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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2002
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number: 0-21419
CLICKNSETTLE.COM, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 23-2753988
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1010 Northern Boulevard
Great Neck, New York 11021
(Address of Principal Executive Offices)
(516) 829-4343
(Issuer's Telephone Number, Including Area Code)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of February 11, 2003, 1,408,176
shares of common stock of the issuer were outstanding.
Transitional small business disclosure format (check one): Yes |_| No |X|
-------------------------------------------------
CLICKNSETTLE.COM, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets at
December 31, 2002 and June 30, 2002 3
Consolidated Statements of Operations
for the three and six month periods ended
December 31, 2002 and 2001 4
Consolidated Statements of Changes in
Stockholders' Equity and Comprehensive
Loss for the six month periods ended
December 31, 2002 and 2001 5
Consolidated Statements of Cash Flows
for the six month periods ended
December 31, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
ITEM 3. CONTROLS AND PROCEDURES 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
2
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2002 2002
------------ -----------------
(unaudited) (derived from
audited financial
ASSETS statements)
CURRENT ASSETS
Cash and cash equivalents $ 1,679,122 $ 1,917,066
Marketable securities 280,922 319,600
Accounts receivable (net of allowance for doubtful
accounts of $140,000) 291,422 380,518
Prepaid expenses and other current assets (net of allowance
for doubtful note receivable of $20,500 and $0, respectively) 104,505 84,393
------------ ------------
Total current assets 2,355,971 2,701,577
FURNITURE AND EQUIPMENT - AT COST, less accumulated depreciation 181,254 216,939
OTHER ASSETS 42,975 42,975
------------ ------------
$ 2,580,200 $ 2,961,491
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 196,986 $ 258,097
Accrued liabilities 251,007 270,750
Accrued payroll and employee benefits 94,525 37,231
Deferred revenues 271,674 302,407
------------ ------------
Total current liabilities 814,192 868,485
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $.001 par value; 15,000,000 shares authorized;
1,450,259 shares issued; 1,408,176 shares outstanding 1,450 1,450
Additional paid-in capital 10,111,577 10,111,324
Accumulated deficit (8,238,440) (7,914,736)
Accumulated other comprehensive loss (24,661) (21,114)
Less common stock in treasury at cost, 42,083 shares (83,918) (83,918)
------------ ------------
Total stockholders' equity 1,766,008 2,093,006
------------ ------------
$ 2,580,200 $ 2,961,491
============ ============
The accompanying notes are an integral part of these statements.
3
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended December 31, Six months ended December 31,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net revenues $ 961,839 $ 1,005,278 $ 1,955,198 $ 1,827,897
----------- ----------- ----------- -----------
Operating costs and expenses
Cost of services 229,603 234,433 458,529 439,295
Sales and marketing expenses 278,563 401,639 587,530 814,338
General and administrative expenses 586,005 608,644 1,239,805 1,291,677
----------- ----------- ----------- -----------
1,094,171 1,244,716 2,285,864 2,545,310
----------- ----------- ----------- -----------
Loss from operations (132,332) (239,438) (330,666) (717,413)
Other income (expenses)
Investment income (loss) 15,835 (34,537) 3,479 (32,290)
Other income 2,128 3,545 3,483 8,023
----------- ----------- ----------- -----------
17,963 (30,992) 6,962 (24,267)
----------- ----------- ----------- -----------
Loss before income taxes (114,369) (270,430) (323,704) (741,680)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (114,369) $ (270,430) $ (323,704) $ (741,680)
=========== =========== =========== ===========
Net loss per common share - basic and diluted $ (0.08) $ (0.19) $ (0.23) $ (0.52)
=========== =========== =========== ===========
Weighted-average shares outstanding - basic and diluted 1,408,176 1,408,859 1,408,176 1,419,123
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
4
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
COMPREHENSIVE LOSS
Six months ended December 31, 2002 and 2001 (unaudited)
Common stock Additional
----------------------- paid-in Accumulated
Shares Amount capital deficit
-------------------------------------------------------------
Balances at June 30, 2001 4,350,776 $ 4,351 $ 10,106,484 ($6,687,254)
One-for-three reverse stock split
effectuated on August 20, 2001 (2,900,517) (2,901) 2,901
-------------------------------------------------------------
1,450,259 1,450 10,109,385 (6,687,254)
Compensation related to stock options 969
Purchase of common shares for treasury
Net loss (741,680)
Change in unrealized loss on
marketable securities
Comprehensive loss
-------------------------------------------------------------
Balances at December 31, 2001 1,450,259 $ 1,450 $ 10,110,354 $ (7,428,934)
=============================================================
Balances at June 30, 2002 1,450,259 1,450 10,111,324 (7,914,736)
Compensation related to stock options 253
Net loss (323,704)
Change in unrealized loss on
marketable securities
Comprehensive loss
-------------------------------------------------------------
Balances at December 31, 2002 1,450,259 $ 1,450 $ 10,111,577 $ (8,238,440)
=============================================================
Accumulated
other Common Total Compre-
comprehensive stock in stockholders' hensive
loss treasury equity loss
-----------------------------------------------------------
Balances at June 30, 2001 ($6,135) ($12,755) $3,404,691
One-for-three reverse stock split
effectuated on August 20, 2001
-------------------------------------------
(6,135) (12,755) 3,404,691
Compensation related to stock options 969
Purchase of common shares for treasury (71,163) (71,163)
Net loss (741,680) $(741,680)
Change in unrealized loss on
marketable securities 5,242 5,242 5,242
---------
Comprehensive loss $(736,438)
=========
-------------------------------------------
Balances at December 31, 2001 $ (893) $ (83,918) $2,598,059
===========================================
Balances at June 30, 2002 (21,114) (83,918) 2,093,006
Compensation related to stock options 253
Net loss (323,704) $(323,704)
Change in unrealized loss on
marketable securities (3,547) (3,547) (3,547)
---------
Comprehensive loss $(327,251)
=========
-------------------------------------------
Balances at December 31, 2002 $(24,661) $ (83,918) $1,766,008
===========================================
The accompanying notes are an integral part of these statements.
5
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31,
2002 2001
----------- -----------
Cash flows from operating activities
Net loss $ (323,704) $ (741,680)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 46,466 51,621
(Gains) losses on sales of marketable securities (33,843) 8,655
Write-down of marketable securities 44,477 56,625
Advertising in exchange for common stock 18,285 225,718
Compensation related to stock options 253 969
Provision for write-down of note receivable 20,500
Changes in operating assets and liabilities
Decrease in accounts receivable 89,096 11,900
(Increase) in prepaid expenses and other current assets (58,897) (60,189)
(Decrease) in accounts payable and accrued liabilities (80,854) (6,978)
Increase in accrued payroll and employee benefits 57,294 1,600
(Decrease) increase in deferred revenues (30,733) 4,726
----------- -----------
Net cash used in operating activities (251,660) (447,033)
----------- -----------
Cash flows from investing activities
Purchases of marketable securities (113,805) (22,385)
Proceeds from sales of marketable securities 138,301 38,186
Purchases of furniture and equipment (10,780) (4,365)
----------- -----------
Net cash provided by investing activities 13,716 11,436
----------- -----------
Cash flows from financing activities
Purchase of treasury stock at cost -- (71,163)
----------- -----------
Net cash used in financing activities -- (71,163)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (237,944) (506,760)
Cash and cash equivalents at beginning of period 1,917,066 2,558,372
----------- -----------
Cash and cash equivalents at end of period $ 1,679,122 $ 2,051,612
=========== ===========
The accompanying notes are an integral part of these statements.
6
CLICKNSETTLE.COM, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
Six months ended December 31, 2002
(Unaudited)
1. The consolidated balance sheet as of December 31, 2002 and the related
consolidated statements of operations for the three and six month periods ended
December 31, 2002 and 2001 have been prepared by clickNsettle.com, Inc.,
including the accounts of its wholly-owned subsidiaries. In the opinion of
management, all adjustments necessary to present fairly the financial position
as of December 31, 2002 and for all periods presented, consisting of normal
recurring adjustments, have been made. Results of operations for the three and
six month periods ended December 31, 2002 are not necessarily indicative of the
operating results expected for the full year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended June 30,
2002 included in the Company's Annual Report on Form 10-KSB. The accounting
policies used in preparing these consolidated financial statements are the same
as those described in the June 30, 2002 consolidated financial statements.
2. 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, reduced
by the shares that may be repurchased with the funds received from the exercise,
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 643,270 and
478,939 at December 31, 2002 and 2001, respectively, would be antidilutive as
the Company incurred net losses for the three and six month periods ended
December 31, 2002 and 2001.
3. The cost of advertising is expensed when the advertising takes place. For
advertising and external public relations costs, the Company incurred $8,106 and
$132,079 for the quarters ended December 31, 2002 and 2001, respectively, and
$33,967 and $261,510 for the six month periods ended December 31, 2002 and 2001,
respectively. Of such totals, non-cash advertising charges comprise $0 and
$117,587, respectively, for the second quarter of fiscal years 2003 and 2002 and
$18,285 and $225,717, respectively, for the six-month periods ended December 31,
2002 and 2001. In accordance with the terms of the August 2000 advertising
agreement with American Lawyer Media, Inc., the Company will purchase $250,000
of advertising in the year subsequent to the initial two-year term. Such
advertising is expected to take place during the fourth quarter of the 2003
fiscal year and through August 2003.
4. On September 25, 2002, the Company received a letter from The Nasdaq SmallCap
Market that its common stock had failed to maintain a minimum market value of
publicly held shares of $1,000,000. As a result, the Company had been provided
90 calendar days, or until December 24, 2002, to regain compliance. The Company
was not able to regain compliance. Additionally, on November 6, 2002, the
Company received a letter from The Nasdaq SmallCap Market that its common stock
had failed to maintain a minimum bid price of $1.00 over the previous 30
consecutive trading days. As a result, the Company has been provided 180
calendar days, or until May 5, 2003, to regain compliance. Further, on December
23, 2002, the Company received a Nasdaq Staff Determination indicating that the
Company failed to comply with the minimum $2,500,000 stockholders' equity
requirement for continued listing as set forth in Marketplace Rule
4310(c)(2)(B), and that its securities are, therefore,
7
subject to delisting from The Nasdaq SmallCap Market. The Company met with The
Nasdaq Listing Qualifications Panel on January 30, 2003 to consider its request
for continued listing of the Company's common stock on The Nasdaq SmallCap
Market. Until a decision is made by The Nasdaq Listing Qualifications Panel, the
delisting of the Company's common stock is stayed. There can be no assurance
that The Nasdaq Listing Qualifications Panel will grant the Company's request
for continued listing. In the event The Nasdaq Listing Qualifications Panel
determines to delist the Company's securities, the Company's common stock will
be listed on the OTC Bulletin Board.
5. On March 14, 2002, the Company extended its March 1998 purchase plan (the
"Plan"), pursuant to which the number of shares of common stock of the Company
eligible for purchase under the Plan remained at an aggregate of 266,667 shares.
The Plan shall expire on the earlier of all of the shares being purchased or
March 14, 2003, provided, however, that the Plan may be discontinued at any time
by the Company. The Plan may also be extended on a year-to-year basis. There
were no purchases in the six-month period ended December 31, 2002, and, through
December 31, 2002, the Company had purchased 42,083 shares under the Plan for an
aggregate cost of $83,918.
6. The components of comprehensive income (loss) are as follows:
Three months ended December 31,
2002 2001
---- ----
Net loss $(114,369) $(270,430)
Change in unrealized gain (loss)
on marketable securities 53,186 122,000
--------- ---------
Comprehensive loss $ (61,183) $(148,430)
--------- ---------
Six months ended December 31,
2002 2001
---- ----
Net loss $(323,704) $(741,680)
Change in unrealized gain (loss)
on marketable securities (3,547) 5,242
--------- ---------
Comprehensive loss $(327,251) $(736,438)
--------- ---------
7. In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures 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. The
provisions of SFAS No. 148 are effective for fiscal years ending after December
15, 2002 and the interim disclosure provisions are effective for interim periods
beginning after December 15, 2002. The Company currently plans to continue to
apply the intrinsic-value based method to account for stock options and will
comply with the new disclosure requirements beginning with its fiscal year
ending June 30, 2003. The Company will adopt the interim disclosures as of
December 15, 2002.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From time to time, including in this quarterly report on Form
10-QSB, 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 arbitration
and mediation programs and electronic oversight applications and other risks
that are set forth herein.
RISK FACTORS
Our business faces 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 business, 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 have Recent and, Anticipate, Continuing Losses
We have incurred operating losses during the last six years and
through December 31, 2002. Going forward, we may continue to incur operating
losses and make capital expenditures and, as a result, we will need to generate
higher revenues to achieve and maintain profitability and provide working
capital needed to fund losses. We cannot assure you that we can achieve or
sustain profitability in the future. If revenues grow slower than we anticipate,
or if operating expenses exceed our current expectations and cannot be adjusted
accordingly, our business, the results of our operations and our financial
condition may be materially and adversely affected.
We Depend On Insurance-Related Disputes
The majority of our alternative dispute resolution services, or ADR
services, involve claims that are usually covered by insurance. We resolve many
of these disputes in a matter of hours. Since our revenues are derived primarily
from certain administrative and hourly fees, a high volume of these cases is
required in order for us to generate revenues sufficient to maintain our
operations. Although self-insured and employment initiatives represent a growing
percentage of our revenues, there can be no assurance that we will be able to
continue to expand our insurance and non-insurance-related dispute business, or
maintain or increase our current level of cases. In addition, we cannot assure
you that changes in the insurance industry will not affect our business.
9
Possible Improvements in the Public Court System, Including Use of ADR Services,
May Affect Our Business
The ADR industry, in general, furnishes an alternative to public
dispute mechanisms, principally the local, state and federal court systems. Our
marketing efforts have been based on our belief that there exists a high degree
of dissatisfaction among litigants and their counsel with the public court
system. If the public courts, in the markets we are currently serving or seek to
serve, reduce case backlogs and provide effective settlement mechanisms at no,
or substantially reduced cost to litigants, our business opportunities in such
markets may be significantly reduced. Several public court systems, both on the
federal and state level, including certain federal and state courts located in
New York State, have instituted court coordinated ADR programs. Similar programs
are under consideration in a number of states and may be adopted at any time.
The success of such ADR programs could have a material adverse effect on our
business by diminishing the demand for private ADR services.
The Private ADR Services Business is Highly Competitive
The private ADR business is highly competitive, both on a national
and regional level. Barriers to entry in the ADR business are relatively low,
and new competitors can begin doing business relatively quickly. There are two
types of competitors, not-for-profit and for-profit entities:
o We believe that our largest not-for-profit competitor is
the American Arbitration Association as it has
significant market share in complex commercial cases.
o We believe that our largest for-profit competitor is
JAMS.
At this time, we believe that numerous other private ADR firms are
competing with us in the regions we currently serve. Increased competition could
decrease the fees we are able to charge for our services and limit our ability
to obtain qualified hearing officers. This could have a material adverse effect
on our ability to be profitable in the future. Certain competitors may have
greater financial or other capabilities than us. Accordingly, there is no
assurance that we can successfully compete in the present or future marketplace
for ADR services.
We Depend Upon Our Key Personnel
Our success will be largely dependent on the personal efforts of Roy
Israel, our Chief Executive Officer, President and Chairman of the Board of
Directors. Although we have entered into an employment agreement with Mr.
Israel, which expires in 2007, the loss of his services could have a material
adverse effect on our business and prospects. We have obtained "key-man" life
insurance on the life of Mr. Israel. The Company is the sole beneficiary in the
amount of $1 million. Our success is also dependent upon our ability to hire and
retain qualified marketing and other personnel in our offices. We may not be
able to hire or retain such necessary personnel.
We Do Not Have Written Contracts with the Majority of Our Clients
We currently rely on our marketing efforts and relationships with
insurance companies, law firms, corporations and municipalities to obtain cases.
We do not have written agreements with the majority of our clients, but we have
instituted the process of obtaining written agreements with our existing clients
and with new clients. We also rely on case referrals from our current clients.
We may
10
not continue to receive our current level of, or an adequate level of, referrals
of cases. If we do not maintain such levels, there could be a material adverse
effect on our business.
We Depend Upon Qualified Hearing Officers
The market for our services depends on a perception by our clients
that our hearing officers are impartial, qualified, and experienced. Our ability
to retain qualified hearing officers in the event that competition increases
would be uncertain. For our fiscal year ended June 30, 2002, 64% of the number
of our cases were heard by exclusive hearing officers. Accordingly, at any time,
the remaining hearing officers who are not under contract with us can refuse to
continue to provide their services to us and are free to render services
independently or through competing ADR services. If qualified hearing officers
are unwilling or unable to continue to provide their services through us for any
reason, including possible agreements to provide their services to our
competitors on an exclusive basis, our business and operations could be
materially and adversely affected.
Our Current Stockholders Have the Ability to Exert Significant Control
Our executive officers, directors, and their affiliates beneficially
own 630,507 shares or approximately 44.8% of the common stock outstanding based
on 1,408,176 shares of common stock outstanding as of December 31, 2002. Of that
number, Mr. Israel beneficially owns 401,713 shares or approximately 28.5% 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 that could give our stockholders the opportunity to realize a premium over
the then prevailing market price for their shares of common stock.
We May Be Unable to Protect Our Proprietary Technology and We May Be Sued for
Infringing on the Rights of Others
Our success depends, in part, upon our ability to protect our
proprietary software technology and operate without infringing upon the rights
of others. We rely on a combination of methods to protect our proprietary
intellectual property, technology and know-how, such as:
trade secret laws copyright law
trademark law patent law
contractual provisions confidentiality agreements
certain technology and security measures
The steps we have taken regarding our proprietary technology,
however, may be insufficient to deter misappropriation.
In the systems and software industries, it is common that companies
receive notices from time to time alleging infringement of patents, copyrights
or other intellectual property rights of others. We may from time to time be
notified of claims that we may be infringing upon patents, copyrights or other
intellectual property rights owned by third parties. Companies may pursue claims
against us with respect to the alleged infringement of patents, copyrights or
other intellectual property rights owned by third parties. Although we believe
we have not violated or infringed upon any intellectual property patents and
have taken measures to protect our own rights, there is no assurance that we
will avoid litigation. Litigation may be necessary to protect our intellectual
property rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend
11
against third party claims of invalidity. Any litigation could result in
substantial costs and diversion of resources away from the day-to-day operation
of our business.
Existing copyright, trademark, patent and trade secret laws afford
only limited protection. Existing laws, in combination with the steps we have
taken to protect our proprietary rights may be inadequate to prevent
misappropriation of our technology or other proprietary rights. Also, such
protections do not preclude competitors from independently developing products
with functionality or features similar or superior to our products and
technologies.
We Have Issues With Our Continued Listing on The Nasdaq SmallCap Market
Although our securities are currently quoted on The Nasdaq SmallCap
Market, we cannot assure you that a trading market will be maintained. In
addition, we cannot assure you that we will meet the maintenance criteria for
continued quotation of the securities on The Nasdaq SmallCap Market. The
maintenance criteria for The Nasdaq SmallCap Market include, among other things:
o $2,500,000 in net stockholders equity; or $35,000,000 in market
capitalization; or $500,000 Net Income (in the latest fiscal year or
two of the last three fiscal years). As of December 31, 2002, our
net stockholders' equity was $1,766,008. On December 23, 2002, the
Company received a Nasdaq Staff Determination indicating that the
Company failed to comply with the minimum $2,500,000 stockholders'
equity requirement for continued listing as set forth in Marketplace
Rule 4310(c)(2)(B), and that its securities are, therefore, subject
to delisting from The Nasdaq SmallCap Market. The Company met with
The Nasdaq Listing Qualifications Panel on January 30, 2003 to
consider its request for continued listing of the Company's common
stock on The Nasdaq SmallCap Market. Until a decision is made by The
Nasdaq Listing Qualifications Panel, the delisting of the Company's
common stock is stayed. There can be no assurance that the Panel
will grant the Company's request for continued listing;
o a public float of 500,000 shares with a market value equal to
$1,000,000. On September 25, 2002, the Company received a letter
from The Nasdaq SmallCap Market that its common stock had failed to
maintain a minimum market value of publicly held shares of
$1,000,000. As a result, the Company had been provided 90 calendar
days, or until December 24, 2002, to regain compliance. The Company
was not able to regain compliance;
o two market makers;
o a minimum bid price of $1.00 per share of common stock. On November
6, 2002, the Company received a letter from The Nasdaq SmallCap
Market that its common stock had failed to maintain a minimum bid
price of $1.00 over the previous 30 consecutive trading days. As a
result, the Company has been provided 180 calendar days, or until
May 5, 2003, to regain compliance; and
o 300 shareholders (round lot holders).
If we were removed from The Nasdaq SmallCap Market, trading, if any,
in our securities would thereafter have to be conducted in the over-the-counter
market in the NASD's OTC Electronic Bulletin Board, if eligible. As a result, an
investor may find it more difficult to purchase, dispose of and to obtain
accurate quotations as to the value of our securities.
12
In addition, if our common stock is delisted from trading on The
Nasdaq SmallCap Market and the trading price of the common stock is less than
$5.00 per share, trading in the common stock would also be 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. We cannot assure you that our securities
will not be delisted or treated as a penny stock.
GENERAL
We provide alternative dispute resolution services, or ADR services,
to insurance companies, law firms, corporations and municipalities. We focus 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. Furthermore, we believe that there is greater market acceptance and a
positive trend relating to the utilization of ADR services as opposed to the
traditional litigation process. The variety, complexity and volume of cases
being submitted for ADR are illustrative and, we believe, accurate barometers of
the integration of ADR into the legal landscape. Further, we see this trend
continuing. We believe that with our global roster of qualified hearing
officers, administrative capabilities, electronic oversight applications,
knowledge of dispute resolution and reputation within the corporate and legal
communities, we are uniquely positioned to provide a comprehensive total
solution to disputing parties worldwide.
We currently operate from locations in New York and Massachusetts.
Our objective is to become the leading global provider of dispute
resolution services by providing services and software/web-enabled tools
designed to enhance and streamline the traditional and often time-consuming and
expensive legal process. We believe we are uniquely positioned to offer
customized solutions built upon our sophisticated technology platform. We have a
patent pending on our dispute resolution processing and oversight system and,
depending upon market acceptance, we will review the needs of our current and
prospective customers and offer those solutions that we believe will be of most
value to our clients and to our Company. We believe that our marketing efforts
going forward will best be directed towards large-scale applications that
benefit from our proprietary electronic infrastructure. As such, our marketing
emphasis will be driven by our unique capabilities as an administrator.
Additionally, the staff presently dedicated to our existing transactional client
base will be charged with growing our business and exploiting our inherent
market advantages. Therefore, our plan is as follows: (1) exploit potential
revenue streams driven by our technological innovations in software, systems and
intellectual property such as (i) the administration of high-volume, customized
dispute resolution programs for large corporations, governmental bodies, law
firms and agencies and (ii) the licensing and/or sale of dispute
resolution-related software; (2) build brand recognition of NAM (National
Arbitration and Mediation) as the premier provider of dispute
13
resolution solutions through our advertising campaign; (3) attract and retain
the services of highly talented, former top-tier judges and attorneys; and (4)
broaden the type and complexity of the dispute resolution cases we administer.
With the recent string of corporate failures and scandals, it is
likely that individuals and groups will seek retribution via a legal outlet. At
the same time, a greater emphasis has been placed on the protection of
investors, employees and other groups as evidenced by many new proposed and
adopted corrective actions and laws. The confluence of the above in conjunction
with the current economic slowdown creates a fertile environment for our
services, particularly those related to oversight applications that can uniquely
address and facilitate many of these areas of concern. Our oversight
applications/web-based services enhance business practices by enabling our
clients to better manage their operations through data driven features and, at
the same time, produce cost savings given the tremendous expense related to
traditional litigation versus our quicker, more efficient dispute resolution
solutions.
We have and may continue to incur net losses in the future as a
result of (a) continuing enhancements and other costs associated with our
software-based products and (b) the remainder of our advertising campaign which
is to be fulfilled by August 2003. Our present advertising campaign commenced in
August 2000 when 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). At the time this advertising was contracted for, we were promoting our
new corporate name, clickNsettle.com, as well as continuing to promote our
established brand name, NAM (National Arbitration and Mediation). We believe the
NAM brand name is well-known in our unique niche of the business-to-business
market and is a premier brand name in the ADR industry. As part of our agreement
with American Lawyer Media, Inc., we will additionally purchase $250,000 of
advertising during the one-year period ending August 2003. However, we do not
anticipate maintaining the same level of advertising expense going forward after
this period and we believe our revenues will not be adversely impacted.
Second Quarter Ended December 31, 2002 Compared to Second Quarter Ended December
31, 2001
Revenues. Revenues decreased 4.3% to $961,839 for the second quarter
ended December 31, 2002 from $1,005,278 for the comparable prior period. The
decrease in revenues is primarily attributable to a lower number of cases heard
in the current period offset by a rise in the average dollars earned per
hearing. We believe our revenue has been adversely affected in the short term by
the consolidation and turmoil in the insurance industry, which represents a
major portion of our clientele. The immediate effect of such is a slow down in
the number of cases being referred to us. However, in a broader sense, we
believe that lawsuits continue to be commenced and that our oversight dispute
resolution software should prove to be vital to insurers in their ability to
address a growing caseload with reduced costs and increased efficiency. We
believe our product will benefit clients as they seek to optimize efficiencies
in the litigation process in order to improve their own financial outlook as,
due to low interest rates, insurers cannot rely on investment income to offset
operational and indemnity expenses. Additionally, plaintiffs benefit from a
speedier resolution of their claims which is of greater importance in difficult
economic times.
As we continue to recruit an exclusive pool of former, top-tier
hearing officers, we believe this will enable us to attract a higher volume and
diversity of cases, the nature of which demands the talented and well-respected
hearing officers that we have to offer. As a result, we believe the average
dollars earned per hearing will continue to be favorably impacted.
14
Cost of Services. Cost of services decreased 2.1% to $229,603 for
the second quarter ended December 31, 2002 from $234,433 for the second quarter
ended December 31, 2001. Additionally, the cost of services as a percentage of
revenues increased slightly to approximately 23.9% in the second quarter of
fiscal year 2003 from 23.3% in the second quarter of fiscal year 2002. The ratio
of cost of services to revenues will fluctuate based on 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 30.6% to
$278,563 for the second quarter ended December 31, 2002 from $401,639 for the
second quarter ended December 31, 2001. Sales and marketing costs as a
percentage of revenues decreased to 29% in the second quarter of fiscal year
2003 from 40% in the second quarter of fiscal year 2002. Most of the decrease
(approximately $123,973) relates to advertising costs. Our initial agreement
with American Lawyer Media, Inc., which provided us with $1,000,000 of
advertising and promotional opportunities in their national and regional
publications over a two-year period, ended in August 2002. The related non-cash
amount expensed for the quarters ended December 31, 2002 and 2001 was $0 and
$117,587, respectively. At the time this advertising was contracted for, we were
promoting our new corporate name, clickNsettle.com, as well as continuing to
promote our established brand name, NAM (National Arbitration and Mediation). We
believe the NAM brand name is well-known in our unique niche of the
business-to-business market and is a premier brand name in the ADR industry. As
part of our agreement with American Lawyer Media, Inc., we will additionally
purchase $250,000 of advertising during the one-year period ending August 2003.
Currently, we expect to utilize this advertising beginning in the fourth quarter
of this fiscal year. However, we do not anticipate maintaining the same level of
advertising expense going forward after this period and we believe our revenues
will not be adversely impacted.
General and Administrative. General and administrative costs
decreased 3.7% to $586,005 for the second quarter ended December 31, 2002 from
$608,644 for the second quarter ended December 31, 2001. A portion of the
decrease (approximately $46,200) relates to legal and professional fees incurred
to apply for international patents and trademarks for our web-enabled dispute
resolution management and operational system and mergers and acquisitions
activity in the prior year period that did not recur in the current year period.
Additionally, we reduced expenditures by approximately $24,800 with respect to
auto expenses and real estate taxes. Offsetting these decreases was an increase
in employee costs and related items (including benefits, payroll taxes and
outside services) amounting to approximately $16,725, as well as increases in
market fees, printing and an allowance for a doubtful note receivable amounting
to $32,300. General and administrative costs as a percentage of revenues
remained stable at 61% for the second quarter of fiscal years 2003 and 2002.
Other Income (Expenses). Other income (expenses) changed by $48,955,
from other expenses of ($30,992) for the second quarter ended December 31, 2001
to other income of $17,963 for the second quarter ended December 31, 2002. Other
income (expenses) is composed primarily of investment income and realized gains
(losses) generated from investments. Realized gains (losses) (which includes
write-downs for other than temporary declines in the value of marketable
securities) approximated ($46,500) in the second quarter of fiscal year 2002
versus $9,500 in the second quarter of fiscal year 2003, an improvement of
$56,000. Also, net interest income generated primarily from investments in money
market funds declined by $5,612 from $11,962 in the prior year period due to
lower invested balances and a decline in the prevailing interest rates between
the two periods. At December 31, 2002, approximately 85% of cash equivalents and
marketable securities were invested in money market funds whose rate of return
will fluctuate based on prevailing interest rates.
15
Income Taxes. Tax benefits resulting from net losses incurred for
the periods ended December 31, 2002 and 2001 were not recognized as we recorded
a full valuation allowance against the net operating loss carryforwards during
the periods.
Net Loss. For the three months ended December 31, 2002, we had a net
loss of $114,369 as compared to a net loss of $270,430 for the three months
ended December 31, 2001. The loss declined principally due to reduced
advertising and administrative expenses and an improvement in realized gains
(losses) on marketable securities during the periods, offset by a decline in
revenues.
Six months Ended December 31, 2002 Compared to Six months Ended December 31,
2001
Revenues. Revenues increased 7.0% to $1,955,198 for the six months
ended December 31, 2002 from $1,827,897 for the comparable prior period. The
increase in revenues is primarily attributable to a rise in the average dollars
earned per hearing, offset by a decline in cases heard during the six-month
period. We believe our revenue has been adversely affected in the short term by
the consolidation and turmoil in the insurance industry, which represents a
major portion of our clientele. The immediate effect of such is a slow down in
the number of cases being referred to us. However, in a broader sense, we
believe that lawsuits continue to be commenced and that our oversight dispute
resolution software should prove to be vital to insurers in their ability to
address a growing caseload with reduced costs and increased efficiency. We
believe our product will benefit clients as they seek to optimize efficiencies
in the litigation process in order to improve their own financial outlook as,
due to low interest rates, insurers cannot rely on investment income to offset
operational and indemnity expenses. Additionally, plaintiffs benefit from a
speedier resolution of their claims which is of greater importance in difficult
economic times.
As we continue to recruit an exclusive pool of former, top-tier
hearing officers, we believe this will enable us to attract a higher volume and
diversity of cases, the nature of which demands the talented and well-respected
hearing officers that we have to offer. As a result, we believe the average
dollars earned per hearing will continue to be favorably impacted.
Cost of Services. Cost of services increased 4.4% to $458,529 for
the six months ended December 31, 2002 from $439,295 for the six months ended
December 31, 2001. Additionally, the cost of services as a percentage of
revenues decreased to approximately 23.5% in the first six months of fiscal year
2003 from 24.0% in the first six months of fiscal year 2002. The improvement in
the ratio is attributed to the increase in average dollars earned per hearing.
The ratio of cost of services to revenues will fluctuate based on 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 27.9% to
$587,530 for the six months ended December 31, 2002 from $814,338 for the six
months ended December 31, 2001. Sales and marketing costs as a percentage of
revenues decreased to 30% in the first six months of fiscal year 2003 from 45%
in the first six months of fiscal year 2002. Most of the decrease (approximately
$227,543) relates to advertising costs. Our initial agreement with American
Lawyer Media, Inc., which provided us with $1,000,000 of advertising and
promotional opportunities in their national and regional publications over a
two-year period, ended in August 2002. The related non-cash amount expensed for
the six months ended December 31, 2002 and 2001 was $18,285 and $225,717,
respectively. At the time this advertising was contracted for, we were promoting
our new corporate name, clickNsettle.com, as well as continuing to promote our
established brand name, NAM (National Arbitration and Mediation). We believe the
NAM brand name is well-known in our unique niche of the business-to-business
market and is a premier brand name in the ADR industry. As part of our agreement
with American
16
Lawyer Media, Inc., we will additionally purchase $250,000 of advertising during
the one-year period ending August 2003. Currently, we expect to utilize this
advertising beginning in the fourth quarter of this fiscal year. However, we do
not anticipate maintaining the same level of advertising expense going forward
after this period and we believe our revenues will not be adversely impacted.
General and Administrative. General and administrative costs
decreased 4.0% to $1,239,805 for the six months ended December 31, 2002 from
$1,291,677 for the six months ended December 31, 2001. There was a large
decrease (approximately $116,700) in legal and professional fees which, in the
prior year period, primarily related to fees incurred to apply for international
patents and trademarks for our web-enabled dispute resolution management and
operational system and mergers and acquisitions activity that did not recur in
the current year period. Additionally, we reduced expenditures by approximately
$57,000 with respect to taxes, market fees and internet services. Offsetting
these decreases was an increase in employee costs and related items (including
benefits, payroll taxes and outside services) amounting to approximately
$95,800, as well as increases in printing and an allowance for a doubtful note
receivable amounting to $25,700. The increase in employee costs was largely due
to increases in staff for computer programmers in our information technology
department and for other administrative functions, including temporary help, to
support and develop our dispute resolution processing and oversight software.
General and administrative costs as a percentage of revenues decreased to 63%
for the first six months of fiscal year 2003 from 71% for the first six months
of fiscal year 2002.
Other Income (Expenses). Other income (expenses) changed by $31,229,
from other expenses of ($24,267) for the six months ended December 31, 2001 to
other income of $6,962 for the six months ended December 31, 2002. Other income
(expenses) is composed primarily of investment income and realized gains
(losses) generated from investments. Realized gains (losses) (which includes
write-downs for other than temporary declines in the value of marketable
securities) approximated ($65,280) in the first six months of fiscal year 2002
versus ($10,634) in the first six months of fiscal year 2003, an improvement of
$54,646. As an offset, net interest income generated primarily from investments
in money market funds declined by approximately $18,877 from $32,990 in the
prior year period due to lower invested balances and a decline in the prevailing
interest rates between the two periods. At December 31, 2002, approximately 85%
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 six-month periods ended December 31, 2002 and 2001 were not recognized as we
recorded a full valuation allowance against the net operating loss carryforwards
during the periods.
Net Loss. For the six months ended December 31, 2002, we had a net
loss of $323,704 as compared to a net loss of $741,680 for the six months ended
December 31, 2001. The loss declined as we secured higher fees for services
rendered to our clients as a result of an increase in the type and diversity of
cases heard, as well as reduced advertising expenses and achieved operating
efficiencies.
Liquidity and Capital Resources
At December 31, 2002, the Company had a working capital surplus of
$1,541,779 compared to $1,833,092 at June 30, 2002. The decrease in working
capital occurred primarily as a result of the loss from operations.
17
Net cash used in operating activities was $251,660 for the six
months ended December 31, 2002 versus $447,033 in the prior comparable period.
Cash used in operating activities principally declined due to a reduction in the
loss from operations which was partially offset by a decrease in non-cash
charges for advertising.
Net cash provided by investing activities was $13,716 for the six
months ended December 31, 2002 versus $11,436 in the comparable prior period.
The change in cash from investing activities was primarily due to a higher level
of net sales of marketable securities offset by an increase in purchases of
furniture and equipment in the current period.
Net cash used in financing activities was $0 for the six months
ended December 31, 2002 versus $71,163 in the prior comparable period. In the
prior period, we purchased 36,500 shares of our common stock for an aggregate
cost of $71,163.
We have incurred net losses and had negative cash flow from
operations during the last six years and through December 31, 2002. Cash and
cash equivalents arising principally from equity transactions have provided
sufficient working capital to fund losses incurred and capital expenditures, as
well as to provide cash to redeem preferred stock outstanding and to purchase
treasury stock. As of December 31, 2002, we had $1,679,122 in aggregate cash and
cash equivalents. We believe that, through the proper use of these existing
funds, from revenue generated from existing and new services and from expense
reductions achieved by streamlining operations through the use of an enhanced
processing system, we will have sufficient cash to meet our needs over the next
twelve months.
Nasdaq Listing
On September 25, 2002, the Company received a letter from The Nasdaq
SmallCap Market that its common stock had failed to maintain a minimum market
value of publicly held shares of $1,000,000. As a result, the Company had been
provided 90 calendar days, or until December 24, 2002, to regain compliance. The
Company was not able to regain compliance. Additionally, on November 6, 2002,
the Company received a letter from The Nasdaq SmallCap Market that its common
stock had failed to maintain a minimum bid price of $1.00 over the previous 30
consecutive trading days. As a result, the Company has been provided 180
calendar days, or until May 5, 2003, to regain compliance. Further, on December
23, 2002, the Company received a Nasdaq Staff Determination indicating that the
Company failed to comply with the minimum $2,500,000 stockholders' equity
requirement for continued listing set forth in Marketplace Rule 4310(c)(2)(B),
and that its securities are, therefore, subject to delisting from The Nasdaq
SmallCap Market. The Company met with The Nasdaq Listing Qualifications Panel on
January 30, 2003 to consider its request for continued listing of the Company's
common stock on The Nasdaq SmallCap Market. Until a decision is made by The
Nasdaq Listing Qualifications Panel, the delisting of the Company's common stock
is stayed. There can be no assurance that The Nasdaq Listing Qualifications
Panel will grant the Company's request for continued listing. In the event The
Nasdaq Listing Qualifications Panel determines to delist the Company's
securities, the Company's common stock will be listed on the OTC Bulletin Board.
Recent Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 148 "Accounting
for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS No. 148 amends SFAS No.
18
123, "Accounting for Stock-Based Compensation," to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures 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. The provisions of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002 and the interim disclosure
provisions are effective for interim periods beginning after December 15, 2002.
The Company currently plans to continue to apply the intrinsic-value based
method to account for stock options and will comply with the new disclosure
requirements beginning with its fiscal year ending June 30, 2003. The Company
will adopt the interim disclosures as of December 15, 2002.
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 quarterly 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 quarterly 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.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are a party to legal matters arising in the general conduct of
business. The ultimate outcome of such matters is not expected to
have a material adverse effect on the results of operations or
financial position.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of matters to a Vote of Security Holders.
On December 13, 2002, we held our annual meeting of shareholders. At
the meeting, the shareholders voted on three proposals. The
following represents the results of the voting, both in person and
by proxy:
1. Election of Directors:
Roy Israel 1,041,866, votes for;
0 votes against; 98,481 votes withheld.
Anthony J. Mercorella 1,041,949 votes for;
0 votes against; 98,398 votes withheld.
Kenneth G. Geraghty 1,041,916 votes for;
0 votes against; 98,431 votes withheld.
Robert M. Silverson, Jr. 1,041,916 votes for;
0 votes against; 98,431 votes withheld.
Willem F. Specht 1,041,949 votes for;
0 votes against; 98,398 votes withheld.
Corey J. Gottlieb 1,041,949 votes for;
0 votes against; 98,398 votes withheld.
Randy Gerstenblatt 1,041,949 votes for;
0 votes against; 98,398 votes withheld.
2. For ratification of appointment of Grant Thornton LLP as our
independent accountants for fiscal year 2003:
1,135,948 votes for;
3,066 votes against; 1,333 abstentions
3. For approval of the amendment to the Amended and Restated 1996
Incentive and Nonqualified Stock Option Plan to increase the number
of options granted annually to each
20
non-employee director from options to purchase 833 shares to options
to purchase 2,500 shares:
1,027,263 votes for;
111,385 votes against; 1,699 abstentions
Item 5. Other information.
Not applicable.
Item 6. 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
(5)
3.1(c) Certificate of Correction of Certificate of Designation of Series A
Exchangeable Preferred Stock (6)
3.1(d) Certificate of Amendment of Certificate of Incorporation (8)
3.1(e) Certificate of Amendment of Certificate of Incorporation, as amended
(11)
3.2 By-Laws of the Company, as amended (3)
4.1 Stock Purchase Agreement dated May 10, 2000 (7)
4.2 Stock Purchase Warrant dated May 10, 2000 (7)
10.1 1996 Stock Option Plan, amended and restated (3)
10.2 Employment Agreement between Company and Roy Israel effective July
1, 2002(12)
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 (4)
10.7.2 Second Amendment to Lease Agreement for Great Neck, New York
facility (10)
10.8 Exchangeable Preferred Stock and Warrants Purchase Agreement (5)
10.9 Preferred Stock Registration Rights Agreement (5)
10.11 Private Equity Line of Credit Agreement between Moldbury Holdings
and Company (5)
10.12 Private Equity Line of Credit Registration Rights Agreement (5)
10.13 Stock Purchase Warrant for Moldbury Holdings Limited (5)
10.14 Advertising Agreement dated August 11, 2000 (9)
99.1 Statement of CEO pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002**
99.2 Statement of CFO pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002**
----------
(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.
21
(3) Incorporated herein in its entirety by reference to the Company's
1998 Annual Report on Form 10-KSB.
(4) Incorporated herein in its entirety by reference to the Company's
1999 Annual Report on Form 10-KSB.
(5) Incorporated herein in its entirety by reference to the Company's
SB-2 filed on March 28, 2000.
(6) Incorporated herein in its entirety by reference to the Company's
SB-2A filed on April 21, 2000.
(7) Incorporated herein in its entirety by reference to the Company's
Form 8-K filed on May 17, 2000.
(8) Incorporated herein in its entirety by reference to the Company's
Form 8-K filed on June 21, 2000.
(9) Incorporated herein in its entirety by reference to the Company's
Form 8-K filed on August 24, 2000.
(10) Incorporated herein in its entirety by reference to the Company's
2000 Annual Report on Form 10-KSB.
(11) Incorporated herein in its entirety by reference to the Company's
2001 Annual Report on Form 10-KSB.
(12) Incorporated herein in its entirety by reference to the Company's
2002 Annual Report on Form 10-KSB.
** Filed herewith.
(b) Reports on Form 8-K.
Form 8-K was filed on November 8, 2002 to announce that the Company
had received notification from Nasdaq Listing Qualifications that
its common stock had not maintained a minimum bid price of $1.00
over the previous 30 consecutive trading days as required by Nasdaq
Listing Qualifications.
Form 8-K was filed on November 21, 2002 to announce that the Company
had received notification from Nasdaq Listing Qualifications that
the Company was not in compliance with Marketplace Rule
4310(c)(2)(B), which requires the Company to have a minimum of
$2,500,000 in stockholders' equity or a market value of listed
securities of $35,000,000 or $500,000 of net income from continuing
operations for the most recently completed fiscal year or two of the
three most recently completed fiscal years.
Form 8-K was filed on December 27, 2002 to announce that the Company
received a Nasdaq Staff Determination that its securities are
subject to delisting from The Nasdaq SmallCap Market. The Company
requested a hearing before a Nasdaq Listing Qualifications Panel to
review the Nasdaq Staff determination.
22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CLICKNSETTLE.COM, INC.
Date: February 11, 2003 By: /s/ Roy Israel
--------------------------------
Roy Israel, President and CEO
Date: February 11, 2003 By: /s/ Patricia A. Giuliani-Rheaume
--------------------------------
Patricia A. Giuliani-Rheaume, Vice
President, Treasurer and CFO
23
CERTIFICATION
I, Roy Israel, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of clickNsettle.com,
Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
24
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 11, 2003
/s/ Roy Israel
----------------------------------
Roy Israel - Chairman of the Board, CEO and President
25
CERTIFICATION
I, Patricia Giuliani-Rheaume, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of clickNsettle.com,
Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
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6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 11, 2003
/s/ Patricia Giuliani-Rheaume
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Patricia Giuliani-Rheaume - Vice President, Chief Financial Officer and
Treasurer
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