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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, 2006
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number: 0-21419
clickNsettle.com, Inc.
----------------------
(Name of small business issuer as specified in its charter)
Delaware 23-2753988
-------- ----------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
990 Stewart Avenue, First Floor
GARDEN CITY, NEW YORK 11530
---------------------------
(Address of Principal Executive Offices)
(516) 794-8950
--------------
(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
------------------- -----------------------------------------
Common Stock $.001 Par Value Over-the-Counter Bulletin Board
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 filers in response to Item 405 of
Regulation S-B 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.|X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |X| No |_|
State issuer's revenues for its most recent fiscal year. $0
The aggregate market value of the voting stock held by non-affiliates per the
closing stock price of September 7, 2006 is $334,629.
As of September 7, 2006, 9,929,056 shares of common stock of the issuer were
outstanding.
Transitional Small Business Disclosure Format Yes|_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE
Part I. -- None Part II. -- None
Part III. -- None
2
PART I
From time to time, including in this annual report on Form 10-KSB,
clickNsettle.com, Inc. (the "Company" or "we") may publish forward-looking
statements relating to our operations as a publicly reporting shell company and
prospective merger candidates which may include such matters as anticipated
financial performance, business prospects, future operations 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.
ITEM 1. DESCRIPTION OF BUSINESS
The Company
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 primarily owned by our Chief Executive
Officer and President. NA&M began operations in March 1992 as a provider of ADR
(alternative dispute resolution) services. NA&M was merged into the Company as
of the end of June 1999. In June 2000, the name of the Company was changed from
NAM Corporation to clickNsettle.com, Inc.
On January 13, 2005, the Company sold the assets of its dispute resolution
business (the "ADR business") to National Arbitration and Mediation, Inc. (the
"Buyer"), a company owned by the Company's Chief Executive Officer, Roy Israel.
Furthermore, Mr. Israel agreed not to trigger his change-in-control provision
under his employment contract as a result of the Buyer acquiring the ADR
business. If such provision was triggered upon the sale or liquidation of the
ADR business, the Company would have owed Mr. Israel, in one lump sum,
approximately $1,015,000, which represented three times his then current base
salary. In consideration, the Buyer assumed all current and future liabilities
and commitments of the ADR business. Specifically, the Company was released from
its lease agreements for office space in Great Neck and Brooklyn, New York and
from its employment agreements with its President and Chief Financial Officer.
Additionally, the Buyer guaranteed the payments due on the remainder of the
Company's automobile lease and paid all the remaining payments on the lease of a
postage meter. The Company remained contingently liable for payables and other
obligations assumed by the Buyer of approximately $127,100 as of June 30, 2006.
Furthermore, in accordance with the Company's stock option plan, all outstanding
unvested employee stock options vested as of the date of the sale of the ADR
business. As the Company did not retain any employees subsequent to the sale,
the former employees had three months from January 13, 2005 to exercise such
options in accordance with the terms of the Company's stock option plan. A total
of 3,485,400 unexercised employee stock options expired at the close of business
on April 13, 2005. Accordingly, the only options outstanding subsequent to April
13, 2005 are those that had been granted to directors, consultants and advisors
of which 448,974 options are outstanding as of June 30, 2006.
The loss from discontinued operations, including the loss on disposal of
the discontinued operations, for the year ended June 30, 2005 follows:
3
2005
Loss from operations of discontinued business ($ 181,261)
-----------
Loss from disposal:
Loss on sale* (419,768)
Transaction costs of sale (111,526)
-----------
Loss from disposal (531,294)
-----------
Loss from discontinued operations ($ 712,555)
===========
*The loss on the sale was calculated as follows:
Book value of liabilities assumed $ 667,438
Book value of assets sold (1,087,206)
-----------
Loss on transaction $ 419,768
===========
The results from discontinued operations for the approximately six and
one-half months through January 13, 2005 follow:
From July 1, 2004
through
January 13, 2005
----------------
Net Revenues $ 1,808,400
-----------
Operating costs and expenses
Costs of services 395,754
Sales and marketing expenses 593,026
General and administrative expenses 1,037,600
Loss on impairment of furniture and equipment 15,885
-----------
2,042,265
-----------
Loss from operations (233,865)
-----------
Other Income
Investment income 45,701
Interest and dividends 5,777
Other income 1,126
-----------
52,604
-----------
Loss from operations of discontinued business $ (181,261)
===========
As part of the agreement of sale, the cash that remained in the Company
was increased to the extent of 60% of the excess of the Remaining Net Capital
before Commitments (as defined) over $380,462 as of the closing date. The
Remaining Net Capital Before Commitments was calculated as the fair market value
of the assets purchased less the following: (a) recorded liabilities assumed and
(b) $96,371 (that is, $200,000 in cash to remain with the Company less payments
of $103,629 already made through January 13, 2005 for certain of the transaction
costs). As of January 13, 2005, the Remaining Net Capital before Commitments was
$643,728 based upon the Company's financial statements as of that date without
adjustment for any subsequent realization of assets, incurrence of any
additional liabilities or resolution of contingencies by the Buyer. Therefore,
$263,266 represents the amount in excess of $380,462; 60% of which, or $157,960
was additional cash to remain in the Company. Therefore, as of January 13, 2005,
the total cash to be retained by the Company was $254,331 before unpaid
transaction costs, taxes, other payables and accrued liabilities. Although the
liabilities and assets other than cash were transferred to the Buyer as of
January 13, 2005, the cash balances were transferred thereafter. As such, the
Company incurred interest expense on the unpaid balance. The interest rate
charged was equal to the interest rate earned on invested balances. The interest
charges for the years ended June 30, 2006 and 2005 was $3,250 and $4,129,
respectively. The cash balances were fully transferred from the Company to the
Buyer during the period from August 2005 through February 2006.
4
The costs of the transaction, which have been paid by the Company,
included legal, accounting, tax advice and the cost of the fairness opinion.
During the year ended June 30, 2005, the Company incurred $111,526 of such
costs, which are included in the loss on sale of discontinued operations on the
accompanying statement of operations for fiscal year 2005.
Since the consummation of the sale, the Company has no operating business.
Currently, the Company is actively searching for a new operating business to
acquire or to enter into a merger transaction. There can be no assurances that
an operating entity will be acquired or that a merger transaction will be
consummated. The Company's controlling shareholders have begun negotiations for
the sale of their stock to a third-party entity. If such sale takes place,
control of the Company will shift to such entity. There can be no assurance that
such a sale will take place.
Selection of a Business
The Company is now considering business opportunities either through
merger or merger transactions that might create value for our stockholders. We
have no day-to-day operations at the present time. The officers and directors of
the Company devote limited time and attention to the affairs of the Company. The
Company may have to wait some time before consummating a suitable transaction.
The Company does not intend to restrict its consideration to any particular
business or industry segment.
However, due to the Company's limited financial resources, the scope and
number of suitable candidate business ventures available is limited. The
decision to participate in a specific business opportunity will be made upon
management's analysis of the quality of the other firm's management and
personnel, the anticipated acceptability of its products or marketing concepts,
the merits of its technology and numerous other factors. Since the Company may
participate in a business opportunity with a newly organized business or with a
business which is entering a new phase of growth, the Company may incur risk due
to the failure of the target's management to have proven its abilities of
effectiveness, or the failure to establish a market for the target's products or
services or the failure to realize profits.
Acquisition of a Business
With respect to any mergers or acquisitions, negotiations with target
company management will be expected to focus on the percentage of the Company
that target company stockholders would acquire in exchange for their
stockholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, the Company's stockholders will in all
likelihood hold a lesser percentage ownership interest in the Company following
any merger or acquisition. The percentage ownership may be subject to
significant reduction in the event that the Company acquires a target company
with substantial assets. Typically, in these transactions, which are commonly
called reverse acquisitions, voting control of the merged company changes from
the stockholders of the pre-existing public company to those of the previous
privately owned company. Any merger or acquisition effected by the Company can
be expected to have a significant dilutive effect on the percentage of shares
held by the Company's stockholders immediately preceding the transaction.
5
Prior Business of the Company
Prior to the sale of its sole operating business on January 13, 2005, the
Company provided ADR services including arbitrations, mediations, mock jury
trials, specialized ADR video conferencing and electronic oversight
applications. Since the sale of the ADR business, the Company has had no
operations.
Employees
As part of the agreement of sale, the Buyer agreed to contribute
accounting services to the Company after the sale of the ADR business. Since the
sale of the ADR business, the Company has no operations and has no employees.
Our executive officers devote as much time to the affairs of the Company as they
deem appropriate. The focus of the Company is to maintain its status as a
publicly traded entity while searching for a new operating business to acquire
or to enter into a merger transaction.
ITEM 2. DESCRIPTION OF PROPERTY
Subsequent to January 13, 2005, we do not maintain any leased facilities.
We maintain a mailing address at 990 Stewart Avenue, First Floor, Garden City,
New York 11530, which we believe is adequate to meet our needs at this time.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. Our Common Stock is quoted on the NASD's Over-the-Counter Bulletin Board
under the trading symbol "CLIK." The following table sets forth the range of
high and low closing sales prices (based on transaction data as reported by the
NASD's Over-the-Counter Bulletin Board) for each fiscal quarter during the
periods indicated.
Common Stock
High Low
--------------
Fiscal Year 2006
First quarter (07/1/05-9/30/05) $ 0.15 $ 0.13
Second quarter 0.15 0.08
(10/01/05-12/31/05)
Third quarter 0.10 0.07
(01/01/06-03/31/06)
Fourth quarter 0.09 0.07
(04/01/06-06/30/06)
Fiscal Year 2005
First quarter (07/1/04-9/30/04) $ 0.13 $ 0.09
Second quarter 0.11 0.07
(10/01/04-12/31/04)
Third quarter 0.10 0.06
(01/01/05-03/31/05)
Fourth quarter 0.18 0.05
(04/01/05-06/30/05)
On September 7, 2006, the closing bid price for our common stock, as
reported by the Over-the-Counter Bulletin Board, was $0.066.
As of August 16, 2006, there were approximately 441 holders of our common
stock.
We have not paid any dividends upon our common stock. 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 capital
requirements and financial condition, as well as other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Through January 13, 2005, we provided alternative dispute resolution
services, or ADR services, to insurance companies, law firms, corporations and
municipalities. We focused the majority of our marketing efforts on developing
and expanding relationships with these entities, which we believe are some of
the largest consumers of ADR services.
Year Ended June 30, 2006 Compared to Year Ended June 30, 2005
Results of Operations
The Company sold its sole operating business, ADR services, on January 13,
2005. Since that time, the Company has not had an operating business. The
financial statements for the year ended June 30, 2005 have been presented to
show all revenues, income and expenses comprising the results of operations
through January 13, 2005 as discontinued operations. All income and expenses
from January 14, 2005 through June 30, 2005 are shown as continuing operations
as they represent the results of operating the Company as a public shell.
Currently, the Company is actively searching for a new operating business to
acquire or to enter into a merger transaction. There can be no assurances that
an operating entity will be acquired or that a merger transaction will be
consummated. The Company's controlling shareholders have begun negotiations for
the sale of their stock to a third-party entity. If such sale takes place,
control of the Company will shift to such entity. There can be no assurance that
such a sale will take place.
7
Loss from continuing operations. The loss from continuing operations was
$92,804 for the year ended June 30, 2006 versus $99,786 for the year ended June
30, 2005. The Company sold its sole operating business on January 13, 2005. Loss
from continuing operations primarily reflects expenses incurred by the Company
to maintain its existence as a publicly traded entity including its public
reporting obligations. Such expenses include insurance, audit and accounting
fees and legal costs. The loss decreased from fiscal year 2005 to fiscal year
2006 despite the fact that the prior year period includes such income and
expense items for approximately 5.5 months from January 14, 2005 through June
30, 2005 while the current year period includes such income and expense items
for the full year. The decline is, for the most part, due to the fact that
legal, auditing and insurance expenses applicable to the external reporting of a
public company with an operating business are greater then those associated with
that applicable to a public shell company. Offsetting this decrease is an
increase in accounting services that were contributed by the Buyer (with no cash
outlay by the Company) pursuant to the agreement for the purchase of the ADR
business. The value of such services increased from $12,750 for the 2005 fiscal
year to $33,000 for the 2006 fiscal year. The increase was due to the fact that
the prior year period covered services performed from January 14, 2005 through
June 30, 2005, while the current year period covered services performed for a
full year from July 1, 2005 through June 30, 2006. Such values have been
recorded as imputed charges on the statements of operations with equivalent
offsets to additional paid-in capital.
Loss from discontinued operations. Loss from discontinued operations
decreased from $712,555 for the year ended June 30, 2005 to $0 for the year
ended June 30, 2006. The loss for the year ended June 30, 2005 includes the loss
on the sale of the ADR business as well as the transaction costs incurred to
affect the sale. The loss on the sale was $419,768 and the transaction costs
incurred were $111,526, totaling $531,294. The loss from operations of the
discontinued business for the year ended June 30, 2005 was $181,261. Such amount
includes net revenues and net expenses of $1,808,400 and $2,042,265,
respectively, for approximately 6.5 months through January 13, 2005, the date of
the sale.
Income Taxes. Tax benefits resulting from net losses incurred for the
years ended June 30, 2006 and 2005 were not recognized as we recorded a full
valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 2006, we had net operating carryforwards for Federal tax
purposes of approximately $8,984,800 and net capital loss carryforwards for
Federal tax purposes of approximately $284,293, both with full valuation
allowances. Under current tax law, the utilization of net operating losses will
be restricted if significant changes in the Company's ownership were to occur.
In addition, their use is limited to future earnings of the Company.
Net Loss. For the year ended June 30, 2006, we had a net loss of $92,804
as compared to a net loss of $812,341 for the year ended June 30, 2005. The loss
decreased primarily due to the non-recurring loss of $712,555 incurred in the
prior year from discontinued operations of the ADR business as well as the lower
cost structure for a publicly reporting shell as opposed to a publicly reporting
operating business.
Liquidity and Capital Resources
At June 30, 2006, the Company had a working capital surplus of $116,925 as
compared to $176,729 at June 30, 2005. The decrease in working capital occurred
primarily as a result of the net loss. Since January 13, 2005, the Company has
no operating business.
8
Net cash used in operating activities was $741,464 for the fiscal year
ended June 30, 2006 versus $455,817 for the year ended June 30, 2005. Cash used
in continuing operations increased by $727,585 principally because the Company
paid all of the amount due the Buyer of the ADR business during the period from
August 2005 through February 2006. Offsetting this increase was a decline of
$441,938 as such amount was used by discontinued operations in the prior year.
Net cash provided by investing activities was $0 for the year ended June
30, 2006 versus $531,470 for the year ended June 30, 2005. There was no cash
provided by investing activities from continuing operations in both years. The
change in cash from investing activities of discontinued operations was
principally due to the fact that during fiscal year 2005, the Company sold its
marketable securities and its certificates of deposit matured, the proceeds of
which were invested primarily in money market funds.
Net cash provided by financing activities during the year ended June 30,
2006 was $0 versus $64,162 during the year ended June 30, 2005. During the prior
year, the President/CEO, Chief Financial Officer and Director of Information
Technology exercised stock options in January and April 2005.
Since the consummation of the sale, the Company has no operating business.
Currently, the Company is actively searching for a new operating business to
acquire or to enter into a merger transaction. There can be no assurances that
an operating entity will be acquired or that a merger transaction will be
consummated. The Company's controlling shareholders have begun negotiations for
the sale of their stock to a third-party entity. If such sale takes place,
control of the Company will shift to such entity. There can be no assurance that
such a sale will take place.
As a result of continued losses, the use of cash to operate as a
publicly-held shell company and the uncertainty as to the Company's ability to
effect a merger or a similar transaction with the intent to acquire a new
operating business, there is substantial doubt about the Company's ability to
continue as a going concern. The Company's independent auditors have included a
going concern paragraph in their report on the June 30, 2006 and 2005
consolidated financial statements which have been prepared assuming the Company
will continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that may result should the Company be
unable to continue as a going concern.
Critical Accounting Policies
The Securities and Exchange Commission released Financial Reporting
Release No. 60, which requires all companies to include a discussion of critical
accounting policies and methods used in the preparation of their financial
statements. The significant accounting policies and methods used in the
preparation of our consolidated financial statements are discussed in Note 3 of
the Notes to Consolidated Financial Statements. We currently have one critical
accounting policy since we no longer have any operations. Such policy follows:
Income taxes and valuation allowance - We are required to estimate our
actual current tax expense together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which would be
included within our consolidated balance sheet. We then assess the likelihood
that the deferred tax assets will be recovered from future taxable income and,
to the extent we believe recovery is not likely, a valuation allowance is
recognized. We have recorded a 100% valuation allowance as of June 30, 2006.
9
Effect of Recently Issued Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 123R, Share-based Payment ("SFAS
No.123R"). SFAS No. 123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods and
services. This statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS No. 123R requires that the fair value of such equity instruments be
recognized as an expense in the historical financial statements as services are
performed. Prior to SFAS No. 123R, only certain pro forma disclosures of fair
value were required. SFAS No. 123R is effective for public entities that file as
small business issuers as of the beginning of the first annual reporting period
that begins after December 15, 2005 and, thus, will be effective for us
beginning with the first quarter of fiscal year 2007. The adoption of this
statement is not expected to have a material impact on the financial statements
of the Company.
RISK FACTORS
We face risks. These risks include those described below and may
include additional risks of which we are not currently aware or which we
currently do not believe are material. If any of the events or circumstances
described in the following risks actually occurs, our financial condition or
results of operations could be adversely affected. These risks should be read in
conjunction with the other information set forth in this report.
We do Not have an Operating Business and if the Company Acquires a New Business,
the Shareholders will Suffer Significant Dilution
On January 13, 2005, the Company sold its ADR business. The Company is
searching for an operating entity to acquire or to enter into a merger
transaction. There can be no assurances that an operating entity will be
acquired or that a merger transaction will be consummated. Also, the cash
retained by the Company may not be sufficient to pay for the costs associated
with continued public reporting obligations and to acquire a new operating
business or to enter into a merger transaction. In addition, if the Company
acquires a new operating business or enters into a merger transaction, it is
expected that such transaction will be accomplished by the issuance of stock of
the Company, resulting in significant dilution.
We have No Revenues but we Continue to have Costs and Expenses and we have Going
Concern Considerations
There has not been any revenue since January 13, 2005. If we do not
acquire another operating business, no future revenues will be generated.
Moreover, the Company will continue to incur costs for continued public
reporting obligations. It is likely that in order to acquire a new operating
business or to enter into a merger transaction, costs will be incurred.
Therefore, the results of our operations and our financial condition may be
materially and adversely affected.
The Company's independent auditors have included a going concern paragraph
in their report on the June 30, 2006 and 2005 consolidated financial statements
which have been prepared assuming the Company will continue as a going concern.
As a result of continued losses, limited cash and other resources and the
uncertainty as to the Company's ability to effect a merger or a similar
transaction with the intent to acquire a different operating business, there is
substantial doubt about the Company's ability to continue as a going concern.
10
Our Current Stockholders Have the Ability to Exert Significant Control
Our executive officers, directors, and their affiliates beneficially own
5,148,646 shares or approximately 51.85% of the common stock outstanding based
on 9,929,056 shares of common stock outstanding as of September 7, 2006. Of that
number, Mr. Israel beneficially owns 3,525,788 shares or approximately 35.5% of
the common stock. As a result, these stockholders acting in concert may have
significant influence on votes to elect or remove any or all of our directors
and to control substantially all corporate activities in which we are involved,
including tender offers, mergers, proxy contests or other purchases of common
stock.
Our Common Stock is Traded on the NASD OTC Electronic Bulletin Board and is
subject to the Penny Stock Rules
Trading in our securities has been conducted in the over-the-counter
market in the NASD's OTC Electronic Bulletin Board. As a result, an investor may
find it more difficult to purchase, dispose of and obtain accurate quotations as
to the value of our securities.
In addition, as the trading price of our common stock has been less
than $5.00 per share, trading in our common stock is also subject to the
requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under that
rule, broker/dealers who recommend such low-priced securities to persons other
than established customers and accredited investors must satisfy special sales
practice requirements, including (a) a requirement that they make an
individualized written suitability determination for the purchaser and (b)
receive the purchaser's written consent prior to the transaction.
The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock (generally, any equity security not traded on
an exchange or quoted on The NASDAQ SmallCap Market that has a market price of
less than $5.00 per share), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. Such requirements could severely limit the market
liquidity of our securities and the ability of stockholders to sell their
securities in the secondary market.
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.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 8A. CONTROLS AND PROCEDURES
Our disclosure controls and procedures are designed to ensure that
material information relating to the Company are made known to our Chief
Executive Officer ("CEO"), Chief Financial Officer ("CFO") and others in the
Company involved in the preparation of this annual report, by others within the
Company. Our CEO and CFO have reviewed our disclosure controls and procedures
within 90 days prior to the filing of this annual report and have concluded that
they are effective. There were no significant changes in our internal controls
or other factors that could significantly affect our internal controls
subsequent to the last date they were reviewed by our CEO and CFO.
11
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Registered Public Accounting Firm F-2
Consolidated Financial Statements
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Loss F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-18
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
clickNsettle.com, Inc.
We have audited the accompanying consolidated balance sheet of clickNsettle.com,
Inc. and Subsidiaries (the "Company") as of June 30, 2006 and the related
consolidated statements of operations, changes in stockholders' equity and
comprehensive loss, and cash flows for each of the years in the two-year period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 consolidated 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, 2006 and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the two-year period then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 2 to the
consolidated financial statements, the Company has no operating business.
Currently, the Company is actively searching for a new operating business to
acquire or to enter into a merger transaction. There can be no assurances that
an operating entity will be acquired or that a merger transaction will be
consummated. As a result, there is substantial doubt about the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ BP AUDIT GROUP, PLLC
Farmingdale, New York
August 17, 2006
F-2
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
June 30,
ASSETS 2006
----
CURRENT ASSETS
Cash and cash equivalents $ 129,220
Prepaid insurance and other current assets 12,278
------------
Total current assets $ 141,498
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,073
Accrued expenses and other liabilities 16,500
------------
Total current liabilities 24,573
------------
COMMITMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 5,000,000 shares authorized;
0 shares issued
Common stock - $.001 par value; 25,000,000 shares authorized;
10,181,554 shares issued 10,182
Additional paid-in capital 10,212,757
Accumulated deficit (10,022,096)
Common stock in treasury at cost, 252,498 shares (83,918)
------------
Total stockholders' equity 116,925
------------
$ 141,498
============
The accompanying notes are an integral part of these statements.
F-3
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
2006 2005
----------- -----------
Net revenues -- --
General and administrative expenses $ 98,176 $ 101,483
Interest and investment income 5,372 1,697
----------- -----------
Loss from continuing operations (92,804) (99,786)
Discontinued operations:
Loss from operations of discontinued business, including
loss on disposal of $531,294 in 2005 (712,555)
----------- -----------
NET LOSS $ (92,804) $ (812,341)
=========== ===========
Net loss per common share- basic and diluted
From continuing operations $ (0.01) $ (0.01)
From discontinued operations (0.08)
----------- -----------
NET LOSS $ (0.01) $ (0.09)
=========== ===========
Weighted-average shares outstanding - basic and diluted 9,929,056 8,914,919
=========== ===========
The accompanying notes are an integral part of these statements.
F-4
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
Year ended June 30, 2006 and 2005
Accumulated
other
Common stock Additional comprehensive Common
------------ paid-in Accumulated income stock in
Shares Amount capital deficit (loss) treasury
------ ------ ------- ------- ------ --------
Balances at July 1, 2004 8,701,554 $ 8,702 $ 10,104,325 $ (9,116,951) $ 51,422 $(83,918)
Exercise of stock options 1,480,000 1,480 62,682
Imputed contribution of capital for accounting services 12,750
provided by Buyer
Net loss (812,341)
Change in unrealized gain on marketable securities (51,422)
--------- ------- ------------ ------------- ------ ---------
Comprehensive loss
Balances at June 30, 2005 10,181,554 10,182 10,179,757 (9,929,292) (83,918)
Imputed contribution to capital for accounting services
provided by Buyer 33,000
Net loss (92,804)
========= ======= ============ ============= ====== =========
Comprehensive loss
Balances at June 30, 2006 10,181,554 $10,182 $ 10,212,757 $(10,022,096) $(83,918)
========= ======= ============ ============= =========
Total
stockholders' Comprehensive
equity loss
------------ ---------
Balances at July 1, 2004 $ 963,580
Exercise of stock options 64,162
Imputed contribution of capital for accounting services 12,750
provided by Buyer
Net loss (812,341) $(812,341)
Change in unrealized gain on marketable securities (51,422) (51,422)
------------ ---------
Comprehensive loss $(863,763)
=========
Balances at June 30, 2005 176,729
Imputed contribution to capital for accounting services
provided by Buyer 33,000
Net loss (92,804) $ (92,804)
------------ ---------
Comprehensive loss $ (92,804)
=========
Balances at June 30, 2006 $ 116,925
============
The accompanying notes are an integral part of this statement.
F-5
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
2006 2005*
--------- ---------
Cash flows from operating activities
Net loss $ (92,804) $(812,341)
Loss from discontinued operations 712,555
--------- ---------
Loss from continuing operations (92,804) (99,786)
Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities
Imputed contribution to capital for accounting services provided
by Buyer 33,000 12,750
Changes in operating assets and liabilities
Decrease (increase) in prepaid expenses and other current assets 14,310 (26,588)
Decrease in amount due to related party buyer of discontinued operations (620,798)
(Decrease) increase in accounts payable, accrued expenses and other liabilities
(75,172) 99,745
--------- ---------
Net cash used in continuing operations (741,464) (13,879)
Net cash used in discontinued operations (441,938)
--------- ---------
Net cash used in operating activities (741,464) (455,817)
--------- ---------
Cash flows from investing activities
Net cash provided by investing activities of discontinued operations 531,470
---------
Net cash provided by investing activities 531,470
---------
Cash flows from financing activities
Proceeds from exercise of stock options 64,162
---------
Net cash provided by financing activities 64,162
---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (741,464) 139,815
Cash and cash equivalents at beginning of year 870,684 730,869
--------- ---------
Cash and cash equivalents at end of year $ 129,220 $ 870,684
========= =========
Non-cash investing and financing activities
Loss on sale of discontinued operations (See Note 2 for supplemental non-cash activities
related to this transaction) $ 419,768
*Reclassified. See Note 2
The accompanying notes are an integral part of these statements.
F-6
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006 and 2005
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
clickNsettle.com, Inc. ("CLIK") provided a broad range of Alternative
Dispute Resolution ("ADR") services, primarily arbitrations and
mediations, 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 primarily owned
by CLIK's Chief Executive Officer, 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.
Prior to January 1, 2006, the accompanying consolidated financial
statements of clickNsettle.com, Inc. and Subsidiaries included the
accounts of its wholly-owned subsidiaries, Michael Marketing LLC and
clickNsettle.com LLC (collectively referred to herein as the "Company").
As of January 1, 2006, the Company transferred ownership of its
wholly-owned subsidiary, Michael Marketing LLC, to National Arbitration
and Mediation, Inc. (see Note 2 below). Such subsidiary was inactive and
had no operations or net assets. Previously, the Company dissolved its
other wholly-owned subsidiary, clickNsettle.com LLC, as it was also
inactive and had no operations or net assets. As such, the Company no
longer owns any subsidiaries.
The Company had operated in one business segment, ADR.
All significant intercompany transactions and balances were eliminated in
consolidation.
There is substantial doubt about the Company's ability to continue as a
going concern. See Note 2.
NOTE 2 - DISCONTINUED OPERATIONS AND GOING CONCERN
On January 13, 2005, the Company sold the assets of its dispute resolution
business (the "ADR business") to National Arbitration and Mediation, Inc.
(the "Buyer"), a company owned by the Company's Chief Executive Officer,
Roy Israel. Furthermore, Mr. Israel agreed not to trigger his
change-in-control provision under his employment contract as a result of
the Buyer acquiring the ADR business. If such provision was triggered upon
the sale or liquidation of the ADR business, the Company would have owed
Mr. Israel, in one lump sum, approximately $1,015,000, which represented
three times his then current base salary. In consideration, the Buyer
assumed all current and future liabilities and commitments of the ADR
business. Specifically, the Company was released from its lease agreements
for office space in Great Neck and Brooklyn, New York and from its
employment agreements with its President and Chief Financial Officer.
Additionally, the Buyer guaranteed the payments due on the remainder of
the Company's automobile lease and paid all the remaining payments on the
lease of a postage meter. The Company remained contingently liable for
payables and other obligations assumed by the Buyer of approximately
$127,100 as of June 30, 2006. See Note 9. Furthermore, in accordance with
the Company's stock option plan, all outstanding unvested employee
F-7
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2006 and 2005
NOTE 2 (continued)
stock options vested as of the date of the sale of the ADR business. As
the Company did not retain any employees subsequent to the sale, the
former employees had three months from January 13, 2005 to exercise such
options in accordance with the terms of the Company's stock option plan. A
total of 3,485,400 unexercised employee stock options expired at the close
of business on April 13, 2005. Accordingly, the only options outstanding
subsequent to April 13, 2005 are those that had been granted to directors,
consultants and advisors.
The financial statements for the year ended June 30, 2005 have been
presented to show all revenues, income and expenses comprising the results
of operations through January 13, 2005 as discontinued operations. All
income and expenses from January 14, 2005 forward are shown as continuing
operations as they represent the results of operating the Company as a
public shell.
The loss from discontinued operations, including the loss on disposal of
the discontinued operations, for the year ended June 30, 2005 includes the
following:
2005
Loss from operations of discontinued business ($ 181,261)
-----------
Loss from disposal:
Loss on sale* ($ 419,768)
Transaction costs of sale (111,526)
-----------
Loss from disposal ($ 531,294)
-----------
Loss from discontinued operations ($ 712,555)
===========
*The loss on the sale was calculated as follows:
Book value of liabilities assumed $ 667,438
Book value of assets sold (1,087,206)
-----------
Loss on transaction $ 419,768
===========
F-8
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2006 and 2005
Note 2 (continued)
The results from discontinued operations for the approximately six and
one-half months through January 13, 2005 follow:
From July 1,
2004 through
January 13, 2005
----------------
Net revenues $ 1,808,400
-----------
Operating costs and expenses
Costs of services 395,754
Sales and marketing expenses 593,026
General and administrative expenses 1,037,600
Loss on impairment of furniture and equipment 15,885
-----------
2,042,265
-----------
Loss from operations (233,865)
-----------
Other Income
Realized gains on sales of marketable securities 45,701
Interest and dividends 5,777
Other income 1,126
-----------
52,604
-----------
Loss from operations of discontinued business $ (181,261)
===========
As part of the agreement of sale, as of January 13, 2005, the total cash
retained by the Company was $254,331 before unpaid transaction costs,
taxes, other payables and accrued liabilities. This amount was determined
based upon the Company's financial statements as of that date without
adjustment for any subsequent realization of assets, incurrence of any
additional liabilities or resolution of contingencies by the Buyer. The
liabilities and assets other than cash were transferred to the Buyer as of
January 13, 2005, while the cash balances were transferred thereafter. As
such, the Company incurred interest expense on the unpaid balance. The
interest rate charged was equal to the interest rate earned on invested
balances. The interest charge for the years ended June 30, 2006 and 2005
was $3,250 and $4,129, respectively. The cash balances were fully
transferred from the Company to the Buyer during the period from August
2005 through February 2006.
The costs of the transaction, which have been paid by the Company,
included legal, accounting, tax advice and the cost of the fairness
opinion. During the year ended June 30, 2005, the Company incurred
$111,526 of such costs, which are included in the loss on sale of
discontinued operations on the accompanying statement of operations for
fiscal year 2005.
Since the consummation of the sale, the Company has no operating business.
Currently, the Company is actively searching for a new operating business
to acquire or to enter into a merger transaction. There can be no
assurances that an operating entity will be acquired or that a merger
transaction will be consummated. The Company's controlling shareholders
have begun negotiations for the sale of their stock to a third-party
entity. If such sale takes place, control of the Company will shift to
such entity. There can be no assurance that such a sale will take place.
F-9
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2006 and 2005
Note 2 (continued)
As a result of continued losses, limited cash and other resources and the
uncertainty as to the Company's ability to effect a merger or a similar
transaction with the intent to acquire a different operating business,
there is substantial doubt about the Company's ability to continue as a
going concern. No adjustments have been made with respect to the
consolidated financial statements to record the results of the ultimate
outcome of this uncertainty.
The Company has revised the statement of cash flows for the year ended
June 30, 2005 to separately disclose the operating, investing and
financing portions of the cash flows attributable to its discontinued
operations, which was previously reported on a combined basis.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting and reporting policies applied on
a consistent basis which conforms with accounting principles generally
accepted in the United States of America follows:
a. 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.
b. Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and money market
funds. The Company considers all unrestricted highly liquid
investments purchased with a maturity of less than three months to
be cash equivalents.
c. Marketable Securities
Investments classified as marketable securities include equity
securities that are reported at their fair values. Unrealized gains
or losses on these securities are reported as a separate component
of accumulated other comprehensive income (loss), net of related tax
effects, within stockholders' equity. The Company categorizes all
equity securities as available-for-sale.
F-10
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2006 and 2005
NOTE 3 (continued)
Investment income consists of interest, dividends and gains and
losses on marketable securities. Interest and dividends are
recognized when earned. Realized gains and losses on sales,
maturities or liquidation of investments in marketable securities
are determined on a specific identification basis. Fair values of
investments are based on quoted market prices.
d. 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 between 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.
e. Advertising Costs
The cost of advertising is expensed when the advertising takes
place. The Company incurred $79,013 for advertising costs in fiscal
2005. Such amount was charged to operations.
f. Earnings (Loss) Per Common Share
Basic earnings (loss) per share are based on the weighted-average
number of common shares outstanding without consideration of
potential common stock. Diluted earnings (loss) 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, reduced by
the shares that may be repurchased with the funds received from the
exercise, based on the average price during the period. Diluted loss
per share is the same as basic loss per share, as potential common
shares of 448,974 and 921,490, at June 30, 2006 and 2005,
respectively, would be antidilutive as the Company incurred net
losses for the years ended June 30, 2006 and 2005.
g. Accounting for Stock Options
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and
Disclosure" ("SFAS No. 148"). SFAS No. 148 encourages, but does not
require, companies to record compensation cost for stock-based
compensation plans at fair value. In addition, SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee
compensation and amends the disclosure requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 148 requires disclosures in
the summary of significant accounting policies in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used
on reported results.
F-11
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2006 and 2005
NOTE 3 (continued)
The Company elected to adopt, effective December 31, 2002, only the
disclosure provisions of SFAS No. 148 and to continue to account for
stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations (see Note 7(e)).
Accordingly, compensation expense is not recognized for options
granted to employees and to members of the board of directors when
such options are granted to board members in their capacity as
directors.
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 per share for the years ended June 30, 2006 and
2005 would be increased to the pro forma amounts indicated in the
table which follows. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes
option-pricing model. As of January 13, 2005, upon the sale of the
Company's operating business, in accordance with the Company's
Incentive and Nonqualified Stock Option Plan (the "Plan"), all
outstanding unvested employee stock options vested as of that date.
As a result, in the following table, the pro forma compensation
expense for the year ended June 30, 2005 reflects the effect of the
accelerated vesting. As the Company did not retain any employees
subsequent to the sale, the former employees had three months from
January 13, 2005 to exercise such options in accordance with the
terms of the Company's stock option plan. A total of 3,485,400
unexercised employee stock options expired at the close of business
on April 13, 2005. Accordingly, the only options outstanding
subsequent to April 13, 2005 are those that had been granted to
directors, consultants and advisors.
2006 2005
---------- ---------
Net loss
As reported $ (92,804) $(812,341)
Deduct: Total stock-based employee compensation
expense determined under fair value-based method for all awards, net
of related tax effects (63,448)
---------- ---------
Pro forma net loss $ (92,804) $(875,789)
========== =========
Net loss per common share
Basic and diluted - as reported $ (.01)$ (.09)
Basic and diluted - pro forma $ (.01)$ (.10)
No options were granted to consultants for the years ended June 30,
2006 and 2005.
h. Effect of Recently Issued Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 123R,
Share-based Payment ("SFAS No.123R"). SFAS No. 123R establishes
standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods and services. This
statement focuses primarily on accounting for transactions in which
an entity obtains employee services in share-based payment
transactions. SFAS No. 123R requires that the fair value of such
equity instruments be recognized as an expense in the historical
financial statements as services are performed. Prior to SFAS No.
123R, only certain pro forma disclosures of fair value were
required. SFAS No. 123R is effective for public entities that file
as small business issuers as of the beginning of the annual
reporting period that begins after December 15, 2005 and, thus, will
be effective for the Company beginning with the first quarter of
fiscal year 2007. The adoption of this statement is not expected to
have a material impact on the financial statements of the Company.
See Accounting for Stock Options above for information related to
the pro forma effects on our reported net loss and net loss per
share when applying the fair value recognition provisions of the
previous SFAS No. 123 to stock-based employee compensation.
F-12
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2006 and 2005
NOTE 4 - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive loss, net of tax effects, are as follows:
2006 2005
-------- ---------
Net loss $(92,804) $(812,341)
-------- ---------
Unrealized gain on marketable securities, net
of tax effects of $0 in 2006 and 2005, respectively
Unrealized gains arising in period
Reclassification adjustment - loss included in
net loss (51,422)
-------- ---------
Net unrealized gain (51,422)
-------- ---------
Comprehensive loss $(92,804) $(863,763)
======== =========
NOTE 5 - MARKETABLE SECURITIES
Proceeds on sales of marketable securities were $231,461 for the year
ended June 30, 2005. During fiscal 2005, gross gains of $45,701 and gross
losses of $0 were realized on these sales.
Activities related to marketable securities in the accompanying statements
of operations are reported in discontinued operations for the year ended
June 30, 2005. There were no such activities subsequent to January 13,
2005.
F-13
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2006 and 2005
NOTE 6 - INCOME TAXES
Temporary differences which give rise to deferred taxes are summarized as
follows:
2006 2005
----------- -----------
Deferred tax assets
Net operating, capital and other loss carryforwards $ 3,494,400 $ 3,385,300
Other 43,000 43,000
----------- -----------
Net deferred tax asset before
valuation allowance 3,537,400 3,428,300
Valuation allowance (3,537,400) (3,428,300)
----------- -----------
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:
2006 2005
--------- ---------
Benefit at statutory rate $ (31,553) $(201,815)
State and local benefit, net of Federal tax (5,568) (46,973)
Nondeductible expenses and other - net (71,979) 49,788
Increase in the valuation allowance 109,100 199,000
--------- ---------
$ - $ -
========= =========
At June 30, 2006, the Company had a net operating loss carryforward for
Federal income tax reporting purposes amounting to approximately
$8,984,800, expiring from 2012 through 2026. Additionally, the Company has
a net capital loss carryforward for Federal income tax reporting purposes
at June 30, 2006 of approximately $284,293 which expires from 2007 through
2009. No income taxes were paid in the years ended June 30, 2006 and 2005.
Under current tax law, the utilization of net operating losses will be
restricted if significant changes in the Company's ownership were to
occur. In addition, their use is limited to future earnings of the
Company.
F-14
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2006 and 2005
NOTE 7 - STOCKHOLDERS' EQUITY
a. Preferred Stock
The Company's board of directors has authorized 5,000,000 shares of
$.001 par value preferred stock.
b. Treasury Stock
On March 12, 2004, 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 remained at an aggregate of 1,600,002 shares. The Purchase Plan
expired on March 12, 2005. There were no purchases during the years
ended June 30, 2006 and 2005. As of June 30, 2006, the Company had
purchased an aggregate of 252,498 shares under the Purchase Plan for
a total cost of $83,918.
c. Stock Option Plan
The Company had an Incentive and Nonqualified Stock Option Plan (the
"Plan") for employees, officers, directors, consultants and advisors
of the Company, pursuant to which the Company had been able to grant
options to purchase up to 7,500,000 shares of the Company's common
stock. The Plan was administered by the board of directors, which
had 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 was
not to exceed ten years from the date of grant and was subject to
such other terms and conditions of the Plan. Unless the board of
directors provided otherwise, option awards terminated when a
participant's employment or services ended, except that a
participant could have exercised an option to the extent that it was
exercisable on the date of termination for a period of time
thereafter. The Plan terminated automatically on April 1, 2006. The
outstanding stock options as of April 1, 2006 are exercisable
through the termination date of each option agreement.
In accordance with the Plan, all unvested employee stock options
vested as of the date of the sale of the ADR business on January 13,
2005. As the Company did not retain any employees subsequent to the
sale, all employee options expired at the close of business on April
13, 2005 unless they were exercised prior thereto. Accordingly, the
only options outstanding subsequent to April 13, 2005 are those that
had been granted to directors, consultants and advisors.
F-15
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2006 and 2005
NOTE 7 (continued)
The Company's stock option awards granted to employees, directors
and consultants as of and for the years ended June 30, 2006 and 2005
are summarized as follows:
2006 2005
--------------------------- -----------------------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
------ ----- ------ -----
Outstanding at beginning of year 448,974 $1.42 5,762,776 $0.49
Awards granted
Awards exercised (1,480,000) $0.04
Awards canceled/forfeited (3,833,802) $0.55
------------------ ----------
Outstanding at end of year 448,974 $1.42 448,974 $1.42
=========== =======
Options exercisable at year-end 448,974 $1.42 448,974 $1.42
========== =======
Weighted-average fair value of options
granted during the year
The following information applies to options outstanding and
exercisable at June 30, 2006:
Outstanding Exercisable
------------------------------------------- ----------------------------
Weighted-
average Weighted- Weighted-
remaining average average
Number life in exercise Number exercise
Range of exercise prices outstanding years price exercisable price
------------------------ ----------- ------------ ------------ ----------- -----------
$ 0.05 - $ 0.11 150,000 7.50 $0.08 150,000 $0.08
$ 0.15 - $ 0.20 39,990 5.62 $0.18 39,990 $0.18
$ 0.68 - $ 0.79 29,994 0.78 $0.70 29,994 $0.70
$ 0.84 - $ 1.50 91,998 0.97 $1.03 91,998 $1.03
$ 2.46 - $ 5.00 136,992 1.33 $3.66 136,992 $3.66
------- -------
448,974 448,974
======= =======
Stock option awards were granted at prices equal to or above the
closing bid price on the date of grant. No options were granted
during the years ended June 30, 2006 and 2005. During the year ended
June 30, 2005, a total of 1,480,000 options were exercised by the
Company's President, Chief Financial Officer and Director of
Information Technology at exercise prices ranging from $0.042 to
$0.046 per share. No options were exercised during the year ended
June 30, 2006. As of June 30, 2006, there were no shares available
for granting of options under the Plan as the plan automatically
terminated on April 1, 2006.
The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option pricing model.
F-16
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2006 and 2005
NOTE 7 (continued)
d. Common Stock Reserved
At June 30, 2006, the Company reserved for issuance 448,974 shares
of its common stock for the remaining options still outstanding and
exercisable pursuant to the Company's stock option plan. See Note
7(c) above.
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES
On January 13, 2005, the Company sold its ADR business to National
Arbitration and Mediation, Inc., a company owned by the Company's chief
executive officer, Roy Israel. See Note 2.
As part of the agreement of sale, the Buyer agreed to contribute
accounting services to the Company after the sale of the ADR business. The
value of services performed during the year ended June 30, 2006 and from
January 14, 2005 through June 30, 2005 was $33,000 and $12,750,
respectively. Charges of such amounts have been imputed to general and
administrative expenses in the accompanying statements of operations with
equivalent offsets to additional paid-in capital.
Prior to the sale of the ADR business on January 13, 2005, certain members
of the board of directors performed services as hearing officers for the
benefit of the Company. The related expenditure for these services for the
year ended June 30, 2005 was $25,176. Such amount is included in the loss
from operations of the discontinued business for fiscal year 2005.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
In connection with the sale of the ADR business, the Buyer assumed the
current and future commitments of the Company. Specifically, the Company
was released from its lease agreements for office space in Great Neck and
Brooklyn, New York and from its employment agreements with its President
and Chief Financial Officer. To the extent that the Company was not
released from its commitments, the Buyer has guaranteed any and all
payments arising therefrom. The Company remained contingently liable for
payables and other obligations assumed by the Buyer of approximately
$127,100 as of June 30, 2006.
Rent expense amounted to $112,716 for the year ended June 30, 2005, net of
sublease income of $40,046. Such amounts are included in the loss from
operations of the discontinued business for fiscal year 2005.
NOTE 10 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 2006, the Company's financial instruments included cash and
cash equivalents, accounts payable and accrued expenses. The fair values
of these cash and cash equivalents, accounts payable and accrued expenses
approximated carrying values because of the short-term nature of these
instruments.
F-17
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2006 and 2005
NOTE 11 - CREDIT CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents.
The Company's cash and cash equivalents at North Fork Bank consist
primarily of demand deposits and a money market fund. As of June 30, 2006,
such amounts on deposit were within the Federally insured limits.
Additionally, the Company maintains other money market accounts at Merrill
Lynch, Pierce, Fenner & Smith Inc. This institution insures such balances
against its financial failure. Additionally, SIPC (The Securities Investor
Protection Corporation) protects securities in the account up to $500,000.
As of June 30, 2006, the Company's cash and cash equivalents were within
these insured limits.
F-18
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names, ages and positions of all
directors and executive officers. A summary of the background and experience of
each of these individuals is set forth after the table.
Name Age Position
Roy Israel 46 Chief Executive Officer, President and
Chairman of the Board of Directors
Kenneth G. Geraghty 55 Director
Randy Gerstenblatt 47 Director
Corey J. Gottlieb 43 Director
Willem F. Specht 45 Director
Patricia Giuliani-Rheaume 48 Vice President, Chief Financial Officer
and Treasurer
ROY ISRAEL has been our Chairman of the Board of Directors,
Chief Executive Officer, and President since February 1994. Currently, Mr.
Israel is the President and Chief Executive Officer of National Arbitration and
Mediation, Inc.
PATRICIA GIULIANI-RHEAUME has been our Vice President, Chief
Financial Officer, and Treasurer since February 1997. Currently, Ms.
Giuliani-Rheaume is the Vice President and Chief Financial Officer of National
Arbitration and Mediation, Inc.
WILLEM F. SPECHT was our Director of Information Technology
since May 1998 and previously held the position of Systems Analyst with us since
April 1995. Upon the sale of the Company's sole operating business on January
13, 2005, Mr. Specht resigned his position as Director of Information Technology
from the Company. Currently, Mr. Specht is the Director of Information
Technology of National Arbitration and Mediation, Inc.
KENNETH G. GERAGHTY has been the Executive Vice President and
Chief Financial Officer of Insurance Services Office, Inc. since February 2000.
From March 1999 through January 2000, Mr. Geraghty was the Executive Vice
President and Chief Administrative Officer of Dycom Industries, Inc., a company
which provides engineering, construction and maintenance services to
telecommunications providers.
RANDY GERSTENBLATT has been the Senior Vice President of
Corporate Alliances at Six Flags, Inc. since January 2006. Prior to holding this
position, Mr. Gerstenblatt was Senior Vice President of ESPN/ABC Sports Customer
Marketing and Sales from October 2000 through January 2006 and was Vice
President of ESPN Customer Marketing and Sales from January 2000 through October
2000.
COREY J. GOTTLIEB has been the Chief Operating Officer of
National Arbitration and Mediation, Inc. since May 2006. Prior to holding this
position, Mr. Gottlieb was the President/CEO of Targeted Media Partners LTD, a
sales, marketing and consulting company for established and start-up ventures in
the commercial advertising sector. From January 1998 through August 2001, Mr.
Gottlieb was the Senior Vice President & National Sales Manager for
Transportation Displays Incorporated (TDI).
12
Audit Committee
Since January 13, 2005, when the Company sold its sole operating
business, the entire Board has been responsible for the Audit Committee
function. As such, under the definition of "independence" as set forth in NASDAQ
Marketplace Rule 4350, we do not have a fully independent audit committee. As
our common stock is traded via the Over-the-Counter Bulletin Board and is not
listed on or with a national securities exchange or national securities
association, we are not required to have a fully independent audit committee. In
addition, Kenneth G. Geraghty has been designated as our audit committee
financial expert. Mr. Geraghty is an executive officer of a company that is an
affiliate of a holder of 13% of our stock and, as such, Mr. Geraghty may be
considered an affiliate of our company and thereby deemed not to be independent.
Mr. Geraghty disclaims beneficial ownership of such stock and the Board of
Directors concluded that they believe Mr. Geraghty to be independent.
Compliance with Section 16(a) of the Exchange Act
Based solely on our review of copies of Forms 3 and 4 received by us
and representations from certain reporting persons, we believe that during the
fiscal year ended June 30, 2006, there was compliance with Section 16 (a) filing
requirements applicable to our officers and directors.
Code of Ethics
We have adopted a Code of Ethics for our Senior Financial Officers.
Also, prior to January 14, 2005, a Code of Business Conduct and Ethics was in
effect for our employees. We shall, without charge, provide to any person, upon
request, a copy of our Code of Ethics for our Senior Financial Officers. All
such requests should be mailed to: clickNsettle.com, Inc., 990 Stewart Avenue,
First Floor, Garden City, NY 11530, attention: Patricia Giuliani-Rheaume, VP &
CFO.
As required by SEC rules, we will report within five business days
the nature of any change or waiver of our Code of Ethics for our Senior
Financial Officers.
Nominating Committee
As we are not required by federal securities laws to have a separate
Nominating Committee, the entire Board is responsible for this function.
Compensation Committee
Since January 13, 2005, when the Company sold its sole operating
business, there have been no employees of the Company and, therefore, there is
no need for a Compensation Committee.
ITEM 10. EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following summarizes the aggregate compensation paid
during fiscal year 2006 to our Chief Executive Officer and any officer who
earned more than $100,000 in salary and bonus (the "Named Persons"). No
executive compensation was paid by the Company for periods subsequent to January
13, 2005. As such, the amounts shown below for fiscal year 2005 represents the
aggregate compensation paid for fiscal year 2005 and reflects amounts for the
period from July 1, 2004 through January 13, 2005, the date of the sale of the
Company's sole operating business. The value of services contributed by Mr.
Israel subsequent to January 13, 2005 and through June 30, 2006 has neither been
quantified nor imputed as it was deemed to be immaterial. See Note 8 to the
consolidated financial statements.
13
Summary Compensation Table
Annual Long Term
Compensation Compensation
------------ ------------
Name and
Securities
Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
------------------- ------------- ------------ ----------- ------------ -------- ------------
Roy Israel,
President, Chief 2006
Executive Officer
and Chairman of the 2005 $157,530 $16,480 (1) $ 14,110 (2)
Board
2004 $321,631 $22,907 (1) 230,000 $ 14,110 (2)
--------------------- --------------- --------------- --------------- --------------- --------------- ---------------
(1) Such amount represents tax gross ups for Mr. Israel for medical, life and
disability payments.
(2) Such amount represents premium payments on life insurance policies for the
named executive officer.
Options Granted in Last Fiscal Year
There were no options granted to officers of the Company during the year ended
June 30, 2006.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Mr. Israel exercised 1,200,000 options during the fiscal year ended June 30,
2005. There were no options exercised during the fiscal year ended June 30,
2006. All outstanding employee options (including options owned by officers)
expired on April 13, 2005.
Employment Contracts and Termination of Employment and Change In Control
Arrangements
No executive officer has an employment agreement with the Company.
14
ITEM 11: Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of September 7, 2006, certain
information with respect to the beneficial ownership of each class of our voting
equity securities by each director and director nominee, beneficial owners of 5%
or more of our common stock, the Named Persons and all our directors and
executive officers as a group:(1)
Amount and Nature of Percent of
Name of Beneficial Owner(2) Beneficial Ownership(3) Total
------------------------------------- ----------------------- ---------
Roy Israel(4) 3,525,788 35.5%
President, Chief Executive Officer
and Chairman of the Board
Willem F. Specht 140,000 1.4%
Director
Corey J. Gottlieb (5) 54,998 *
Director
Randy Gerstenblatt (6) 35,396 *
Director
Kenneth G. Geraghty (7) 1,352,464 13.6%
Director
Patricia A. Giuliani-Rheaume 140,000 1.4%
Vice President, Chief Financial Officer and
Treasurer
ISO Investment Holdings, Inc. 1,322,464 13.3%
M. D. Sabbah (8) 585,000 5.9%
Jay Gottlieb (9) 539,543 5.4%
All Officers and Directors as a Group 5,248,646 52.3%
(6 persons) (4)(5)(6)(7)
----------
*Less than one percent (1%).
(1) Applicable percentage of ownership is based on 9,929,056 shares of our
common stock, which were outstanding on September 7, 2006, plus, for each
person or group, any securities that person or group has the right to
acquire within sixty (60) days pursuant to options and warrants.
(2) The address for each beneficial owner is c/o clickNsettle.com, Inc., 990
Stewart Avenue, First Floor, Garden City, New York 11530.
(3) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended, and unless
otherwise indicated, represents shares for which the beneficial owner has
sole voting and investment power. The percentage of class is calculated in
accordance with Rule 13d-3.
(4) Includes 123,806 shares owned by Mr. Israel's wife, Carla Israel, the
Secretary of our company. Mr. Israel disclaims beneficial ownership as to
such securities.
(5) Includes options to purchase 35,000 shares of our common stock, which are
vested and exercisable.
(6) Includes options to purchase 35,000 shares of our common stock, which are
vested and exercisable.
(7) Includes options to purchase 30,000 shares of our common stock, which are
vested and exercisable. The common shares are owned by ISO Investment
Holdings, Inc. Mr. Geraghty, the Chairman, Director and President of ISO
Investment Holdings, Inc., disclaims beneficial ownership of these
securities.
(8) This information was taken from an Amendment to Form 13D filed by M.D.
Sabbah on June 2, 2000. We are not aware of any subsequent filings with
the SEC after this date.
(9) This information was taken from Form 13G filed May 23, 2006.
15
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since our inception, there have not been any material transactions between
us and any of our officers and directors, except as set forth herein. On January
13, 2005, the Company sold its ADR business to National Arbitration and
Mediation, Inc., a company affiliated with the Company's CEO, Roy Israel. See
Note 2 to the Financial Statements for additional details. Furthermore, the
Buyer agreed to provide accounting services to the Company after the sale of the
ADR business with no cash outlay by the Company. The value of the services
performed for the year ended June 30, 2006 and for the period from January 14,
2005 through June 30, 2005 was $33,000 and $12,750, respectively, and is
included in general and administrative expenses in the accompanying statements
of operations. Additionally, certain former members of the board of directors
performed services as hearing officers through their respective law firms for
the benefit of the Company through January 13, 2005. The related expenditure for
these services for the year ended June 30, 2005 was $25,176. Carla Israel, who
was our Sales Supervisor through January 13, 2005 and still remains the
Secretary of the Company, is the wife of Roy Israel, our CEO. Her compensation
from July 1, 2004 through January 13, 2005 was $37,869. She also received a car
allowance (including insurance) of $4,282 from July 1, 2004 through January 13,
2005. Upon the sale of the ADR business, Ms. Israel no longer received any
compensation from the Company.
16
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit
Number Description of Document
------ -----------------------
3.1 (a) Certificate of Incorporation, as amended (1)
3.1 (d) Certificate of Amendment of Certificate of Incorporation (3)
3.1 (e) Certificate of Amendment of Certificate of Incorporation,
as amended (4)
3.1 (f) Certificate of Amendment of Certificate of Incorporation,
second amendment (5)
3.2 By-Laws of the Company, as amended (2)
10.1 1996 Stock Option Plan, amended and restated (2)
23.1 Consent of BP Audit Group, PLLC**
31.1 Rule 13a-14(a)/15d-14(a) Certification (CEO)**
31.2 Rule 13a-14(a)/15d-14(a) Certification (CFO)**
32.1 Section 1350 Certification (CEO)**
32.2 Section 1350 Certification (CFO)**
----------
(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 1998
Annual Report on Form 10-KSB.
(3) Incorporated herein in its entirety by reference to the Company's Form 8-K
filed on June 21, 2000.
(4) Incorporated herein in its entirety by reference to the Company's 2001
Annual Report on Form 10-KSB.
(5) Incorporated herein in its entirety by reference to the Company's 2004
Annual Report on Form 10-KSB.
** Filed herewith.
B. Reports on Form 8-K:
None.
17
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees billed or to be billed by our
independent auditors, BP Audit Group, PLLC, for the fiscal years ended June 30,
2006 and 2005:
FY 2006 FY 2005
------- -------
Audit fees and quarterly reviews $27,679 $40,251
Financial information systems design and implementation fees
All other fees:
Tax return preparation 6,500 7,910
Audit related services
Non-audit related services
------- -------
Total Fees $34,179 $48,161
------- -------
The Board of Directors considered and determined that the services
performed for "financial information systems design and implementation fees" and
"all other fees" are compatible with maintaining the independence of the
independent auditors.
Policy on Audit Committee Pre-Approval of Audit and Permissable Non-Audit
Services of Independent Auditor
Prior to the sale of the ADR business on January 13, 2005, the Audit
Committee was responsible for pre-approving all audit and permitted non-audit
services to be performed for us by our independent auditor as outlined in its
Audit Committee charter. Prior to engagement of the independent auditor for each
year's audit, management or the independent auditor submits to the Audit
Committee for approval an aggregate request of services expected to be rendered
during the year, which the Audit Committee pre-approves. During the year,
circumstances may arise when it may become necessary to engage the independent
auditor for additional services not contemplated in the original pre-approval.
In those circumstances, the Audit Committee requires specific pre-approval
before engaging the independent auditor. The Audit Committee does not delegate
to management its responsibility to pre-approve services performed by the
independent auditor. Subsequent to the sale of the Company's sole operating
business on January 13, 2005, the entire Board of Directors has been responsible
for the Audit Committee functions.
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 18, 2006 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 18, 2006 By: /s/ Roy Israel
-----------------------------
Roy Israel, Chairman of the
Board, CEO and President
Date: September 18, 2006 By: /s/ Patricia Giuliani-Rheaume
-----------------------------
Patricia Giuliani-Rheaume,
Vice President, Chief Financial
Officer and Treasurer
Date: September 18, 2006 By: /s/ Kenneth G. Geraghty
-----------------------------
Kenneth G. Geraghty, Director
Date: September 18, 2006 By: /s/ Randy Gerstenblatt
-----------------------------
Randy Gerstenblatt, Director
Date: September 18, 2006 By: /s/ Corey J. Gottlieb
-----------------------------
Corey J. Gottlieb, Director
Date: September 18, 2006 By: /s/ Willem F. Specht
-----------------------------
Willem F. Specht, Director
19