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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-21419
clickNsettle.com, Inc.
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(Name of small business issuer as specified in its charter)
Delaware 23-2753988
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(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
1010 NORTHERN BOULEVARD, SUITE 336
GREAT NECK, NEW YORK 10021
(Address of Principal Executive Offices)
(516) 829-4343
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock $.001 Par Value NASDAQ Small Cap Market
Warrants NASD Over-the-Counter Bulletin Board
Title of each class Name of each exchange on which registered
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Common Stock $.001 Par Value Boston Stock Exchange
Warrants Boston Stock Exchange
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No____
Check if there is no disclosure of delinquent files in response to Item 405 of
Regulation S-B is not contained in this Form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-KSB
or any amendments to this Form 10-KSB.|_|
State issuer's revenues for its most recent fiscal year. $3,866,058
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The aggregate market value of the voting stock held by non-affiliates per the
closing stock price of August 28, 2001 is $1,044,969.
As of August 28, 2001, 1,423,775 shares of common stock of the issuer were
outstanding.
Transitional Small Business Disclosure Format Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
Part I. -- None Part II. -- None
Part III. -- Proxy statement to be filed by October 29, 2001
2
PART I
From time to time, including in this annual report on Form 10-KSB,
clickNsettle.com, Inc. (formerly NAM Corporation) (the "Company" or "we") may
publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, future operations, new products,
research and development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, we note that a
variety of factors could cause our actual results to differ materially from the
anticipated results or other expectations expressed in our forward-looking
statements. The risks and uncertainties that may affect the operations,
performance, development and results of our business include, without
limitation, the following: changes in the insurance and legal industries; our
inability to retain current or new hearing officers; changes in the public court
systems; and the degree and timing of the market's acceptance of our web site
and in-person and video-conferenced arbitration and mediation programs.
ITEM 1. DESCRIPTION OF BUSINESS
The Company
We operate in one business segment as a provider of arbitration and
mediation services, also known as alternative dispute resolution services, or
ADR services, principally to insurance companies, law firms, corporations and
municipalities on an in-person basis, via video conferencing and on the Internet
through our clickNsettle.com web site. An ADR proceeding is an alternative forum
to the public court system for resolving civil disputes.
Our objective is to become the leading global provider of dispute
resolution services by providing a "total solution" for our clients; by offering
one-stop shopping for anyone involved in any type of dispute, anywhere in the
world; and to provide this service quicker, more economically and more
efficiently than previously possible. We intend to achieve this goal by
employing the following strategies: (1) marketing our comprehensive suite of
web-enabled dispute resolution tools which are designed to attract a larger
customer base on a global scale with lower incremental costs; (2) positioning
our ADR services and Internet platform as a necessary component of e-commerce
transactions and international disputes so as to provide a mechanism for the
resolution of any potential dispute, should one occur, among parties who may be
located in geographically diverse areas; (3) focusing our advertising campaign
towards building brand recognition; (4) accelerating efforts to secure exclusive
relationships with corporations and law firms in order to obtain contracts on an
international basis by capitalizing on our market position; (5) continuing to
explore strategic alliances with business entities that have the ability to
promote clickNsettle.com; and (6) becoming a primary provider of commercial,
international, insurance and intellectual property dispute resolution.
clickNsettle.com, with patent pending on its unique fully-interactive,
web-enabled dispute resolution services, can be accessed 24 hours a day, 7 days
a week and is being targeted to the multi-billion dollar litigation market. We
believe that our web-enabled dispute resolution platform provides us with the
following capabilities: (1) ability to process a large volume of cases
electronically with a lower cost per case; (2) easy accessibility by potential
users via the Internet; (3) ability to reach potential users on a global basis;
(4) lead generator for our in-person arbitration and mediation services which
offer a roster of 1,300 arbitrators and mediators worldwide; (5) ability to
benchmark data on settlements by injury and venue; and (6) electronic case
management capabilities to summarize and provide analysis of a client's entire
ADR program including in-person arbitration and mediation conferences and
electronic settlements over the Internet.
3
We believe that the ADR business is a growing industry based upon (a)
the continuing inability of the public court system to effectively manage its
docket of civil cases and (b) the increase of global commerce transactions and
the subsequent need for dispute resolution mechanisms to address multi-country
litigation. An ADR proceeding streamlines the traditional cumbersome public
litigation process. As compared to the public court system, an ADR proceeding
generally offers litigants a faster resolution, confidentiality, reduced
expenses, flexibility in procedures and solutions, and control over the process.
With respect to business-to-business disputes, ADR proceedings can also preserve
business relations among the parties because its nature is less adversarial and
disputes may be resolved promptly.
The Company was formed on January 12, 1994 under the laws of the State
of Delaware. On October 31, 1994, we acquired all of the outstanding common
stock of National Arbitration & Mediation, Inc. ("NA&M"), a New York
corporation, formed on February 6, 1992, which was owned by our Chief Executive
Officer and President, and our former Executive Vice President. NA&M began
operations in March 1992 as a provider of ADR services. NA&M was merged into the
Company as of the end of June 1999. In June 2000, shareholder approval was
obtained to change the name of the Company from NAM Corporation to
clickNsettle.com, Inc. to more appropriately reflect the present and future
scope of our business and prospects.
Services Offered
Arbitration: Our arbitration procedure follows a format essentially
similar to a non-jury trial in the public court system. Parties are given a
forum in which to present their cases. Litigants utilize this process to save a
significant amount in fees relative to traditional court costs and are spared
the time delays and some of the cumbersome procedures commonly associated with
public court trials. Our hearings are generally governed by our rules of
procedure. The parties, however, may depart from these rules and proceed in the
fashion they deem desirable for the resolution of the case. The parties select a
panel member from our list of 1,300 worldwide hearing officers.
The hearings are private, thereby providing a level of confidentiality
not readily available in the public court system. Subject to the parties'
agreement, the proceedings may include discovery, examination of non-party
witnesses, the filing of post-hearing briefs and other matters that may arise in
the conduct of non-jury trials.
The arbitrations are usually one of the following: (i) a regular
arbitration, in which the hearing officer has authority to issue a ruling and/or
award a remedy without limitations; (ii) a "high/low" arbitration, where the
parties may choose to set the parameters of the award by pre-selecting the high
and low dollar limits that can be awarded by the hearing officer; and (iii) the
so-called "baseball" arbitration, which typically involves the submission by
each party of their last best figure and the reason why it should be accepted
with the hearing officer's binding recommendation being restricted to either one
figure or the other. These types of arbitration are not exclusive, and the
hearing officers may fashion remedies in accordance with whatever parameters are
agreed to by the parties.
Generally, arbitration decisions are binding in nature and, unless
otherwise stipulated by the parties, are appealable in only limited
circumstances in the public court system. We do not currently offer any type of
appeal procedure. Our arbitration decisions are generally enforceable in the
public court system by following prescribed filing procedures in the applicable
local jurisdiction.
4
Mediation (Settlement Conferencing): The mediation method used by us is
settlement conferencing, a non-binding process. Settlement conferencing provides
an opportunity for parties to reach an early, amicable resolution without undue
expense and time-consuming litigation. The voluntary process of settlement
conference mediation can be an effective tool for a wide variety of disputes,
including tort claims and commercial conflicts.
The parties and a hearing officer attend the settlement conference.
Each party may choose to submit a settlement conference memorandum setting forth
a brief summary of facts, indicating, for example, why each party has or does
not have liability and, if applicable, a statement of the party's damages. At
the settlement conference, each party is given an opportunity to describe the
facts of the case and explain its position. Thereafter, the hearing officer
meets privately with each side on an alternating basis to evaluate their
respective cases, and receives proposed concessions that each party might make,
and potential settlement figures that each party may offer, with a view toward
guiding the parties to the settlement of their dispute. Settlement figures and
possible concessions are typically not discussed between a party and the hearing
officer without the other party's express consent to disclosing its position. In
the majority of instances, the settlement conference procedure results in the
resolution of all issues.
Online, blind bid negotiation process: Our online, blind bid
negotiation process is an Internet-based, interactive virtual service that
offers an alternative to traditional litigation. The program utilizes a direct
settlement format that allows disputing parties to enter an unlimited number of
"blind" and confidential offers and demands, via the Internet, to settle cases.
Through this service, we provide disputants with the ability to negotiate a case
with their adversary without actually "tipping their hand" about what amount
they would accept for settlement. The demands and offers are secure. Only the
final settlement figures are ever revealed. This ensures that neither party
loses any bargaining power if a settlement is not reached. In the event of
non-settlement, the parties may automatically submit the case for in-person
arbitration and mediation with us. The service, with patent pending, can be
accessed 24 hours a day, 7 days a week and also provides case management tools,
electronic access to submit cases for in-person mediation or arbitration and
detailed reporting of both in-person arbitration and mediation results and
electronic settlement statistics.
Other ADR Services: In addition to in-person mediations and
arbitrations and online, blind bid negotiations, we offer, among other services,
advisory opinions, mock jury trials and other specialized dispute resolution
programs depending on the parties' particular needs. We also offer Case
Resolution Days. Case Resolution Days are events usually scheduled at an
insurance company client's office in which we arrange for parties to hold high
volume direct settlement meetings without the participation of a hearing
officer. If the individual meetings do not resolve the dispute, we provide a
hearing officer to mediate the dispute if the parties wish to pursue settlement.
Video Conferencing: We have the ability to offer video conferencing
capabilities that allows us to provide services to a wider range of clients on a
geographical basis. By using this service, clients can participate in and
observe hearings without leaving their offices. This results in the reduction of
certain costs to the client associated with the ADR process. In addition, the
video conferencing equipment, which can be purchased or leased, has applications
beyond the ADR area for clients.
5
Marketing and Sales
During the second half of fiscal year 2000, we completed the major
portion of our development phase with respect to our web-enabled suite of
dispute resolution tools and shifted our focus towards exploiting the assets we
had developed. Much of our marketing effort has been concentrated on approaching
existing clientele to offer them a more diverse menu of dispute resolution
tools. By doing so, we believe we will be able to broaden the areas of
litigation that can be streamlined with our services, thereby increasing the
total number of cases submitted to us. Further, we have re-aligned our personnel
to address additional fertile areas of litigation that are well suited to
benefit from our services. For instance, a new Vice President of Business
Development has been charged with expanding our commercial book of business and
with marketing the availability and depth of knowledge and expertise of our
exceptionally talented hearing officers. Additionally, our Account Executives
currently market our unique "total ADR solution," encompassing in-person and
online ADR services as well as a broad array of electronic case management tools
available on our site, in order to promote all aspects of our services. They are
charged with the goal of pursuing new business as well as increasing the volume
of business with existing clients through in-person meetings, presentations and
educational seminars relating to ADR services. Each is equipped with various
tools and metrics enabling them to gauge client activity and their own
individual sales effectiveness. As of September 10, 2001, we employed 11 Account
Executives to market our services. Account Executives are salaried employees and
are eligible for additional commissions/incentives based on revenue generated.
Our President and Vice President of Operations are active in working
with our Account Executives. Account Executives in our regional office first
report to a Regional Manager who then reports to the Vice President of
Operations. The employment agreement of the Regional Manager of our
Massachusetts office provides for additional compensation based on the profits
of his operation.
Account Executives are trained over approximately a two-week period.
This training period may vary depending on the overall abilities of each
candidate, the level of prior experience and their aptitude to assimilate the
required marketing skills. The training includes the development of
sales/service techniques and an introduction to existing clientele. After this
initial period, the new Account Executive's performance is closely monitored. In
addition, staff meetings are generally held weekly to review progress against
goals and to enhance marketing skills.
The majority of our clients are insurance carriers and law firms. In
fiscal years 2001 and 2000, no customer exceeded 10% of net revenues. We have a
diversified customer base with our revenue distributed among more than 1,900
clients in both fiscal years 2001 and 2000.
When appropriate, we seek contracts with our clients. Further, we
continue to enhance our efforts to obtain volume commitments from existing and
new clients.
Competition
The ADR business is highly competitive on an international, national
and regional level. We believe that barriers to entry in the private ADR
business are relatively low, and new competitors can begin doing business
relatively quickly. We believe this because the provision of ADR services only
requires the consent of all parties to submit their dispute for resolution
through a proposed ADR provider. There are two types of competitors:
not-for-profit and for-profit entities. We believe the largest not-for-profit
6
competitor is the American Arbitration Association and that it has a significant
market share in complex commercial cases. The insurance industry has also
continued its support for Arbitration Forums, a not-for-profit organization
created to service primarily the insurance subrogation market.
We believe that the domestic private ADR industry is, other than a few
national entities, generally fragmented into small ADR service providers. The
Company believes that Judicial Arbitration Mediation Services, Inc. ("JAMS") is
the largest for-profit ADR provider in the country. The Company's competitors
include, among others, JAMS, Cybersettle, National Arbitration Forums and Island
Arbitration and Mediation. In addition, several public court systems, including
the federal and certain state courts in New York, our major market, have
instituted court-coordinated programs. To the extent that the public courts
reduce case backlogs and provide effective dispute resolution mechanisms, our
business opportunities in such markets may be reduced.
Increased competition could decrease the fees charged for our services,
and limit our ability to obtain experienced hearing officers. This could have a
materially adverse effect on our ability to be profitable in the future. In
addition, we compete with other ADR providers to retain the services of
qualified hearing officers.
As compared to the majority of our competitors, we believe that our
total solution, comprised of in-person global arbitration and mediation
services, an online, blind bid program and extensive case management tools, is
unique. We believe we have certain advantages that enable us to better serve our
clients. These advantages include: (1) a fully interactive case resolution web
site which enables parties to resolve disputes by accessing an array of
different web-enabled services including the option to make an unlimited number
of blind and confidential settlement offers and demands via the Internet from
anywhere in the world, 24 hours a day, 7 days a week; (2) exclusive agreements
with many of our most sought after hearing officers, who are generally former
judges and respected attorneys and (3) electronic case management capabilities
to summarize and provide analysis of a client's entire ADR program on a
regional, national or global basis. We cannot assure you, however, that these
perceived advantages will enable us to compete successfully in the future.
Government Regulation
ADR services that are offered by private companies, like us, are not
presently subject to any form of local, state or federal regulation. ADR
services that are offered by the public courts are subject to the rules set
forth by each jurisdiction and the dictates of the individual judge assigned to
preside over the dispute.
Employees
As of September 10, 2001, we employed 33 persons, including two
part-time employees; of these, three were in executive positions, 13 were Sales
Managers and Account Executives and the remaining 17 employees support our
operations with respect to information technology, accounting, scheduling,
confirming, billing and other administrative duties. The Company also currently
utilizes the services of a temporary employee who is eligible for long-term
employment.
7
Hearing Officers
As of September 10, 2001, we maintained relationships with over 1,300
hearing officers. We have exclusive agreements with respect to ADR proceedings
with a number of these hearing officers. Such hearing officers accounted for
approximately 60% of the number of in-person cases handled by us for the year
ended June 30, 2001. The balance of non-exclusive hearing officers makes their
services available to us on a case-by-case basis. With the exception of the
exclusive hearing officers, the remainder of our roster of hearing officers can
provide their services to competing ADR providers. Compensation to the hearing
officers is based on the number of proceedings conducted and the length of time
of such proceedings.
ITEM 2. DESCRIPTION OF PROPERTIES
We maintain 2 leased facilities, which are located in office buildings.
Currently, we lease 9,080 square feet of space at 1010 Northern Boulevard, Great
Neck, New York for our corporate headquarters and for providing
hearing/conference facilities in the New York area. The lease expires June 2005.
We also lease 1,320 square feet of space, which lease expires November 2002, for
our North Easton, Massachusetts office. We believe this space is adequate for
our reasonably anticipated future needs.
The aggregate rental expense for all of our offices was $253,062 during
the year ended June 30, 2001.
ITEM 3. LEGAL PROCEEDINGS
There is no litigation currently pending against the Company.
ITEM 4. SUBMISSION OF MATERIALS TO A VOTE OF SECURITY HOLDERS
On July 5, 2001, we held a special meeting of shareholders. The
following represents the results of the voting, both in person and by proxy:
For ratification of an amendment of the Certificate of Incorporation authorizing
the Company's board of directors to effect either a 1-for-3 or a 1-for-4 reverse
split of outstanding shares of the Company's common stock:
4,216,463 votes for;
31,362 votes against;
1,190 abstentions.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. Our Common Stock is quoted on the NASDAQ Small Cap Market under the trading
symbol "CLIK" and has been quoted since we commenced public trading on November
18, 1996. Our Warrants, under the trading symbol "CLIKW," have been quoted on
the NASD's Over-the- Counter Bulletin Board since February 28, 2001; prior
thereto, they were quoted on the NASDAQ Small Cap Market. Before November 18,
1996, there was no public market for our securities. The following table sets
forth the range of high and low closing sales prices (based on transaction data
as reported by the NASDAQ Small Cap Market and the NASD's Over-the-Counter
Bulletin Board) for each fiscal quarter during the periods indicated.
Common Stock Warrants
High Low High Low
---------------------------------------
Fiscal Year 2001:
First quarter (07/1/00-9/30/00) $15.38 $8.25 $1.19 $0.41
Second quarter (10/01/00-12/31/00) 8.44 1.88 0.63 0.03
Third quarter (01/01/01-03/31/01) 3.38 1.78 0.05 0.02
Fourth quarter (04/01/01-06/30/01) 2.63 0.90 0.02 0.01
Fiscal Year 2000:
First quarter (07/1/99-9/30/99) $27.00 $ 6.00 $3.22 $0.53
Second quarter (10/01/99-12/31/99) 24.27 14.07 2.69 1.06
Third quarter (01/01/00-03/31/00) 24.18 14.64 3.00 1.06
Fourth quarter (04/01/00-06/30/00) 20.64 10.50 2.25 0.97
On August 20, 2001, the Company effectuated a 1-for-3 reverse stock
split of its common stock. All common stock prices above have been restated to
reflect the reverse stock split. The above redeemable warrants have not been
restated as the terms of exercise were instead adjusted. On August 28, 2001 the
closing bid price for the Common Stock and Warrants, as reported by the NASDAQ
Small Cap Market and the NASD's Over-the-Counter Bulletin Board, respectively,
were $1.35 and $0.00, respectively.
As of May 21, 2001 (the latest date for which we are able to obtain
reliable data), there were in excess of 500 holders of our securities.
On March 6, 2001, we received a letter from The Nasdaq Stock Market
that our common stock had failed to maintain a minimum bid price of $1.00 over
the previous 30 consecutive trading days. As a result, we were provided 90
calendar days, or until June 4, 2001, to regain compliance. As we were unable to
demonstrate compliance with this rule on or before June 4, 2001, we requested
and were granted a meeting on July 19, 2001 to seek continued listing on the
Nasdaq Small Cap Market. On August 17, 2001, we received a determination from
the Nasdaq Listing Qualification Panel whereby our common stock would continue
to be listed pursuant to the following exception. On or before August 28, 2001,
the closing bid price of our common stock must be at least $1.00 per share and,
immediately thereafter, a closing bid price of at least $1.00 per share for a
minimum of 10 consecutive trading days. In order to fully comply with this term
of exception, we must be able to demonstrate compliance with requirements for
continued listing on The Nasdaq Small Cap Market. Nasdaq is presently making a
determination as to whether our common stock has the ability to sustain the
9
required minimum bid price. Our common stock currently remains listed on The
Nasdaq Small Cap Market. However, there can be no assurance that our common
stock will not be delisted in the near future.
We have not nor do we contemplate or anticipate paying any dividends
upon our common stock in the foreseeable future. The payment of common stock
dividends, if any, in the future rests within the discretion of our board of
directors and will depend, among other things, upon our earnings, capital
requirements and financial condition, as well as other relevant factors.
The Series A Exchangeable Preferred Stock accrued dividends at a rate
of 4% annually. However, on April 5, 2001, we redeemed all of the outstanding
preferred stock at par value. The 4% accrued dividend, aggregating $82,517, was
eliminated retroactively, resulting in no payment of dividends from the date of
issuance of the preferred shares.
B. In November 1996, we raised additional capital through an initial public
offering of our securities. Net proceeds after offering expenses approximated
$4,700,000 of which $3,862,000 had been utilized through June 30, 2000. During
the year ended June 30, 2001, we additionally expended the remaining balance of
approximately $838,000 for working capital and general corporate purposes.
The preceding information updates Form SR filed by the Company in
February 1997 pursuant to former Rule 463.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
We provide ADR services to insurance companies, law firms, corporations
and municipalities, on an in-person basis, via video conferencing and on the
Internet through our clickNsettle.com web site. We focus the majority of our
marketing efforts on developing and expanding relationships with insurance
companies, law firms, corporations and municipalities, which we believe are some
of the largest consumers of ADR services. We believe that with our global roster
of qualified hearing officers, video conferencing capabilities, knowledge of
dispute resolution, reputation within the corporate and legal communities and
Internet-based dispute resolution services, we are uniquely positioned to
provide a comprehensive web-enabled total solution to disputing parties
worldwide.
We opened for business in March 1992 in New York and currently operate
from locations in New York and Massachusetts.
Our objective is to become the leading global provider of dispute
resolution services by providing a "total solution" for our clients; by offering
one-stop shopping for anyone involved in any type of dispute, anywhere in the
world; and by providing this service quicker, more economically and more
efficiently than previously possible. We intend to achieve this goal by
employing the following strategies: (1) marketing our comprehensive suite of
web-enabled dispute resolution tools which are designed to attract a larger
customer base on a global scale with lower incremental costs; (2) positioning
clickNsettle.com as a necessary component of e-commerce and international
10
transactions so as to provide a mechanism for the resolution of any potential
dispute, should one occur, among parties who may be located in geographically
diverse areas; (3) focusing our advertising campaign towards building brand
recognition; (4) accelerating efforts to secure exclusive relationships with
corporations and law firms in order to obtain contracts on an international
basis by capitalizing on our market position; (5) continuing to explore
strategic alliances with business entities that have the ability to promote
clickNsettle.com; and (6) becoming a primary provider of commercial,
international, insurance and intellectual property dispute resolution.
Future Trends
We believe that ADR is becoming a more commonly utilized option for the
resolution of various dispute types including insurance, contract, commercial,
matrimonial, mass-tort and e-commerce. In addition, the ADR industry is, and
will continue to be, undergoing a consolidation as clients seek providers who
can offer technologically sophisticated oversight of their international,
national and regional multi-state ADR programs. We believe our web-based "total
solution," with more efficient primary customer service and a single global
platform, will exploit this trend.
We believe that the current economic slowdown is an environment which
should encourage the use of our services as more business entities are focusing
on cost saving measures given the tremendous expense related to traditional
litigation versus our quicker, more efficient dispute resolution process.
We have and may continue to incur net losses in the future as a result
of (a) continuing development and other costs associated with our web-based
software initiatives and (b) our advertising campaign. Although we are actively
promoting our services, there can be no assurance that the revenues to be
realized therefrom will exceed the expenses to be incurred. Additionally, our
advertising campaign will continue through fiscal year 2003. In August 2000, we
signed an agreement with American Lawyer Media, Inc., the nation's leading legal
journalism and information company, to provide $1,000,000 of advertising and
promotional opportunities in their national and regional publications over a
two-year period in exchange for 61,474 shares of our common stock (as adjusted
for the 1-for-3 reverse stock split effectuated on August 20, 2001). We believe
that targeting our advertising to the legal community will continue to increase
awareness of our comprehensive suite of dispute resolution services. However,
there can be no assurance that this effort will result in increased revenues.
Year Ended June 30, 2001 Compared to Year Ended June 30, 2000
-------------------------------------------------------------
Results of Operations
Revenues. Revenues decreased 3.1% to $3,866,058 for the year ended June
30, 2001 from $3,987,928 for the year ended June 30, 2000. The decrease in
revenue is attributable to a decline in the number of in-person hearings
conducted at our satellite offices. As part of our migration towards
centralizing our operations through the utilization of our web platform, we
elected to close these offices as the expense of running additional non-hub
locations adversely affected earnings, and forecasts indicated that they would
have continued to do so. Utilizing the www.clickNsettle.com web site as a
centralized dispute resolution location, we began migrating our marketing
efforts toward fewer but more efficient primary customer service centers and
national account arrangements, as opposed to the continuation of running smaller
and less efficient regional locations. The results of such a strategic plan have
been beneficial to date as quarterly sequential performance already reflects the
11
benefits of such efficiencies. We believe that building on the present platform
is the appropriate strategy to enhance operating results. Offsetting this
decline was a 10% price increase in our administrative fees effective for cases
commencing in the fourth quarter of fiscal 2001 or thereafter; a rise in the
average dollars earned per in-person hearing; fees earned from
international/commercial cases and revenues from a video-conferencing dispute
resolution contract.
Cost of Services. Cost of services decreased 6.1% to $952,263 for the
year ended June 30, 2001 from $1,013,611 for the year ended June 30, 2000.
Additionally, the cost of services as a percentage of revenues remained the same
at approximately 25% for both fiscal years 2001 and 2000. Subsequent to our
price increase, our cost of sales as a percentage of revenues declined by 1
point to 24% in the fourth quarter of fiscal year 2001. The ratio of cost of
services to revenues will fluctuate based on the amount of electronic revenue
(which does not require the services of an in-person hearing officer), the
number of hours per case and our ability (or inability) to take advantage of
volume arrangements with hearing officers which usually lower the cost per case.
Sales and Marketing. Sales and marketing costs decreased 1.8% to
$2,232,678 for the year ended June 30, 2001 from $2,274,318 for the year ended
June 30, 2000. Sales and marketing costs as a percentage of revenues increased
slightly to 58% for fiscal year 2001 from 57% for fiscal year 2000. Most of the
decrease (approximately $312,000) relates to employee costs and related items
(including benefits and payroll taxes) and travel and entertainment expenses.
The consolidation of our offerings into a one-stop, comprehensive suite of
web-enabled dispute resolution tools enabled us to streamline sales personnel
and related costs including travel and entertainment expenses. Offsetting these
declines were increases in advertising, promotions and trade shows. Advertising
and external public relations costs increased by approximately $185,000 from
fiscal year 2000 to fiscal year 2001. Most of this increase relates to our
agreement with American Lawyer Media, Inc., the nation's leading legal
journalism and information company, to provide $1,000,000 of advertising and
promotional opportunities in their national and regional publications over a
two-year period commencing August 2000 in exchange for our common stock. The
related non-cash amount expensed through June 30, 2001 approximated $290,000.
Additional non-cash charges for print advertising relating to this agreement
will be incurred during fiscal years 2002 and 2003 and, in total, will
approximate $480,000. Potentially, we may be obligated to purchase $250,000 of
additional print advertising in connection with this agreement during fiscal
years 2003 and 2004 if certain agreed-upon criteria are not achieved on February
11, 2002. Due to the economic slowdown, many businesses are decreasing the level
of advertising and therefore, as commercial clutter lessens, we believe our
targeted campaign should be more prominent and receive more attention.
Furthermore, trade show and promotions expense increased by about $86,000 as we
participated in several large legal and insurance related exhibitions primarily
early in fiscal year 2001 to promote the "total solution."
General and Administrative. General and administrative costs increased
2.8% to $2,699,081 for the year ended June 30, 2001 from $2,625,513 for the year
ended June 30, 2000. Furthermore, general and administrative costs as a
percentage of revenues increased to 70% for fiscal year 2001 from 66% for fiscal
year 2000. A portion of the increase (approximately $81,000) relates to
professional fees for various consulting services, a majority of which related
to market research, systems evaluations and investor-relations projects which
were completed by the end of the second quarter of fiscal year 2001. These
initiatives were undertaken in order to position us for future growth and to
enhance operating efficiencies. Secondly, we incurred approximately $38,000 in
one-time costs to promote our company to investors overseas. The remaining
increase was largely related to higher rent and utilities in the amount of
$69,000 due to the leasing of additional space at our headquarters in Great
Neck, New York as of July 1, 2000. As part of an effort to reduce overhead, we
12
reduced expenditures for legal fees, seminars, auto expenses, telephone and
miscellaneous expenses that approximated $80,000.
Other Income. Other income declined from $381,415 for the year ended
June 30, 2000 to $56,839 for the year ended June 30, 2001. Other income is
composed primarily of investment income and realized gains (losses) generated
from investments. During fiscal year 2001, we evaluated the carrying value of
our investments in marketable equity securities and recorded a write-down for
other than temporary declines in the value of such securities of approximately
$146,000. Such realized loss is included in investment income on the
accompanying statement of operations for the year ended June 30, 2001.
Additionally, we recorded approximately $77,000 in realized losses from sales of
securities in fiscal year 2001. Total net realized losses therefore approximated
$223,000 for fiscal year 2001 as compared to net realized gains of $259,000 in
the prior fiscal year. Offsetting this decline was an increase in investment
income of approximately $141,000 that rose due to higher invested balances in
money market funds. At June 30, 2001, approximately 86% of cash equivalents and
marketable securities were invested in money market funds whose rate of return
will fluctuate based on prevailing interest rates.
Income Taxes. Tax benefits resulting from net losses incurred for the
years ended June 30, 2001 and 2000 were not recognized as we recorded a full
valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 2001, we had net operating loss carryforwards for
Federal tax purposes of approximately $5,594,000 and net capital loss
carryforwards for Federal tax purposes of approximately $88,000.
Net Loss. For the year ended June 30, 2001, we had a net loss of
($1,961,125) as compared to a net loss of ($1,544,099) for the year ended June
30, 2000. The loss increased primarily due to non- cash investments in
advertising and realized losses on the sale and write down of marketable
securities as compared to realized gains on marketable securities in the prior
fiscal year.
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
-------------------------------------------------------------
Results of Operations
Revenues. Revenues decreased 4% to $3,987,928 for the year ended June
30, 2000 from $4,158,506 for the year ended June 30, 1999. The decrease in
revenue is attributable to an overall decline in the number of hearings
conducted during the year. We believe this is primarily the result of many of
our resources being devoted to the development, introduction and promotion of
our web-enabled suite of dispute resolution tools. It is our belief that in
addition to providing a global marketing platform, our Internet-based business
will provide more efficient primary customer service and national account
arrangements rather than require numerous "brick and mortar" regional locations.
During the second quarter of fiscal year 2000, we introduced an enhanced version
of our online, blind bid program that featured a unique, unlimited bid,
real-time negotiating format. We believe that continuous improvement of the
Internet negotiating model is critical to our success and we will continue to
invest resources in this area.
Cost of Services. Cost of services decreased 6% to $1,013,611 for the
year ended June 30, 2000 from $1,081,309 for the year ended June 30, 1999. The
decrease relates primarily to the decline in sales and to a compensation charge
in fiscal year 1999 for the granting and vesting of stock options with respect
to a hearing officer as well as payments to hearing officers in connection with
the commencement of exclusive arrangements with us. As a result, the cost of
services as a percentage of revenues decreased to 25.4% for fiscal year 2000
from 26.0% for fiscal year 1999. The ratio of cost of services to revenues will
13
fluctuate based on the number of hours per case, as well as our ability (or
inability) to take advantage of volume arrangements with hearing officers which
usually lower the cost per case.
Sales and Marketing. Sales and marketing costs increased 11% to
$2,274,318 for the year ended June 30, 2000 from $2,048,058 for the year ended
June 30, 1999. Sales and marketing costs as a percentage of revenues increased
to 57% for fiscal year 2000 from 49% for fiscal year 1999. Most of the increase
(approximately $275,000) relates to higher employee costs and related items and
travel costs to promote our web-enabled dispute resolution services. This
increase was partially offset by a decline in advertising and external public
relations costs of approximately $67,000 from the prior year.
General and Administrative. General and administrative costs increased
16% to $2,625,513 for the year ended June 30, 2000 from $2,256,309 for the year
ended June 30, 1999. Furthermore, general and administrative costs as a
percentage of revenues increased to 66% for fiscal year 2000 from 54% for fiscal
year 1999. Most of the increase (approximately $221,000) relates to salary and
related items (including payroll taxes, benefits, employee recruitment fees and
outside services) due to increases in staff for data processing and other
administrative functions, including temporary help, to support and develop our
online, blind bid negotiation process and our in-person arbitration and
mediation services. Furthermore, corporate legal fees increased by $110,000
which is primarily attributable to patent and trademark filings related to our
electronic settlement program. Finally, other professional fees increased by
approximately $40,000 as additional fees were principally incurred for a market
research study aimed at identifying new business opportunities with respect to
our comprehensive suite of dispute resolution services.
Other Income (Expenses). Other income (expenses) changed from an
expense of ($67,595) for the year ended June 30, 1999 to income of $381,415 for
the year ended June 30, 2000. Other income (expenses) is composed primarily of
investment income and realized gains (losses) generated from investments. The
change between the years relates primarily to an increase in realized gains from
sales of marketable securities from a net loss of approximately ($166,000) for
fiscal year 1999 to a net gain of approximately $259,000 for fiscal year 2000.
Additionally, investment income increased by approximately $34,000 due to higher
invested balances as a result of additional financing received in the second
half of fiscal year 2000.
Income Taxes. Tax benefits resulting from net losses incurred for the
years ended June 30, 2000 and 1999 were not recognized as we recorded a full
valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 2000, we had net operating loss carryforwards for
Federal tax purposes of approximately $3,797,000.
Net Loss. For the year ended June 30, 2000, we had a net loss of
($1,544,099) as compared to a net loss of ($1,294,765) for the year ended June
30, 1999. The loss increased as additional expenditures were made for salaries,
marketing, legal and professional fees in order to enhance and promote our
comprehensive suite of web-enabled dispute resolution services, offset by
realized gains from marketable securities.
Liquidity and Capital Resources
At June 30, 2001, the Company had a working capital surplus of
$3,003,997 as compared to $5,944,827 at June 30, 2000. The decrease in working
capital was attributed to the payment of $1,800,000 to voluntarily redeem the
outstanding shares of Series A Exchangeable Preferred Stock in April 2001, as
14
well as cash used in operating activities to fund the net loss for the year
ended June 30, 2001.
Net cash used in investing activities was $172,207 for the year ended
June 30, 2001 versus $64,478 for the year ended June 30, 2000. The decrease in
cash from investing activities was principally due to the fact that purchases of
investments and furniture and equipment exceeded sales of investments in the
current fiscal year while there was a higher proportion of maturities and sales
of securities in the investment portfolio in the prior fiscal year.
Net cash used in financing activities was $1,714,761 for the year ended
June 30, 2001 versus $5,649,230 of cash provided for the year ended June 30,
2000. In the prior year, we issued Series A Exchangeable Preferred Stock for
proceeds of $1,850,000 less issuance costs and issued shares of common stock to
a single investor for proceeds of $4,000,000 in May 2000. In the current year,
we redeemed all outstanding shares of the Series A Exchangeable Preferred stock
at its par value of $1,800,000. The 4% accrued dividend on the preferred shares,
aggregating $82,517, was eliminated retroactively, resulting in no payment of
dividends from the date of issuance of the preferred shares.
We anticipate that cash flows, together with funds received in
connection with the issuance of common stock in the prior fiscal year, will be
sufficient to fund our operations for the next year. Additionally, under an
Equity Line of Credit Agreement, we have the right, until February 15, 2003, to
require that the investor purchase between $500,000 and $7,000,000 of our common
stock. The availability to use this line is limited based on the closing bid
price of our common stock and the average trading volume of such stock in a
thirty-day period. If the closing bid price and average trading volume are below
a defined minimum, the maximum amount available at that point in time will be
$250,000. There is also a minimum of 15 days between each request for
investment.
Effect of Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations,"
and Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill
and Intangible Assets." The new standards require that all business combinations
initiated after June 30, 2001 must be accounted for under the purchase method.
In addition, all intangible assets acquired that are obtained through
contractual or legal right, or are capable of being separately sold,
transferred, licensed, rented or exchanged shall be recognized as an asset apart
from goodwill. Goodwill and intangibles with indefinite lives will no longer be
subject to amortization, but will be subject to at least an annual assessment
for impairment by applying a fair value-based test. SFAS 141 is effective for
all business combinations completed after June 30, 2001. SFAS 142 is effective
for fiscal years beginning after December 15, 2001; however, certain provisions
of this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142. The consummation of any future
business combinations, including the business combination disclosed below under
"Subsequent Event," will be impacted by the adoption of the aforementioned
pronouncements.
Subsequent Event
On July 9, 2001, we signed a letter of intent to acquire E-Vue, Inc., a
development stage company engaged in developing next-generation end-to-end
solutions for multimedia delivery over broadband and/or wireless networks based
on the MPEG-4 standard and associated compliant technologies. The proposed
purchase price under the letter of intent consists of a combination of common
15
stock and convertible preferred stock to be issued by us depending on certain
financing conditions on the part of E-Vue, Inc. The letter of intent provides
for an exclusivity period for both parties until October 7, 2001. In the event
either party breaches the agreement, the non-breaching party is to be reimbursed
for actual costs incurred up to a maximum of $100,000 and is entitled to a
$100,000 break up fee. The acquisition, which will require shareholder approval,
was initially expected to close in October 2001; however, due to the upheaval in
the financial markets in response to recent events, the expected closing date of
the acquisition has been delayed. There can be no assurance that this
transaction will close.
ITEM 7. FINANCIAL STATEMENTS
Information in response to this item is set forth in the Financial
Statements, beginning on Page F-1 of this filing. On August 20, 2001, a 1-for-3
reverse stock split of our outstanding common stock was effectuated. Our
shareholders previously approved this action in a meeting held on July 5, 2001.
Also, in accordance with our redeemable warrant agreement, the terms of the
outstanding redeemable warrants were adjusted. Originally, each redeemable
warrant entitled the holder to purchase one share of common stock at a price of
$6 per share at any time from issuance until November 13, 2001. After the
reverse stock split, in order to obtain one share of common stock, the
redeemable warrant holder must exercise 3 warrants and pay an aggregate of $18
in cash until November 13, 2001.
All references to number of shares and per share data in the financial
statements and accompanying notes for all periods presented have been restated
to reflect the reverse stock split.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
16
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Changes in Stockholders' Equity
and Comprehensive Loss F-5 - F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-27
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
clickNsettle.com, Inc.
We have audited the accompanying consolidated balance sheets of
clickNsettle.com, Inc. and Subsidiaries (formerly known as NAM Corporation) (the
"Company") as of June 30, 2001 and 2000, and the related consolidated statements
of operations, changes in stockholders' equity and comprehensive loss, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of clickNsettle.com,
Inc. and Subsidiaries as of June 30, 2001 and 2000, and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
GRANT THORNTON LLP
Melville, New York
August 23, 2001
F-2
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 2001 2000
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 2,558,372 $ 5,976,439
Marketable securities 402,807 601,188
Accounts receivable (net of allowance for doubtful
accounts of $140,000 in 2001 and 2000) 355,674 443,469
Prepaid expenses and other current assets 469,885 86,246
------------ ------------
Total current assets 3,786,738 7,107,342
FURNITURE AND EQUIPMENT - AT COST,
less accumulated depreciation 309,242 290,836
OTHER ASSETS 91,452 30,711
------------ ------------
$ 4,187,432 $ 7,428,889
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 179,196 $ 406,078
Accrued liabilities and dividends payable 284,412 356,611
Accrued payroll and employee benefits 35,020 93,822
Deferred revenues 284,113 306,004
------------ ------------
Total current liabilities 782,741 1,162,515
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A Exchangeable Preferred Stock - $.001 par value; 2,100 shares
authorized; 0 and 1,850 shares issued and outstanding in 2001 and
2000, respectively; liquidation preference of $1,000 per share -- 1,634,789
Common stock - $.001 par value; 15,000,000 shares authorized;
1,450,259 and 1,364,426 shares issued in 2001 and 2000, respectively;
1,444,676 and 1,364,426 shares outstanding in 2001 and 2000,
respectively 1,450 1,364
Additional paid-in capital 10,109,385 8,942,406
Accumulated deficit (6,687,254) (4,326,628)
Accumulated other comprehensive (loss) income (6,135) 14,443
Less common stock in treasury at cost, 5,583 and 0
shares in 2001 and 2000, respectively (12,755) --
------------ ------------
Total stockholders' equity 3,404,691 6,266,374
------------ ------------
$ 4,187,432 $ 7,428,889
============ ============
The accompanying notes are an integral part of these statements.
F-3
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
2001 2000
----------- -----------
Net revenues $ 3,866,058 $ 3,987,928
----------- -----------
Operating costs and expenses
Cost of services 952,263 1,013,611
Sales and marketing expenses 2,232,678 2,274,318
General and administrative expenses 2,699,081 2,625,513
----------- -----------
5,884,022 5,913,442
----------- -----------
Loss from operations (2,017,964) (1,925,514)
Other income
Investment income 31,768 363,381
Other income 25,071 18,034
----------- -----------
56,839 381,415
----------- -----------
Loss before income taxes (1,961,125) (1,544,099)
Income taxes -- --
----------- -----------
NET LOSS (1,961,125) (1,544,099)
Preferred stock dividend, deemed dividend on preferred stock
for beneficial conversion and excess of consideration paid
on redemption of preferred stock (181,918) (119,083)
----------- -----------
Loss before cumulative effect of change in accounting principle for
deemed dividend on preferred stock for beneficial
conversion (2,143,043) (1,663,182)
Cumulative effect of change in accounting principle for deemed
dividend on preferred stock for beneficial conversion (217,583) --
----------- -----------
Net loss attributable to common stockholders $(2,360,626) $(1,663,182)
=========== ===========
Loss per common share - basic and diluted
Loss before cumulative effect of change in accounting principle $ (1.50) $ (1.42)
Cumulative effect of change in accounting principle (.15) --
----------- -----------
Net loss per common share $ (1.65) $ (1.42)
=========== ===========
Weighted-average shares outstanding - basic and diluted 1,432,674 1,172,304
=========== ===========
The accompanying notes are an integral part of these statements.
F-4
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
Years ended June 30, 2001 and 2000
Preferred stock Common stock Additional
---------------------- --------------------- paid-in Accumulated
Shares Amount Shares Amount capital deficit
-------- -------- ------------------------------------ ----------
Balances at June 30, 1999 3,370,739 $ 3,371 $4,797,637 $(2,663,446)
Compensation related to stock
options and warrants 36,988
Common shares issued pursuant
to restricted stock awards 36,744 37 (37)
Common shares issued upon
exercise of stock options
and warrants 33,226 33 53,312
Gain on common shareholder's
stock 1,720
Common shares and warrants
issued pursuant to preferred
stock and equity line of
credit offerings, net of
issuance costs of $221,282 1,850 $ 1,543,456 10,000 10 85,252
Preferred stock dividend and
deemed dividend on preferred
stock for beneficial
conversion 91,333 (119,083)
Common shares issued pursuant
to private placement, net
of issuance costs of $34,553 642,570 642 3,964,805
Net loss (1,544,099)
Change in unrealized gain
(loss) on marketable
securities
----- --------- --------- ----- --------- ----------
Comprehensive loss
Balances at June 30, 2000
(carried forward) 1,850 1,634,789 4,093,279 4,093 8,939,677 (4,326,628)
Accumu-
lated
other
compre- Total
hensive Common stock- Compre-
income stock in holders' hensive
(loss) treasury equity loss
-------- -------- ------- -------
Balances at June 30, 1999 $ 95,256 $2,232,818
Compensation related to stock
options and warrants 36,988
Common shares issued pursuant
to restricted stock awards
Common shares issued upon
exercise of stock options
and warrants 53,345
Gain on common shareholder's
stock 1,720
Common shares and warrants
issued pursuant to preferred
stock and equity line of
credit offerings, net of
issuance costs of $221,282 1,628,718
Preferred stock dividend and
deemed dividend on preferred
stock for beneficial
conversion (27,750)
Common shares issued pursuant
to private placement, net
of issuance costs of $34,553 3,965,447
Net loss (1,544,099) $(1,544,099)
Change in unrealized gain
(loss) on marketable
securities (80,813) (80,813) (80,813)
------ ------ --------- ----------
Comprehensive loss $(1,624,912)
==========
Balances at June 30, 2000
(carried forward) 14,443 6,266,374
F-5
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS (continued)
Years ended June 30, 2001 and 2000
Preferred stock Common stock Additional
--------------------- --------------------- paid-in Accumulated
Shares Amount Shares Amount capital deficit
-------- -------- ---------- -------- ---------- -----------
Balances at June 30, 2000
(brought forward) 1,850 $1,634,789 4,093,279 $4,093 $8,939,677 $(4,326,628)
Compensation related to stock
options and warrants 37,031
Common shares issued upon
exercise of stock options 11,250 11 21,084
Common shares issued in
exchange for future advertising
services, net of issuance
costs of $1,015 184,422 184 768,801
Common shares issued 18,662 19 77,895
Preferred stock dividend and
deemed dividend on
preferred stock for
beneficial conversion 10,149 (64,915)
Common shares issued pursuant
to conversion of
preferred stock (50) (44,457) 43,163 44 44,413
Purchase of common shares for
treasury
Cumulative effect of change in
accounting principle for
deemed dividend on
preferred stock for
beneficial conversion 217,583 (217,583)
Redemption of preferred stock (1,800) (1,600,481) (117,003)
Net loss (1,961,125)
Change in unrealized gain
(loss) on marketable
securities
One-for-three reverse stock
split effectuated
August 20, 2001 (2,900,517) (2,901) 2,901
----- ----------- --------- ------- ----------- -----------
Comprehensive loss
Balances at June 30, 2001 $ 1,450,259 $ 1,450 $10,109,385 $(6,687,254)
===== =========== ========= ======= =========== ===========
Accumu-
lated
other
compre- Total
hensive Common stock- Compre-
income stock in holders' hensive
(loss) treasury equity loss
------- -------- -------- -------
Balances at June 30, 2000
(brought forward) $ 14,443 $ 6,266,374
Compensation related to stock
options and warrants 37,031
Common shares issued upon
exercise of stock options 21,095
Common shares issued in
exchange for future advertising
services, net of issuance
costs of $1,015 768,985
Common shares issued 77,914
Preferred stock dividend and
deemed dividend on
preferred stock for
beneficial conversion (54,766)
Common shares issued pursuant
to conversion of
preferred stock
Purchase of common shares for
treasury $(12,755) (12,755)
Cumulative effect of change in
accounting principle for
deemed dividend on
preferred stock for
beneficial conversion
Redemption of preferred stock (1,717,484)
Net loss (1,961,125) $(1,961,125)
Change in unrealized gain
(loss) on marketable
securities (20,578) (20,578) (20,578)
One-for-three reverse stock
split effectuated
August 20, 2001
--------- -------- ----------- -----------
Comprehensive loss $(1,981,703)
===========
Balances at June 30, 2001 $ (6,135) $(12,755) $ 3,404,691
========= ======== ===========
The accompanying notes are an integral part of this statement.
F-6
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
2001 2000
----------- -----------
Cash flows from operating activities
Net loss $(1,961,125) $(1,544,099)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 107,912 115,445
Provision for bad debts 30,000
Losses (gains) on sales of marketable securities 77,248 (259,194)
Write-down of marketable securities 145,849
Losses on disposals of furniture and equipment 595 383
Advertising in exchange for common stock 290,397
Compensation related to stock options and warrants 37,031 36,988
Changes in operating assets and liabilities
Decrease in accounts receivable 87,795 41,619
Decrease in prepaid expenses and other current assets 47,487 24,742
(Increase) decrease in other assets (12,264) 2,912
(Decrease) increase in accounts payable and accrued liabilities (271,331) 171,648
(Decrease) in accrued payroll and employee benefits (58,802) (72,798)
(Decrease) increase in deferred revenues (21,891) 67,780
----------- -----------
Net cash used in operating activities (1,531,099) (1,384,574)
----------- -----------
Cash flows from investing activities
Purchases of marketable securities (361,140) (1,118,675)
Proceeds from sales of marketable securities 315,846 932,150
Proceeds from maturities of marketable securities 200,000
Decrease in receivable for securities sold 55,426
Purchases of furniture and equipment (126,913) (133,379)
----------- -----------
Net cash used in investing activities (172,207) (64,478)
----------- -----------
Cash flows from financing activities
Redemption of preferred stock (1,800,000)
Issuance of common stock, net of issuance costs and proceeds
from exercise of stock options 97,994 4,018,792
Purchase of treasury stock at cost (12,755)
Issuance of preferred stock and warrants, net of issuance costs 1,628,718
Gain on shareholder's stock 1,720
----------- -----------
Net cash (used in) provided by financing activities (1,714,761) 5,649,230
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (3,418,067) 4,200,178
Cash and cash equivalents at beginning of year 5,976,439 1,776,261
----------- -----------
Cash and cash equivalents at end of year $ 2,558,372 $ 5,976,439
=========== ===========
Supplemental disclosure of cash flow information:
Noncash financing activities
Preferred stock dividend and deemed dividend on preferred
stock for beneficial conversion $ 64,915 $ 119,083
Issuance of common stock in exchange for prepaid advertising 770,000
Conversion of preferred stock to common stock 44,457
The accompanying notes are an integral part of these statements.
F-7
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
clickNsettle.com, Inc. ("CLIK") (formerly known as NAM Corporation)
provides a broad range of Alternative Dispute Resolution ("ADR") services,
including in-person arbitrations and mediations and an online, blind bid
negotiation program, principally in the United States. CLIK incorporated on
January 12, 1994 and began operations on February 15, 1994. On October 31,
1994, National Arbitration & Mediation, Inc. ("NA&M"), which was owned by
CLIK's Chief Executive Officer and former Executive Vice President, was
acquired by and became a wholly-owned subsidiary of CLIK. The transaction
was accounted for as a transfer of assets between companies under common
control, with the assets and liabilities of NA&M combined with those of
CLIK at their historical carrying values. NA&M also provided a broad range
of ADR services, including arbitrations and mediations. NA&M began
operations in March 1992.
In June 1999, NA&M was merged into CLIK, along with several other
wholly-owned subsidiaries, National Video Conferencing Inc. and NAMSYS
Corporation. Additionally, Michael Marketing LLC and clickNsettle.com LLC,
wholly-owned limited liability companies, were formed in June 1999 in
Delaware. Michael Marketing, Inc., a Delaware corporation formed in
November 1991, formerly a wholly-owned subsidiary, was merged into Michael
Marketing LLC in June 1999.
In June 2000, shareholder approval was obtained to change the name of the
Company from NAM Corporation to clickNsettle.com, Inc. to more
appropriately reflect the present and future scope of the Company's
business and prospects.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting and reporting policies applied on a
consistent basis which conform with accounting principles generally
accepted in the United States of America follows:
a. Basis of Presentation
The accompanying consolidated financial statements of clickNsettle.com,
Inc. and Subsidiaries include the accounts of its wholly-owned
subsidiaries, Michael Marketing LLC and clickNsettle.com LLC
(collectively referred to herein as the "Company"). The Company
operates in one business segment, ADR. All significant intercompany
transactions and balances were eliminated in consolidation.
F-8
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 2 (continued)
b. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
revenues and expenses during the reporting period. Actual results may
differ from those estimates. Estimates are used when accounting for the
allowance for uncollectible accounts receivable, depreciation, taxes
and contingencies, among others.
c. Revenue Recognition
The Company principally derives its revenues from fees charged for
in-person arbitrations and mediations and from online negotiation
services. Each party to an in-person proceeding is charged an
administrative fee, a portion of which is nonrefundable when each party
agrees to utilize the Company's services. The Company recognizes
revenue when the in-person arbitration or mediation occurs. Fees
received prior to such arbitration or mediation are reflected as
deferred revenue.
The Company recognizes revenue from online negotiation services when an
offer or demand is entered and if and when the legal dispute is
settled.
d. Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and money market
funds.
e. Marketable Securities
Investments classified as marketable securities include equity
securities which are reported at their fair values. Unrealized gains or
losses on these securities are reported as a separate component of
accumulated other comprehensive (loss) income, net of related tax
effects, within stockholders' equity. The Company categorizes all
equity securities as available-for-sale in order to provide the Company
flexibility to respond to various factors, including changes in market
conditions and tax planning considerations.
F-9
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 2 (continued)
Investment income, consisting of interest and dividends, is recognized
when earned. Realized gains and losses on sales, maturities or
liquidation of investments are determined on a specific identification
basis. Fair values of investments are based on quoted market prices.
f. Furniture and Equipment
Furniture and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method
to allocate the cost of those assets over their expected useful lives
which range from two to ten years. Leasehold improvements are amortized
over the life of the remaining lease.
g. Product Development Costs
Product development costs include expenses incurred by the Company to
develop, enhance, manage and operate the Company's website and its
online negotiation service. Costs incurred for internal use software in
the preliminary project stage and for application maintenance, upgrades
and enhancements are expensed. Costs incurred for application
development are capitalized. No development costs have been capitalized
during the fiscal years ended June 30, 2001 and 2000.
h. Income Taxes
The Company follows the asset and liability method of accounting for
income taxes by applying statutory tax rates in effect at the balance
sheet date to differences among the book and tax bases of assets and
liabilities. The resulting deferred tax liabilities or assets are
adjusted to reflect changes in tax laws or rates by means of charges or
credits to income tax expense. A valuation allowance is recognized to
the extent a portion or all of a deferred tax asset may not be
realizable.
i. Advertising Costs
The cost of advertising is expensed when the advertising takes place.
The Company incurred $507,252 and $322,566 for advertising and external
public relations costs in fiscal 2001 and 2000, respectively. The
fiscal 2001 amount includes $290,397 relating to noncash advertising
charges (see Note 7(e)).
F-10
ClickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 2 (continued)
j. Earnings (Loss) Per Common Share
Basic earnings per share are based on the weighted average number of
common shares outstanding without consideration of potential common
stock. Diluted earnings per share are based on the weighted- average
number of common and potential common shares outstanding. The
calculation takes into account the shares that may be issued upon
exercise of stock options and warrants and conversion of preferred
stock, reduced by the shares that may be repurchased with the funds
received from the exercise and conversion, based on the average price
during the period. Diluted earnings per share is the same as basic
earnings per share as potential common shares of 1,110,531 and
1,215,936 at June 30, 2001 and 2000, respectively, would be
antidilutive as the Company incurred net losses for the years ended
June 30, 2001 and 2000.
k. Effect of Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business
Combinations," and Statement of Financial Accounting Standards No. 142
("SFAS 142"), "Goodwill and Intangible Assets." The new standards
require that all business combinations initiated after June 30, 2001
must be accounted for under the purchase method. In addition, all
intangible assets acquired that are obtained through contractual or
legal right, or are capable of being separately sold, transferred,
licensed, rented or exchanged shall be recognized as an asset apart
from goodwill. Goodwill and intangibles with indefinite lives will no
longer be subject to amortization, but will be subject to at least an
annual assessment for impairment by applying a fair value-based test.
SFAS No. 141 is effective for all business combinations completed after
June 30, 2001. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001; however, certain provisions of this statement
apply to goodwill and other intangible assets acquired between July 1,
2001 and the effective date of SFAS 142. The consummation of any future
business combinations, including the business combination disclosed in
Note 13, will be impacted by the adoption of the aforementioned
pronouncements.
l. Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
F-11
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 3 - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive loss, net of tax effects, are as follows:
2001 2000
------------ ------------
Net loss $(1,961,125) $(1,544,099)
----------- -----------
Unrealized gain (loss) on marketable securities, net of tax
effects of $0 in 2001 and 2000, respectively
Unrealized (losses) gains arising in period (5,372) 14,443
Reclassification adjustment - loss included
in net loss (15,206) (95,256)
----------- -----------
Net unrealized loss (20,578) (80,813)
----------- -----------
Comprehensive loss $(1,981,703) $(1,624,912)
=========== ===========
Accumulated other comprehensive loss represents the unrealized gain (loss)
on marketable equity securities, net of tax effects of $0 in fiscal 2001
and 2000, respectively.
NOTE 4 - MARKETABLE SECURITIES
Marketable securities are carried at fair value. A summary of investments
in marketable securities and a reconciliation of amortized cost to the fair
value follow:
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
----------- ----------- ----------- --------
June 30, 2001
Equity securities $408,942 $ 42,786 $(48,921) $402,807
-------- --------- -------- --------
Total marketable securities $408,942 $ 42,786 $(48,921) $402,807
======== ======== ======== ========
June 30, 2000
Equity securities $586,745 $113,612 $(99,169) $601,188
-------- --------- -------- --------
Total marketable securities $586,745 $113,612 $(99,169) $601,188
======== ======== ======== ========
Proceeds on sales of securities were $315,846 and $932,150 for the years
ended June 30, 2001 and 2000, respectively. During fiscal 2001 and 2000,
gross gains of $44,404 and $275,644, respectively, and gross
F-12
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 4 (continued)
losses of $121,652 and $16,450, respectively, were realized on these sales.
During 2001, the Company evaluated the carrying value of its investments in
marketable equity securities and recorded a write-down for other than
temporary declines in the value of such securities in the amount of
$145,849. Such write-down is included in investment income on the
accompanying statement of operations for the year ended June 30, 2001. Net
unrealized (losses) gains on marketable securities were $(6,135) and
$14,443 at June 30, 2001 and 2000, respectively. During fiscal 2001 and
2000, no income taxes (benefits) were provided on the unrealized gains
(losses) due to the Company's net operating loss.
NOTE 5 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
June 30,
---------------------------------
2001 2000
--------- ---------
Furniture $ 233,656 $ 192,440
Equipment 540,824 508,340
Leasehold improvements 21,993 21,993
--------- ---------
796,473 722,773
Less accumulated depreciation (487,231) (431,937)
--------- ---------
$ 309,242 $ 290,836
========= =========
Depreciation expense for the years ended June 30, 2001 and 2000 was
$107,912 and $111,552, respectively.
F-13
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 6 - INCOME TAXES
Temporary differences which give rise to deferred taxes are summarized as
follows:
2001 2000
----------- ------------
Deferred tax assets
Net operating loss and other carryforwards $ 2,190,000 $ 1,378,000
Provision for bad debts 56,000 56,000
Deferred compensation 4,000 52,000
Deferred rent and other 52,000 49,000
Depreciation 18,000 19,000
----------- -----------
Net deferred tax asset before valuation allowance 2,320,000 1,554,000
Valuation allowance (2,320,000) (1,554,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
The Company has recorded a full valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized.
The Company's effective income tax rate differs from the statutory Federal
income tax rate as a result of the following:
2001 2000
--------- ----------
Benefit at statutory rate $(666,783) $(524,994)
State and local benefit, net of Federal tax (114,821) (88,469)
Nondeductible expenses - net 16,053 24,454
Increase in the valuation allowance 765,551 589,009
--------- ---------
$ -- $ --
========= =========
At June 30, 2001, the Company had a net operating loss carryforward for
Federal income tax reporting purposes amounting to approximately
$5,594,000, expiring from 2012 through 2021. Additionally, the Company has
a net capital loss carryforward for Federal income tax reporting purposes
at June 30, 2001 of approximately $88,000 which expires in 2006. No income
taxes were paid in the years ended June 30, 2001 and 2000.
F-14
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 6 (continued)
Under current tax law, the utilization of net operating losses will be
restricted if an ownership change were to occur. In addition, their use is
limited to future earnings of the Company.
NOTE 7 - STOCKHOLDERS' EQUITY
a. Capitalization
On August 20, 2001, the Company effected a 1-for-3 reverse stock split.
All references to number of shares and per share data in the
consolidated financial statements and accompanying notes have been
restated, except with respect to certain redeemable warrants which were
adjusted (see Note 7 (f)), to reflect the reverse stock split. The par
value of the common stock remained unchanged at $.001 per share.
b. Preferred Stock
The Company's board of directors has authorized 5,000,000 shares of
$.001 par value preferred stock, of which 2,100 shares are designated
as Series A Exchangeable Preferred Stock. The Series A Exchangeable
Preferred Stock has (a) no voting rights, except that holders of 75% of
the Series A preferred stock must approve changes to the Certificate of
Designation and issuance of securities with rights senior to the Series
A preferred stock and (b) an annual dividend rate of 4%.
c. Series A Exchangeable Preferred Stock
On February 15, 2000, the Company issued 1,850 shares of its Series A
Exchangeable Preferred Stock for an aggregate purchase price of
$1,850,000. Holders of the Series A Exchangeable Preferred Stock could
have exchanged such shares into shares of the Company's common stock at
any time and must exchange such shares at the Company's request, which
cannot be made until the earlier of February 14, 2002 or the date upon
which the average closing bid price of the Company's common stock for
five consecutive trading days was at least $10 and the average daily
trading volume for the thirty consecutive trading days ending on the
fifth day was at least 40,000 shares and the common stock underlying
the outstanding Series A Exchangeable Preferred Stock is registered
pursuant to a then-effective registration statement.
F-15
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 7 (continued)
Through July 15, 2000, the exchange rate for each share of the Series A
Exchangeable Preferred Stock was equal to $1,000 divided by $10.45. On
July 15, 2000 and thereafter, the exchange rate for each share of
Series A Exchangeable Preferred Stock was equal to $1,000 divided by
the lesser of (i) $10.45 or (ii) the market price, which was the
average of any three consecutive closing bid prices of the Company's
common stock selected by the holders during the thirty trading day
period ending on the day immediately prior to the exchange. Until
February 14, 2001, the exchange rate could never be greater than $10.45
or less than $2.375. These adjustments to the market price could
potentially result in a conversion price below the then trading market
price of the stock on the date of the exchange. In recognition of this
beneficial conversion feature, the Company initially allocated $101,482
of the proceeds from the offering to additional paid-in capital. The
beneficial conversion feature was accounted for as a deemed dividend
and was accreted to preferred stock over the five-month period from
February 15, 2000 through July 15, 2000. The amount accreted for the
years ended June 30, 2001 and 2000, was $10,149 and $91,333,
respectively, which increased the net loss attributable to common
stockholders.
During the second quarter of fiscal 2001, the Company adopted certain
provisions of Emerging Issues Task Force ("EITF") 00-27, "Application
of EITF Issue No. 98-5, `Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios to Certain Convertible Instruments'." EITF 00-27 changed the
approach of calculating the conversion price used in determining the
value of the beneficial conversion feature from using the conversion
price stated in the preferred stock certificate to using the effective
conversion price. The adoption of EITF 00-27 increased the original
value of the beneficial conversion feature to $319,065 from the
$101,482 that was recorded in connection with the preferred stock
issuance in February 2000. In accordance with EITF 00-27, the adoption
was treated as a cumulative effect of an accounting change which
resulted in a cumulative adjustment to dividends of $217,583 as of the
beginning of the second quarter of fiscal 2001.
In the event of a liquidation of the Company, the holders of the Series
A Exchangeable Preferred Stock would receive, before any payments to
common stockholders, $1,000 per share plus any accrued but unpaid
dividends. The Series A Exchangeable Preferred Stock accrued dividends
at a rate of 4% annually, unless the thirty-day average trading price
of the Company's common stock was equal to or greater than $9 at any
time after July 15, 2000, in which case dividends would cease to accrue
and accrued but unpaid dividends would be cancelled. Dividends were
payable at the Company's option, in cash or in registered common stock.
Accrued dividends at June 30, 2000 aggregated $27,750.
F-16
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 7 (continued)
On April 5, 2001, pursuant to approval by the board of directors, the
Company redeemed all of its Series A Exchangeable Preferred Stock at
par value. There were 1,800 shares outstanding before the redemption
and the Company paid $1,800,000 to redeem these shares. The 4% accrued
dividend on the preferred shares, aggregating $82,517, was eliminated
retroactively resulting in no payment of dividends from the date of
issuance of the preferred shares. The excess of the fair value of the
consideration paid to redeem the preferred stock over the carrying
amount of the stock, net of the eliminated accrued dividends,
approximated $117,003.
In connection with the sale of the Series A Exchangeable Preferred
Stock, the Company issued warrants to the preferred holders to purchase
an aggregate of 18,750 shares of common stock at a price per share of
$31.56. The warrants expire on August 15, 2005. The fair value of the
warrants approximated $205,000. Such amount reduced the stated value of
the preferred stock and increased additional paid-in capital, resulting
in no net change to stockholders' equity.
The Company issued 1,667 shares of its common stock and paid a fee of
$92,500 to the placement agent, Triton West Group, Inc., for the
offering.
d. Equity Line of Credit
On February 16, 2000, the Company entered into an Equity Line of Credit
Agreement with Moldbury Holdings Limited. Under this agreement, the
Company has the right, until February 15, 2003, to require that
Moldbury Holdings Limited purchase between $500,000 and $7,000,000 of
the Company's common stock. The maximum and minimum amounts that
Moldbury Holdings Limited would be required to purchase at any given
time are subject to a floating number based on the closing bid price of
the Company's common stock and the average trading volume of such stock
in a thirty-day period. The price per share in each such purchase shall
be the greater of (i) 89% of the average closing bid price for the day
of the Company's notice to Moldbury Holdings Limited requesting its
purchase and the two days preceding the notice and the two days
following the notice and (ii) the minimum price set by the Company for
such purchase. Moldbury Holdings Limited is not required to make any
purchase if the shares being purchased are not registered pursuant to a
then-effective registration statement. The agreement limits the
Company's ability to enter into a similar agreement at prices below the
then current bid price without prior consent of Moldbury Holdings
Limited.
F-17
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 7 (continued)
In connection with the Equity Line of Credit Agreement, the Company
issued a warrant to Moldbury Holdings Limited to purchase 20,000 shares
of common stock at a price per share of $28.02, of which 15,000
warrants were issued on February 16, 2000 and the remaining 5,000
warrants are to be issued immediately after Moldbury Holdings Limited
has invested $3,500,000 to purchase shares of common stock under the
terms and conditions of the Equity Line of Credit Agreement. The
warrants expire on August 16, 2003. The Company issued 1,667 shares of
its common stock to the placement agent for the offering, Triton West
Group, Inc. A fee of 5% of the gross proceeds will be paid when
Moldbury Holdings Limited purchases the Company's common stock, at the
Company's request, pursuant to the Equity Line of Credit Agreement.
e. Private Placements
On May 10, 2000, the Company entered into a Stock Purchase Agreement
(the "Stock Purchase Agreement") with ISO Investment Holdings, Inc.
("ISO"), whereby the Company issued 214,190 common shares, par value
$.001 per share, to ISO at a price of $18.675 per share or $4,000,000.
In connection therewith, the Company issued a warrant to ISO to
purchase 60,000 common shares at an exercise price of $24.27 per share,
exercisable on or after May 10, 2000 and expiring on August 15, 2005.
The exercise price and number of warrant shares are subject to
adjustment in certain circumstances (stock split, dilutive issuances at
less than market price, etc.).
Pursuant to the Stock Purchase Agreement, ISO has the right to
designate one individual to be nominated as a member of the Company's
board of directors. Additionally, under certain circumstances, ISO is
entitled to purchase, upon the same terms, such number of securities to
enable it to retain its fully diluted ownership position in the Company
that it held immediately prior to a proposed issuance, sale or exchange
of the Company's equity securities.
Pursuant to the Stock Purchase Agreement, ISO has one demand
registration right commencing May 10, 2001 and unlimited incidental
registration rights commencing immediately. In the case of a demand for
registration by ISO, the Company shall not be required to file any such
registration statement unless the anticipated aggregate gross offering
price is at least $2,000,000. The registration rights granted under the
Stock Purchase Agreement terminate upon the earlier of (i) May 10, 2004
and (ii) such time as ISO shall be permitted to sell all of its
purchased securities in any three-month period under Rule 144
promulgated under the Securities Act.
F-18
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 7 (continued)
On August 11, 2000, the Company entered into an advertising agreement
with American Lawyer Media, Inc. ("ALM"), whereby the Company issued
61,474 fully vested, nonforfeitable common shares with a market value
of $770,000 to ALM in exchange for $1 million of advertising and
promotional opportunities over a two-year term (see Note 9 (c)). The
number of shares issued by the Company was calculated based on the
average per share closing price of the common stock for the five
trading days prior to August 11, 2000. The Company initially recorded
$770,000 as prepaid advertising. Such amount is being expensed as the
advertising takes place. During the year ended June 30, 2001, the
Company expensed $290,397 of advertising costs related to this
transaction. As of June 30, 2001, $431,126 was classified as short-term
and included in prepaid expenses and other current assets and $48,477
was classified as long-term and included in other assets in the
accompanying balance sheet based on the expected utilization.
Pursuant to the Stock Purchase Agreement between the Company and ISO,
ISO is entitled to purchase, upon the same terms, such number of
securities to enable it to retain its fully diluted ownership position
in the Company after the issuance of shares to ALM. ISO exercised this
preemptive right on August 21, 2000, whereby the Company issued 6,221
shares of common stock to ISO. The total offering price was $77,914.
f. Redeemable Warrants
In November 1996, the Company completed an initial public offering
("IPO") which consisted of 1,400,000 units, each unit consisting of one
share of common stock and one redeemable warrant, not effected for the
reverse split (see Note 7 (a)). After the reverse stock split, in order
to obtain one share of common stock, the warrant holder must exercise
three warrants and pay an aggregate of $18 in cash, subject to
adjustment, at any time from issuance until November 13, 2001. Such
warrants are redeemable by the Company, with the prior written consent
of the underwriter, at a redemption price of $.05 commencing November
13, 1997 provided that the average closing bid price of the common
stock equals or exceeds $27.00, subject to adjustment, for a specified
period of time. In addition, there was an over allotment option for
210,000 units which was exercised by the underwriter. As of June 30,
2001, 100 warrants have been redeemed to date and 1,609,900 redeemable
warrants are outstanding.
F-19
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 7 (continued)
g. Underwriter's Warrants
In connection with the IPO, the Company sold to the underwriter, for
nominal consideration, warrants to purchase from the Company 46,666
units (the "underwriter's warrants"). The underwriter's warrants are
exercisable at $17.40. The shares of common stock and redeemable
warrants issuable upon exercise of the underwriter's warrants are
identical to those offered to the public. The underwriter's warrants
contain provisions providing for adjustment of the number of warrants
and exercise price under certain circumstances. The underwriter's
warrants grant to the holders thereof certain rights of registration of
the securities issuable upon exercise of the underwriter's warrants.
During fiscal 2000, 5,833 of these warrants were exercised on a
cashless basis pursuant to which 2,792 units were issued. As of June
30, 2001, 40,833 underwriter's warrants are outstanding.
h. Treasury Stock
On March 23, 2001, the Company extended its March 1998 purchase plan
(the "Purchase Plan"), pursuant to which the number of shares of common
stock of the Company eligible for purchase under the Purchase Plan was
increased from 200,000 shares to an aggregate of 266,667 shares. The
Purchase Plan shall expire on the earlier of all of the shares being
purchased or March 23, 2002, provided, however, that the Purchase Plan
may be discontinued at any time by the Company. As of June 30, 2001,
the Company has purchased 5,583 shares under the Purchase Plan for an
aggregate cost of $12,755.
i. Stock Option Plan
The Company has an Incentive and Nonqualified Stock Option Plan (the
"Plan") for employees, officers, directors, consultants and advisors of
the Company, pursuant to which the Company may grant options to
purchase up to 1,000,000 shares, inclusive of the December 2000
amendment increasing the Plan by 333,000 shares, of the Company's
common stock. The Plan is administered by the board of directors, which
has the authority to designate the number of shares to be covered by
each award and the vesting schedule of such award, among other terms.
The option period during which an option may be exercised shall not
exceed ten years from the date of grant and will be subject to such
other terms and conditions of the Plan. Unless the board of directors
provides otherwise, option awards terminate when a participant's
employment or services end, except that a participant may exercise an
option to the extent that it was exercisable on the date of termination
for a period of time thereafter. The Plan will terminate automatically
on April 1, 2006.
F-20
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 7 (continued)
Directors who are not officers of the Company receive annually, on the
last trading day of June, stock options for 833 shares at an exercise
price equal to the fair market value of the stock on the date of grant.
The Company's stock option awards granted to employees, directors and
consultants as of and for the years ended June 30, 2001 and 2000 are
summarized as follows:
2001 2000
-------------------------- ---------------------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
------ ----- ------ --------
Outstanding at beginning of year 438,750 $ 9.81 303,000 $ 6.09
Awards granted 65,889 $ 4.15 162,000 $ 16.47
Awards exercised (3,750) $ 5.63 (8,250) $ 6.39
Awards canceled/forfeited (108,533) $ 11.23 (18,000) $ 8.79
-------- --------
Outstanding at end of year 392,356 $ 8.50 438,750 $ 9.81
======== =======
Options exercisable at year-end 234,440 $ 7.48 168,583 $ 7.56
======== =======
Weighted-average fair value
of options granted during
the year $ 2.96 $ 12.45
F-21
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 7 (continued)
The following information applies to options outstanding and
exercisable at June 30, 2001:
Outstanding Exercisable
------------------------------------------ ----------------------------
Weighted-
average Weighted- Weighted-
remaining average average
Number life in exercise Number exercise
Range of exercise prices outstanding years price exercisable price
------------------------ ------------ ---------- ----------- ----------- ---------
$0.93 - $4.13 105,156 6.66 $ 3.74 77,240 $ 3.87
$4.31 - $5.82 134,371 5.00 $ 4.76 84,871 $ 4.95
$6.27 - $9.40 27,829 3.23 $ 7.16 27,829 $ 7.16
$12.00 - $15.75 103,433 7.36 $ 15.37 33,833 $ 15.23
$16.91 - $30.00 21,567 5.39 $ 23.80 10,667 $ 30.00
-------- --------
392,356 234,440
======= =======
Stock option awards are granted at prices equal to or above the closing
bid price on the date of grant. For the year ended June 30, 2001,
14,167 options were granted above the closing bid price on the date of
grant. As of June 30, 2001, 595,644 shares were available for granting
of options under the Plan.
The Company accounts for stock-based compensation under the guidelines
of APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," as allowed by SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation expense was recognized
concerning options granted to employees and to members of the board of
directors, as such options were granted to board members in their
capacity as directors.
F-22
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 7 (continued)
If the Company had elected to recognize compensation expense based upon
the fair value at the grant date for options granted to employees and
to members of the board of directors consistent with the "fair value"
methodology prescribed by SFAS No. 123, the Company's net loss
attributable to common stockholders and net loss per share for the
years ended June 30, 2001 and 2000 would be increased to the pro forma
amounts indicated below:
2001 2000
-------------- -----------
Net loss attributable to common stockholders
As reported $(2,360,626) $(1,663,182)
Pro forma (3,193,857) (2,236,246)
Net loss per common share, includes cumulative effect
of change in accounting principle of $(.15) per share
in 2001 - basic and diluted
As reported $(1.65) $(1.42)
Pro forma (2.23) (1.91)
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to awards made before 1996. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 2001
and 2000, respectively: a dividend yield of zero for both years; a
risk-free interest rate ranging from 4.38% to 5.99% in 2001 and 5.82%
to 6.73% in 2000; an expected term of one and one-half to four years in
2001 and two and one-half to four years in 2000; an expected stock
price volatility of 118.91% in 2001 and 109.37% in 2000; and a
forfeiture rate of 25% in 2001 and 10% in 2000.
During the fiscal years 2001 and 2000, the Company granted 8,389 and 0
options, respectively, to consultants. Compensation expense of $20,931
and $20,888 was recognized in fiscal 2001 and 2000, respectively, for
options granted to consultants.
F-23
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 7 (continued)
j. Stock Warrants
In April 2000, the Company entered into an agreement with a financial
public relations firm whereby the Company agreed to grant warrants to
purchase 13,333 shares of the Company's common stock, of which 3,333
warrants were granted upon execution of the agreement. The remaining
10,000 warrants were to be granted in intervals of 3,333 every six
months for a period of 18 months. All warrants vested the earlier of
six months from date of grant or upon termination of the agreement and
were to be issued at a 25% premium to the market price of the common
stock as of the date of each grant. Once vested, the warrants were
immediately exercisable. The warrants expire April 11, 2005. In the
event that the financial public relations services were terminated, no
further warrants were to be issued other than that portion already
granted. Compensation expense of $16,100 and $16,100, relating to the
fair value of the warrants, was recorded in fiscal 2001 and 2000,
respectively. In August 2000, the Company terminated the agreement and
no additional warrants in excess of the 3,333 warrants were granted.
k. Common Stock Reserved
At June 30, 2001, the Company has reserved for issuance 1,706,175
shares of its common stock issuable pursuant to: the Company's stock
option plan, the exercise of redeemable and underwriter's warrants and
the exercise of warrants issued to consultants and investors.
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES
A member of the board of directors performs services for the benefit of the
Company. The related expenditures for these services for the years ended
June 30, 2001 and 2000 were $29,763 and $34,725, respectively.
F-24
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 9 - COMMITMENTS AND CONTINGENCIES
a. Leases
As of June 30, 2001, the Company has lease agreements for equipment and
office space. Rent expense amounted to $278,863 and $212,342 for the
years ended June 30, 2001 and 2000, respectively. The minimum lease
payments under noncancelable leases as of June 30, 2001 are as follows:
2002 $ 279,200
2003 275,900
2004 265,300
2005 263,000
----------
$1,083,400
==========
b. Employment/Consulting Agreements
The Company's employment agreement with its Chief Executive Officer
expires June 30, 2002 and provides for an annual base salary of
$225,000 as of July 1, 1997, an annual cost of living increase of the
greater of 6% per annum or the increase in the Urban Consumer Price
Index and an annual bonus at the discretion of the Company's board of
directors. If this agreement is terminated as a result of a change in
duties of the executive or due to a change in control, the officer will
be entitled to a lump-sum severance payment equal to three times his
then current base salary.
The Company has also entered into employment agreements with certain of
its regional office managers. Certain of these agreements provide for
additional compensation based on the profits of the manager's
operation.
In July 1996, the Company entered into a financial public relations
consulting agreement with two individuals who are founders of the
Company and former directors. The four-year agreement provided for
annual payments of $48,000 payable in equal monthly payments of $4,000
through November 2000. In November 1998, the agreement was amended to
reduce the fee as of October 1998 to $2,000 per month. In February
2001, the agreement was further amended and terminated with a final
payment of $35,000. The related expense for the years ended June 30,
2001 and 2000 was $45,000 and $24,000, respectively.
F-25
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 9 (continued)
c. Advertising
In connection with an advertising agreement with ALM (see Note 7(e)),
the Company has agreed to purchase $250,000 in additional advertising
in the year subsequent to the initial two-year term if certain
agreed-upon criteria are not achieved on February 11, 2002.
NOTE 10 - EMPLOYEE RETIREMENT PLAN
Effective January 1, 1999, the Company implemented a noncontributory 401(k)
savings and retirement plan, whereby eligible employees may contribute 15%
of their salaries up to the maximum allowed under the Internal Revenue
Code. Although the Company may make discretionary contributions, none were
made in fiscal years 2001 and 2000.
NOTE 11 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 2001 and 2000, the Company's financial instruments included
cash and cash equivalents, marketable securities, receivables and accounts
payable. The fair values of cash and cash equivalents, receivables and
accounts payable approximated carrying values because of the short-term
nature of these instruments. The estimated fair values of marketable
securities are determined based on quoted market prices.
NOTE 12 - CREDIT CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, marketable securities and accounts receivable.
F-26
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001 and 2000
NOTE 12 (continued)
The Company's cash consists primarily of demand deposits and an insured
money market fund. Such balances generally do not exceed the Federally
insured limits. Additionally, the Company maintains its cash equivalents
and all other investments with another financial institution.
The Company sells it services principally to insurance companies and law
firms. In fiscal years 2001 and 2000, no customer exceeded 10% of net
revenues. The Company monitors exposure to credit losses and maintains
allowances for anticipated losses considered necessary under the
circumstances.
NOTE 13 - SUBSEQUENT EVENT
In July 2001, the Company signed a letter of intent to acquire E-Vue, Inc.,
a development stage company engaged in developing next-generation
end-to-end solutions for multimedia delivery over broadband and/or wireless
networks based on the MPEG-4 standard and associated compliant
technologies. The proposed purchase price under the letter of intent
consists of a combination of common stock and convertible preferred stock
to be issued by the Company depending on certain financing conditions on
the part of E-Vue, Inc. The letter of intent provides for an exclusivity
period for both parties until October 7, 2001. In the event either party
breaches the agreement, the non-breaching party is to be reimbursed for
actual costs incurred up to a maximum of $100,000 and is entitled to a
$100,000 breakup fee. The acquisition, which will require shareholder
approval, is expected to close in the second quarter of fiscal 2002,
although there can be no assurance that this transaction will occur.
F-27
PART III
ITEM 9. (Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act); ITEM 10. (Executive
Compensation); ITEM 11 (Security Ownership of Certain Beneficial Owners and
Management); and ITEM 12 (Certain Relationships and Related Transactions) will
be incorporated in the Company's Proxy Statement to be filed within 120 days of
June 30, 2001, and are incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit
Number Description of Document
------ -----------------------
3.1 Certificate of Incorporation, as amended (1)
3.1(b) Certificate of Designation of Series A Exchangeable Preferred Stock (6)
3.1(c) Certificate of Correction of Certificate of Designation of Series A Exchangeable Preferred Stock (7)
3.1(d) Certificate of Amendment of Certificate of Incorporation (9)
3.1(e) Certificate of Amendment of Certificate of Incorporation, as amended **
3.2 By-Laws of the Company, as amended (4)
4.1 Stock Purchase Agreement dated May 10, 2001 (8)
4.2 Stock Purchase Warrant dated May 10, 2001 (8)
10.1 1996 Stock Option Plan, amended and restated (4)
10.2 Employment Agreement between Company and Roy Israel (3)
10.2.1 Amendment to Employment Agreement between Company and Roy Israel (4)
10.5 Employment Agreement between Company and Patricia Giuliani-Rheaume (2)
10.7 Lease Agreement for Great Neck, New York facility (1)
10.7.1 Amendment to Lease Agreement for Great Neck, New York facility (5)
10.7.2 Second Amendment to Lease Agreement for Great Neck, New York facility (11)
10.8 Exchangeable Preferred Stock and Warrants Purchase Agreement (6)
10.9 Preferred Stock Registration Rights Agreement (6)
10.11 Private Equity Line of Credit Agreement between Moldbury Holdings and Company (6)
10.12 Private Equity Line of Credit Registration Rights Agreement (6)
10.13 Stock Purchase Warrant for Moldbury Holdings Limited (6)
10.14 Advertising Agreement dated August 11, 2001 (10)
11 Consent of Independent Certified Public Accountants**
17
(1) Incorporated herein in its entirety by reference to the
Company's Registration Statement on Form SB-2, Registration
No. 333-9493, as filed with the Securities and Exchange
Commission on August 2, 1996.
(2) Incorporated herein in its entirety by reference to the Company's
1997 Annual Report on Form 10-KSB.
(3) Incorporated herein in its entirety by reference to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1997.
(4) Incorporated herein in its entirety by reference to the Company's
1998 Annual Report on Form 10-KSB.
(5) Incorporated herein in its entirety by reference to the Company's
1999 Annual Report on Form 10-KSB.
(6) Incorporated herein in its entirety by reference to the Company's
SB-2 filed on March 28, 2000.
(7) Incorporated herein in its entirety by reference to the Company's
SB-2A filed on April 21, 2000.
(8) Incorporated herein in its entirety by reference to the Company's
Form 8-K filed on May 17, 2000.
(9) Incorporated herein in its entirety by reference to the Company's
Form 8-K filed on June 21, 2000.
(10) Incorporated herein in its entirety by reference to the Company's
Form 8-K filed on August 24, 2000.
(11) Incorporated herein in its entirety by reference to the Company's
2000 Annual Report on Form 10-KSB.
** Filed herewith.
B. Reports on Form 8-K:
Form 8-K was filed on July 16, 2001 to announce that the Company entered into a
Letter of Intent to acquire E-Vue, Inc.
18
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
clickNsettle.com, Inc.
Date: September 21, 2001 By: /s/ Roy Israel
--------------
Roy Israel, Chairman of the
Board, CEO and President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: September 21, 2001 By: /s/ Roy Israel
--------------
Roy Israel, Chairman of the
Board, CEO and President
Date: September 21, 2001 By: /s/ Patricia Giuliani-Rheaume
-----------------------------
Patricia Giuliani-Rheaume, Vice President,
Chief Financial Officer and Treasurer
Date: September 21, 2001 By: /s/ Anthony J. Mercorella
-------------------------
Anthony J. Mercorella, Director
Date: September 21, 2001 By: /s/ Ronald Katz
---------------
Ronald Katz, Director
Date: September 21, 2001 By: /s/ Frank J. Coyne
------------------
Frank J. Coyne, Director
19