 86-6042651 1,400 0 1,400 .03 .03
- -----------------------------------------------------------------------------------------------------------------------
Dr. Robert Brod, Profit Sharing
Plan 500 0 500 .01 .01
- -----------------------------------------------------------------------------------------------------------------------
Kevin and Nadine Benoit 348,000 0 348,000 28 6.28
- -----------------------------------------------------------------------------------------------------------------------
Barry A. Friedman 2,000 0 2,000 .04 .04
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Daniel Charlton Williams 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Robert W. Wahl 42,400 0 42,400 .78 .78
- -----------------------------------------------------------------------------------------------------------------------
Everett A. Sheslow 2000 0 2,000 .04 .04
- -----------------------------------------------------------------------------------------------------------------------
Peter R. Harvey 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Kaufman II Limited Family Partnership
0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Ben Shirley Branch 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
John S. Price Trustee Wilson Price
Barranco Billingsley Keough Plan FBO
Bill Barranco 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Delaware Charter Guarantee & Trust Co.
TTEE FBO Connie S. Shaw IRA
321-30194-11, Tax ID No. 51-0099493
0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Dan N. Williams 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Gilbert Sandler 60,938 0 60,938 1.12 1.12
- -----------------------------------------------------------------------------------------------------------------------
Thomas J. Ferrara 21,500 0 21,500 .39 .39
- -----------------------------------------------------------------------------------------------------------------------
Kathleen J. Blank 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
The Violet M. Blank Living Trust 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
John L. Mozley Trust, John L. Mozley,
Trustee U/A/D 1/18/83 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Brod Living Trust, Albert T. Brod & Lois
Anne Brod, Trustees 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Ben Shirley Branch 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
R. George Cranmer 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Delaware Charter Guarantee & Trust Co.
TTEE FBO R. George Cranmer IRA Tax ID
No. 51-0099493, Account No. 321-30125-15 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Robert & Josephine Tomasulo JTROS 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Robert Cohen 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Charles R. Hoover & Shirley A. Hoover,
Common Property with Right of
Survivorship 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Dirks & Company, Inc. 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Shares beneficially owned in the above table does not include shares
issuable upon conversion of the debentures or exercise of the warrants owned by
each of the selling securityholders. Currently, for each debenture owned by a
selling securityholder, that holder owns 250 class A warrants and 250 class B
warrants. In addition, each debenture currently is convertible into 500 shares
of our common stock.
To the best of our knowledge,
o the selling securityholders purchased their securities in the
ordinary course of business and
o at the time of the purchase of the securities to be resold, no
selling securityholder had any agreements or understandings,
directly or indirectly, with any person to distribute the
securities.
The sale of the securities by the selling securityholders may be
effected from time to time in transactions, which may include block transactions
by or for the account of the selling securityholder,
o on the American Stock Exchange,
o in the over-the-counter market,
o in negotiated transactions,
o through the writing of options on these shares, or
o a combination of these methods of sale, or otherwise.
Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
Selling securityholders may effect these transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the selling securityholders, or to broker-dealers who may purchase securities as
principals and thereafter sell the shares from time to time on the American
Stock Exchange, in the over-the-counter market, in negotiated transactions, or
otherwise. Broker-dealers, if any, may receive compensation in the form of
discounts, concessions, or commissions from the selling securityholders and/or
the purchasers for whom these broker-dealers may act as agents or to whom they
may sell as principals or both, which compensation as to a particular
broker-dealer may be in excess of customary commissions.
The selling securityholders and broker-dealers, if any, acting in
connection with these sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of these securities might be deemed to be
underwriting discounts and commissions, under the Securities Act.
At the time a particular offer of the securities is made by or on
behalf of a selling securityholder, to the extent required, a prospectus
supplement will be distributed which will set forth the number of securities
being offered and the terms of the offering, including the name or names of any
underwriters, dealers, or agents, the purchase price paid by any underwriter for
securities purchased from the selling securityholder and any discounts,
commissions, or concessions allowed or reallowed or paid to dealers, and the
proposed selling price to the public.
Under the Exchange Act and its regulations, any person engaged in the
distribution of securities, offered by this prospectus may not simultaneously
engage in market-making activities with respect to the securities or our common
stock during the applicable "cooling off" period prior to the commencement of
this distribution. In addition, and without limiting the foregoing, the selling
securityholders will be subject to applicable provisions of the Exchange Act and
its rules and regulations, including without limitation Regulation M promulgated
under the Exchange Act, in connection with transactions in the securities, which
provisions may limit the timing of purchases and sales of securities by the
selling securityholders.
Sales of any of our securities by the selling securityholders may
depress the price of such securities in any market that may develop for these
securities.
ALTERNATE PAGE OF SELLING SECURITYHOLDER PROSPECTUS -- (CONTINUED)
================================================================================
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of the units
means that the information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy the units in any circumstances under which the offer or
solicitation is unlawful.
TABLE OF CONTENTS
Page
Prospectus Summary.................................
Risk Factors.......................................
Price Range of Common Stock........................
Use of Proceeds....................................
Dividend Policy....................................
Private Financing..................................
Capitalization.....................................
Management's Discussion and Analysis of
Financial Condition and
Results of Operations.........................
Business.
Management.........................................
Principal Stockholders.............................
Selling Securityholders and Plan of
Distribution..................................
Certain Transactions...............................
Description of Securities..........................
Legal Matters......................................
Experts............................................
Available Information..............................
Index to Financial Statements...................F-1
================================================================================
2,640 Units
and
1,320,000 Shares
CareerEngine Network, Inc.
--------------
PROSPECTUS
--------------
_______, 2001
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 27. Exhibits
Exhibit
No. Description
--- -----------
1.1 Form of Underwriting Agreement *
3.1 Restated Certificate of Incorporation of the Company (2)
3.1a Amendment to Certificate of Incorporation (2)
3.1b Amendment to Certification of Incorporation filed March 22, 2000
3.1c Amendment to Certification of incorporation filed October 16, 2000
3.2 Amended and Restated By-Laws of the Company (4)
4.2 Indenture with Continental Stock Transfer & Trust Company concerning
the 12% Convertible Debentures Due March 31, 2010*
4.3 12% Debenture Due March 31, 2010 (contained in Exhibit 4.2)*
4.4 Form of Class A Warrant**
4.5 Form of Class B Warrant**
4.6 Form of Underwriter's Unit Warrant *
4.7 FORM OF WARRANT AGENT'S AGREEMENT WITH Continental Stock Transfer &
Trust Company *
5.1 Opinion of Barry B. Feiner, Esq. *
10.1 Lease of the Company's executive offices, dated February 29, 1996 (3)
10.2 1999 Stock Option Plan (1)
10.3 Indenture of Trust between Movieplex Realty Leasing, L.L.C. and First
Union National Bank, as Trustee, dated November 1, 1997 (2)
10.4 Form of Bond (2)
10.5 Master Lease Agreement by and between Movieplex Realty Leasing, LLC, as
Landlord, and Carmike Cinemas, Inc., as Tenant, dated November 20, 1997
(2)
10.6 Reimbursement Agreement by and among Movieplex Realty Leasing, LLC,
the Lenders, and Wachovia Bank, N.A, dated November 20, 1997 (2)
10.7 Form of Letter of Credit (2)
10.8 Form of Bond Purchase Agreement between Movieplex Realty Leasing, LLC.
and Purchasers, dated November 20, 1997 (2)
10.9 Agency and Development Agreement between Movieplex Realty Leasing,
LLC., and Carmike Cinemas, Inc., dated November 20, 1997 (2)
10.10 Master form of ASP Agreement between the Company and Customers**
10.11 Master form of Co-Branding Agreement between the Company and
Customers**
21. A List of the subsidiaries of the Company**
23.1 Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Barry B. Feiner, Esq. (included in Exhibit 5.1).
24. Power of Attorney (included in signature page).**
- --------------------------------
* To be filed by amendment.
**Previously filed as an exhibit to our registration statement on form SB-2,
filed on December 26, 2000.
(1) Filed as an exhibit with the same number to Annual Report on Form 10-KSB
for the period ended December 31, 1999.
(2) Filed as an exhibit with the same number to Annual Report on Form 10-KSB
for the period ended December 31, 1997.
(3) Filed as an exhibit with the same number to Annual Report on Form 10-KSB
for the period ended December 31, 1996.
(4) Filed as an exhibit with the same number to Annual Report on Form 10-KSB
for the period ended December 31, 1995.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Amendment No. 2 to its Registration Statement to be signed on its behalf by the
undersigned, in the City of New York, State of New York on February , 2001.
CareerEngine Network, Inc.
By: /s/ George W. Benoit
--------------------------------------------
George W. Benoit, President, Chief Executive
Officer and Chairman of the Board
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. to the Registration Statement has been signed below
by the following persons in the capacities indicated on February , 2001.
Signature Title
/s/ George W. Benoit President, Chairman
- ------------------------------------ and Chief Executive Officer
George W. Benoit
/s/ Anthony S. Conigliaro Vice President and
- ------------------------------------ Chief Financial Officer
Anthony S. Conigliaro
/s/ Kevin J. Benoit Director
- ------------------------------------
Kevin J. Benoit
Director
- ------------------------------------
Charles W. Currie
/s/ David W. Dube Director
- ------------------------------------
David W. Dube
James J. Murtha Director
- ------------------------------------
/s/ Joseph G. Anastasi Director
- ------------------------------------
Joseph G. Anastasi
/s/ Thomas J. Ferrara Director
- ------------------------------------
Thomas J. Ferrara
/s/ Edward H. Martino Director
- ------------------------------------
Edward H. Martino
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/16/2000
001521137 - 0771763
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
CAREERENGINE NETWORK, INC.
(Pursuant to Sections 228 and 242 of
the Delaware General Corporation Law)
-----------------------------------------
CareerEngine Network, Inc. ("CareerEngine"), a corporation organized and
existing under and by virtue of the Delaware General Corporation Law (the
"DGCL") does hereby certify that:
FIRST: The Board of Directors of CareerEngine, by unanimous written
consent pursuant to Section 141(f) of the DGCL, duly adopted resolutions setting
forth a proposed amendment to the Certificate of Incorporation of CareerEngine
(the "Certificate of Incorporation"), declaring such amendment to be advisable
and calling a meeting of the shareholders of CareerEngine for consideration
thereof. The amendment adopted provides as follows: That Article Fourth of the
Certificate of Incorporation shall be amended to read in its entirety as follows
and is hereinafter referred to as the "Amendment":
"FOURTH: The total number of shares which the
Corporation shall have the authority to issue is 21,000,000
shares, of which 20,000,000 shares shall be common stock with
a par value of $0.10 per share (the "Common Stock") and
1,000,000 shares shall be preferred stock, with a par value of
$0.10 per share (the "Preferred Stock").
The Preferred Stock may be issued from time to time
in one or more series with such designations, preferences and
relative participating, optional or other special rights and
qualifications, limitations or restrictions thereof, as shall
be stated in the resolutions adopted by the Board of Directors
(the "Board") providing for the issuance of such Preferred
Stock or series thereof, and the Board is hereby vested with
authority to fix such designations, preferences and relative
participating, optional or other special rights or
qualifications, limitations, or restrictions for each series,
including, but not by way of limitation, the power to fix the
redemption and liquidation preferences, the rate of dividends
payable and the time for and the priority of payment thereof
and to determine whether such dividends shall be cumulative or
not and to provide for and fix the terms of conversion of such
Preferred Stock or any series thereof into Common Stock of the
Corporation and fix the voting Power, if any, of shares of
Preferred Stock or any series thereof."
SECOND: That the Amendment was duly adopted in accordance with the
provisions of Sections 228 and 242 of the DGCL. Prompt written notice of the
adoption of the Amendment herein certified has been given to those stockholders
who have not consented in writing thereto, as provided in Section 228 of the
DGCL.
THIRD: This Certificate of Amendment shall become effective upon the
filing hereof in the Office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, CareerEngine has caused this Certificate of Amendment to be
duly executed by its President as of October 16, 2000.
CareerEngine Network, Inc.
By: /s/ George W. Benoit
---------------------------
George W. Benoit, President
CERTIFICATE OF AMENDMENT
OF
HELMSTAR GROUP, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is Helmstar Group, Inc.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article First thereof and by
substituting in lieu of said Article First the following new
Article First:
"First: The name of the corporation is CareerEngine Network, Inc."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the
provisions of Section 228 and 242 of the General Corporation
Law of the State of Delaware. Prompt written notice of the
adoption of the amendment herein certified has been given to
those stockholders who have not consented in writing thereto,
as provided in Section 228 of the General Corporation Law of
the State of Delaware.
Signed and attested to on March 23, 2000.
HELMSTAR GROUP, INC.
By: /s/ George W. Benoit
----------------------
George W. Benoit
Chairman of the Board
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/27/2000
001152095 - 0771763