-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VeZDxUlRTQYysB79BTv4fFzk0hly+TbDcjgRNm7YIU5PiT1OnugFhkqusS1EY+Ya 2Cxa8/V2lH05kicvBWOOTA== 0001125282-01-500463.txt : 20010516 0001125282-01-500463.hdr.sgml : 20010516 ACCESSION NUMBER: 0001125282-01-500463 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLICKNSETTLE COM INC CENTRAL INDEX KEY: 0000925741 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 232753988 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21419 FILM NUMBER: 1637554 BUSINESS ADDRESS: STREET 1: 1010 NORTHERN BLVD STREET 2: STE 336 CITY: GREAT NECK STATE: NY ZIP: 11021 MAIL ADDRESS: STREET 1: 1010 NORTHERN BLVD., SUITE 336 CITY: GREAT NECK STATE: NY ZIP: 11021 FORMER COMPANY: FORMER CONFORMED NAME: NAM CORP DATE OF NAME CHANGE: 19960802 10QSB 1 b311543_10qsb.txt FORM 10QSB - -------------------------------------------------------------------------------- U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-QSB |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 |_| 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 (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) 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 report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of May 9, 2001, 4,335,426 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 March 31, 2001 and June 30, 2000 3 Consolidated Statements of Operations for the three and nine month periods ended March 31, 2001 and 2000 4 Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Loss for the nine month periods ended March 31, 2001 and 2000 5 Consolidated Statements of Cash Flows for the nine month periods ended March 31, 2001 and 2000 6 Notes to Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 16 Item 6. Exhibits and Reports on Form 8-K 16 2 clickNsettle.com, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
March 31, June 30, 2001 2000 -------------------- ---------------------- (unaudited) (derived from audited financial statements) ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,585,752 $ 5,976,439 Marketable securities 368,616 601,188 Accounts receivable (net of allowance for doubtful accounts of $140,000) 293,868 443,469 Other receivables 34,964 9,718 Prepaid expenses 297,833 76,528 -------------------- ---------------------- Total current assets 5,581,033 7,107,342 FURNITURE AND EQUIPMENT - AT COST, less accumulated depreciation 333,999 290,836 OTHER ASSETS 355,781 30,711 -------------------- ---------------------- $ 6,270,813 $ 7,428,889 ==================== ====================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 193,712 $ 406,078 Accrued liabilities and dividends payable 510,625 356,611 Accrued payroll and employee benefits 80,170 93,822 Deferred revenues 269,828 306,004 -------------------- ---------------------- Total current liabilities 1,054,335 1,162,515 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Series A Exchangeable Preferred stock - $.001 par value; 2,100 shares authorized; 1,800 and 1,850 shares issued and outstanding, respectively; liquidation preference of $1,000 per share 1,600,481 1,634,789 Common stock - $.001 par value; 15,000,000 shares authorized; 4,350,776 and 4,093,279 shares issued, respectively; 4,345,776 and 4,093,279 shares outstanding, respectively 4,351 4,093 Additional paid-in capital 10,105,357 8,939,677 Accumulated deficit (6,458,859) (4,326,628) Accumulated other comprehensive income (30,705) 14,443 Less: common stock in treasury at cost, 5,000 and 0 shares, respectively (4,147) - -------------------- ---------------------- Total stockholders' equity 5,216,478 6,266,374 -------------------- ---------------------- $ 6,270,813 $ 7,428,889 ==================== ======================
The accompanying notes are an integral part of these statements. 3 clickNsettle.com, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended March 31, Nine months ended March 31, 2001 2000 2001 2000 ------------- ------------- -------------- -------------- Net revenues $ 824,939 $ 946,237 $ 2,771,375 $ 2,921,989 ------------- ------------- -------------- -------------- Operating costs and expenses Cost of services 211,467 231,290 687,327 725,698 Sales and marketing expenses 499,216 513,563 1,798,533 1,570,858 General and administrative expenses 593,869 606,459 2,130,755 1,825,880 ------------- ------------- -------------- -------------- 1,304,552 1,351,312 4,616,615 4,122,436 ------------- ------------- -------------- -------------- Loss from operations (479,613) (405,075) (1,845,240) (1,200,447) Other income (expenses) Investment income (loss) (68,385) 62,065 (25,870) 306,600 Other income 15,157 3,224 21,377 14,391 ------------- ------------- -------------- -------------- (53,228) 65,289 (4,493) 320,991 ------------- ------------- -------------- -------------- Loss before income taxes (532,841) (339,786) (1,849,733) (879,456) Income taxes - - - - ------------- ------------- -------------- -------------- NET LOSS $ (532,841) $ (339,786) $(1,849,733) $ (879,456) Preferred stock dividend and deemed dividend on preferred stock for beneficial conversion (18,133) (39,695) (64,915) (39,695) ------------- ------------- -------------- -------------- Loss before cumulative effect of change in accounting principle for deemed dividend on preferred stock for beneficial conversion $ (550,974) $ (379,481) $(1,914,648) $ (919,151) Cumulative effect of change in accounting principle for deemed dividend on preferred stock for beneficial conversion $ - $ - $ (217,583) $ - ------------- ------------- -------------- -------------- Net loss attributable to common stockholders $ (550,974) $ (379,481) $(2,132,231) $ (919,151) ============= ============= ============== ============== Loss per common share - basic and diluted: Loss before cumulative effect of change in accounting principle $ (0.13) $ (0.11) $ (0.45) $ (0.27) Cumulative effect of change in accounting principle - - (0.05) - ------------- ------------- ------------------------------ Net loss per common share $ (0.13) $ (0.11) $ (0.50) $ (0.27) ============= ============= ============== ============== Weighted average shares outstanding - basic and diluted 4,327,448 3,432,783 4,285,092 3,419,670 ============= ============= ============== ==============
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 Nine months ended March 31, 2001 and 2000
Preferred stock Common stock --------------- ------------ Shares Amount Shares Amount ------------------------------------------------------------ Balances at June 30, 1999 3,370,739 $3,371 Compensation related to stock options and warrants Common shares issued pursuant to restricted stock awards 36,744 37 Common shares issued upon exercise of stock options and warrants 33,126 33 Gain on shareholder's stock Common shares and warrants issued pursuant to preferred stock and equity line of credit offerings, net of issuance costs of $191,954 1,850 $ 1,543,456 10,000 10 Preferred stock dividend and deemed dividend on preferred stock for beneficial conversion 30,445 Net loss Change in unrealized gain (loss) on marketable securities Comprehensive loss ------------------------------------------------------------ Balances at March 31, 2000 1,850 $ 1,573,901 3,450,609 $ 3,451 ============================================================ Balances at June 30, 2000 1,850 $1,634,789 4,093,279 $4,093 Compensation related to stock options and warrants Common shares issued upon exercise of stock options 11,250 11 Common shares issued in exchange for future advertising services, net of issuance costs of $1,015 184,422 184 Common shares issued 18,662 19 Preferred stock dividend and deemed dividend on preferred stock for beneficial conversion 10,149 Common shares issued pursuant to conversion of preferred stock (50) (44,457) 43,163 44 Purchase of 5,000 common shares for treasury Cumulative effect of change in accounting principle for deemed dividend on preferred stock for beneficial conversion Net loss Change in unrealized gain (loss) on marketable securities Comprehensive loss ------------------------------------------------------------ Balances at March 31, 2001 1,800 1,600,481 4,350,776 4,351 ============================================================ Accumulated Additional other paid-in Accumulated comprehensive capital deficit income (loss) ------------------------------------------------------------ Balances at June 30, 1999 $4,797,637 ($2,663,446) $95,256 Compensation related to stock options and warrants 15,667 Common shares issued pursuant to restricted stock awards (37) Common shares issued upon exercise of stock options and warrants 52,712 Gain on shareholder's stock 1,720 Common shares and warrants issued pursuant to preferred stock and equity line of credit offerings, net of issuance costs of $191,954 114,580 Preferred stock dividend and deemed dividend on preferred stock for beneficial conversion (39,695) Net loss (879,456) Change in unrealized gain (loss) on marketable securities 45,321 Comprehensive loss ------------------------------------------------------------ Balances at March 31, 2000 $ 4,982,279 $ (3,582,597) $ 140,577 ============================================================ Balances at June 30, 2000 $8,939,677 ($4,326,628) $14,443 Compensation related to stock options and warrants 35,904 Common shares issued upon exercise of stock options 21,084 Common shares issued in exchange for future advertising services, net of issuance costs of $1,015 768,801 Common shares issued 77,895 Preferred stock dividend and deemed dividend on preferred stock for beneficial conversion (64,915) Common shares issued pursuant to conversion of preferred stock 44,413 Purchase of 5,000 common shares for treasury Cumulative effect of change in accounting principle for deemed dividend on preferred stock for beneficial conversion 217,583 (217,583) Net loss (1,849,733) Change in unrealized gain (loss) on marketable securities (45,148) Comprehensive loss ------------------------------------------------------------ Balances at March 31, 2001 10,105,357 (6,458,859) (30,705) ============================================================ Common Total Compre- stock in stockholders' hensive treasury equity loss ------------------------------------------------- Balances at June 30, 1999 $ 2,232,818 Compensation related to stock options and warrants 15,667 Common shares issued pursuant to restricted stock awards Common shares issued upon exercise of stock options and warrants 52,745 Gain on shareholder's stock 1,720 Common shares and warrants issued pursuant to preferred stock and equity line of credit offerings, net of issuance costs of $191,954 1,658,046 Preferred stock dividend and deemed dividend on preferred stock for beneficial conversion (9,250) Net loss (879,456) $ (879,456) Change in unrealized gain (loss) on marketable securities 45,321 45,321 ----------------- Comprehensive loss $ (834,135) ================= -------------------------------- Balances at March 31, 2000 $ 3,117,611 ================================ Balances at June 30, 2000 $6,266,374 Compensation related to stock options and warrants 35,904 Common shares issued upon exercise of stock options 21,095 Common shares issued in exchange for future advertising services, net of issuance costs of $1,015 768,985 Common shares issued 77,914 Preferred stock dividend and deemed dividend on preferred stock for beneficial conversion (54,766) Common shares issued pursuant to conversion of preferred stock Purchase of 5,000 common shares for treasury (4,147) (4,147) Cumulative effect of change in accounting principle for deemed dividend on preferred stock for beneficial conversion Net loss (1,849,733) $ (1,849,733) Change in unrealized gain (loss) on marketable securities (45,148) (45,148) ----------------- Comprehensive loss $ (1,894,881) ================= -------------------------------- Balances at March 31, 2001 (4,147) $5,216,478 ================================
The accompanying notes are an integral part of these statements. 5 clickNsettle.com, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended March 31,
2001 2000 ------------------ --------------------- Cash flows from operating activities Net loss $(1,849,733) $ (879,456) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 81,307 87,160 Losses (gains) on sales of marketable securities 120,947 (259,194) Writedown of marketable securities 133,160 Losses on sales of furniture and equipment - 383 Advertising in exchange for common stock 217,626 Compensation related to stock options and warrants 35,904 15,667 Changes in operating assets and liabilities Decrease in accounts receivable 149,601 82,165 (Increase) in other receivables (25,246) (11,651) Decrease (increase) in prepaid expenses 18,573 (2,351) (Increase) decrease in other assets (12,574) 1,189 (Decrease) in accounts payable and accrued liabilities (113,119) (13,613) (Decrease) in accrued payroll and employee benefits (13,652) (71,073) (Decrease) increase in deferred revenues (36,176) 44,244 ------------------ --------------------- Net cash used in operating activities (1,293,382) (1,006,530) ------------------ --------------------- Cash flows from investing activities Purchases of marketable securities (193,728) (960,144) Proceeds from sales of marketable securities 127,047 932,150 Proceeds from maturities of marketable securities - 100,000 Decrease in receivable for securities sold - 55,426 Purchases of furniture and equipment (124,471) (103,810) ------------------ --------------------- Net cash (used in) provided by investing activities (191,152) 23,622 ------------------ --------------------- Cash flows from financing activities Issuance of common stock, net of issuance costs 97,994 52,745 Purchase of treasury stock at cost (4,147) - Issuance of preferred stock and warrants, net of issuance costs - 1,658,046 Gain on shareholder's stock - 1,720 ------------------ --------------------- Net cash provided by financing activities 93,847 1,712,511 ------------------ --------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,390,687) 729,603 Cash and cash equivalents at beginning of period 5,976,439 1,776,261 ------------------ --------------------- Cash and cash equivalents at end of period $ 4,585,752 $2,505,864 ================== ===================== Supplemental disclosure of cash flow information: Noncash financing activities Preferred stock dividend and deemed dividend on preferred stock for beneficial conversion $ 64,915 $ 39,695 Issuance of common stock in exchange for prepaid advertising 770,000 Conversion of preferred stock to common stock 44,457
The accompanying notes are an integral part of these statements. 6 CLICKNSETTLE.COM, INC. and SUBSIDIARIES Notes to Consolidated Financial Statements Nine months ended March 31, 2001 (Unaudited) 1. The consolidated balance sheet as of March 31, 2001 and the related consolidated statements of operations for the three and nine month periods ended March 31, 2001 and 2000 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 March 31, 2001 and for all periods presented, consisting of normal recurring adjustments, have been made. Results of operations for the three and nine month periods ended March 31, 2001 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, 2000 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, 2000 consolidated financial statements. 2. The components of comprehensive income (loss) are as follows: Three months ended March 31, 2001 2000 ---- ---- Net loss $ (532,841) $ (339,786) Change in unrealized gain (loss) on marketable securities 94,155 105,274 -------------------- ------------------- Comprehensive loss $ (438,686) $ (234,512) -------------------- ------------------- Nine months ended March 31, 2001 2000 ---- ---- Net loss $ (1,849,733) $ (879,456) Change in unrealized gain (loss) on marketable securities (45,148) 45,321 -------------------- ------------------- Comprehensive loss $ (1,894,881) $ (834,135) -------------------- ------------------- 3. Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share are based on the weighted-average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options and warrants and conversion of preferred stock, reduced by the shares that may be repurchased with the funds received from the exercise and conversion, based on the average price during the period. Diluted earnings per share is the same as basic earnings per share as potential common shares of 6,093,996 and 3,060,376 at March 31, 2001 and 2000, respectively, would be antidilutive as the Company incurred net losses for the three month and nine month periods ended March 31, 2001 and 2000. 7 4. The Company adopted certain provisions of Emerging Issue Task Force ("EITF") 00-27, "Application of EITF Issue No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios' to Certain Convertible Instruments," in the second quarter of fiscal 2001. EITF 00-27 changed the approach of calculating the conversion price used in determining the value of the beneficial conversion feature from using the conversion price stated in the preferred stock certificate to using the effective conversion price. The adoption of this EITF increased the original value of the beneficial conversion feature to $319,065 from $101,482 that was recorded in connection with the preferred stock issuance in February 2000. In accordance with EITF, the adoption was treated as a cumulative effect of an accounting change which resulted in a cumulative adjustment to dividends of $217,583. This non-recurring charge was recorded in the second quarter of fiscal 2001. 5. On August 11, 2000, the Company entered into an advertising agreement with American Lawyer Media, Inc. (ALM), whereby the Company issued 184,422 fully vested, non-forfeitable common shares to ALM in exchange for $1 million of advertising and promotional opportunities in national and regional ALM properties over a two-year term. The number of shares issued by the Company was calculated as $770,000 divided by $4.175, the average per share closing price of the common stock for the five trading days prior to August 11, 2000. The Company initially recorded $770,000 in prepaid advertising. Such amount will be expensed when the advertising takes place. During the three and nine month periods ended March 31, 2001, the Company expensed $92,814 and $217,626, respectively, of advertising costs related to this transaction. As of March 31, 2001, $239,878 was classified as short term and included in prepaid expenses and $312,496 was classified as long term and included in other assets based on the expected utilization. The Company has agreed to purchase $250,000 in additional advertising in the year subsequent to the initial two-year term if certain agreed-upon criteria are not achieved on February 11, 2002. Pursuant to the Stock Purchase Agreement between the Company and ISO Investment Holdings, Inc. (ISO) whereby ISO purchased 642,570 common shares at a price of $6.225 per share, ISO is entitled to purchase, upon the same terms, such number of securities to enable it to retain its fully diluted ownership position in the Company after the issuance of shares to ALM. ISO exercised this preemptive right on August 21, 2000, whereby the Company issued 18,662 shares of common stock to ISO at $4.175 per share. The total offering price was $77,914. 6. As of March 31, 2001, the Company evaluated the carrying value of its investments in marketable equity securities, especially those in the technology sector. As a result, the Company recognized a writedown for other than a temporary decline in the value of such securities in the amount of $133,160. Such realized loss is included in investment income (loss) on the accompanying statement of operations for the three months and nine months ended March 31, 2001. 8 7. On March 6, 2001, 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 last 30 consecutive trading days. As a result, the Company has been provided 90 calendar days, or until June 4, 2001, to regain compliance with this requirement. If the Company is unable to demonstrate compliance with this rule on or before June 4, 2001, the Company's common stock may be delisted. At that time, the Company may appeal the decision to delist the common stock. The appeal process may take up to an additional 45 days to occur. During this period, if the Company demonstrates compliance, the listing status could be preserved. 8. On March 23, 2001, 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 was increased from 600,000 to an aggregate of 800,000 shares. The Plan shall expire on the earlier of all of the shares being purchased or March 23, 2002, provided, however, that the Plan may be discontinued at any time by the Company. As of March 31, 2001, the Company purchased 5,000 shares under the Plan. 9. On April 5, 2001, pursuant to approval by the Board of Directors, the Company bought back all of its Series A Exchangeable Preferred stock at par value. There were 1,800 shares outstanding before the redemption and the Company paid $1,800,000 to buy back these shares. The 4% accrued dividend on the preferred shares, aggregating $82,517 at March 31, 2001, was terminated retroactively resulting in no payment of dividends from the inception of the issuance of the preferred shares in February 2000. 9 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 web site and in-person and video-conferenced arbitration and mediation programs. General We provide alternative dispute resolution services, or ADR services, to insurance companies, law firms, corporations and municipalities, on an in-person basis, via video conferencing and on the Internet through our clickNsettle.com web site. We focus the majority of our marketing efforts on developing and expanding relationships with these entities, which we believe are some of the largest consumers of ADR services. We believe that with our global roster of qualified hearing officers, video conferencing capabilities, knowledge of dispute resolution, reputation within the corporate and legal communities and Internet-based dispute resolution programs, we are uniquely positioned to provide a comprehensive web-enabled total solution to disputing parties worldwide. We currently operate from locations in New York, Massachusetts and Tennessee. Our objective is to become the leading global provider of dispute resolution services by providing the total solution for our clients; by offering one-stop shopping for anyone involved in any type of dispute, anywhere in the world; and to provide this service more quickly, economically and efficiently than previously possible. We intend to achieve this goal by employing the following strategies: (1) marketing our comprehensive suite of web-enabled dispute resolution tools which are designed to attract a larger customer base on a global scale with lower incremental costs; (2) positioning clickNsettle.com as a necessary component of e-commerce transactions so as to provide a mechanism for the resolution of any potential dispute, should one occur, among parties who may be geographically diverse; (3) focusing our advertising campaign towards building brand recognition; (4) accelerating efforts to secure exclusive relationships with corporations and law firms in order to obtain contracts on an international basis by capitalizing on our market position; (5) continue to explore strategic alliances with business entities that have the ability to promote clickNsettle.com; and (6) becoming a primary provider of international, insurance no-fault and intellectual property dispute resolution. We believe that the current economic slowdown is an environment which should encourage the use of our services as more business entities are focusing on cost saving measures given the tremendous expense related to the litigation process versus our quicker, more efficient dispute resolution process. 10 We have and will continue to incur net losses in the future as a result of (a) continuing development and other costs associated with our Internet initiative and (b) our advertising campaign. Although we are actively promoting our services, there can be no assurance that the revenues to be realized therefrom will exceed the expenses to be incurred. Additionally, our advertising campaign will continue through fiscal year 2002. In August 2000, we signed an agreement with American Lawyer Media, 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 184,422 shares of our common stock. We believe that targeting our advertising to the legal community will continue to increase awareness of our comprehensive suite of dispute resolution services. However, there can be no assurance that this effort will result in increased revenues. Third Quarter Ended March 31, 2001 Compared to Third Quarter Ended March 31, 2000 Revenues. Revenues decreased 12.8% to $824,939 for the third quarter ended March 31, 2001 from $946,237 for the comparable prior period. The decrease in revenues is attributable to a decline in the number of in-person hearings conducted at our satellite offices. As such, we elected to close these offices as the expense of running additional non-hub locations adversely affected earnings. Utilizing the www.clickNsettle.com web site as a centralized dispute resolution location, we began migrating our marketing efforts towards fewer but more efficient primary customer service centers and national account arrangements rather than numerous smaller regional locations. We believe that building on the present platform is the appropriate strategy to enhance operating results. Furthermore, due to inclement weather in the northeast during March, several days of hearings had to be adjourned and cancelled. Additionally, we experienced a rise in the average dollars earned per in-person hearing due to an increase in commercial and multi-party cases heard during the third quarter of fiscal year 2001. We believe this trend will continue as we further exploit the market for these types of cases. Cost of Services. Cost of services decreased 8.6% to $211,467 for the third quarter ended March 31, 2001 from $231,290 for the third quarter ended March 31, 2000. Additionally, the cost of services as a percentage of revenues increased slightly to approximately 26% in the third quarter of fiscal year 2001 from 24% in the third quarter of fiscal year 2000. The ratio of cost of services to revenues will fluctuate based on the amount of electronic revenue (which does not require the services of an in-person hearing officer), the number of hours per case, as well as our ability (or inability) to take advantage of volume arrangements with hearing officers which usually lower the cost per case. Additionally, although the direct cost of services for commercial cases tends to be higher as a percentage of revenue, profit thereon is typically greater. These cases are apt to be longer in duration and require less sales and administrative effort on a per case basis. 11 Sales and Marketing. Sales and marketing costs decreased 2.8% to $499,216 for the third quarter ended March 31, 2001 from $513,563 for the third quarter ended March 31, 2000. Salary and related items (including payroll taxes and benefits) decreased by approximately $83,900. Having consolidated our offerings into a one-stop, comprehensive suite of web-enabled dispute resolution tools, we were able to streamline sales management and reduce related costs. Additionally, travel and entertainment declined $24,300 as out of state travel was reduced while the sales team followed up on leads generated from trade shows/trips made in prior periods. Offsetting such decreases were higher costs incurred for advertising and external public relations expenditures. Such costs increased by approximately $85,900 during the third quarter of fiscal year 2001 from the comparable prior year period. Additional expenditures for print advertising will be incurred during the remainder of the fiscal year and into fiscal year 2002 in connection with our agreement with American Lawyer Media, Inc. Due to the economic slowdown, many businesses are decreasing the level of advertising and therefore, as commercial clutter lessens, we believe that our targeted campaign should be more prominent and receive more attention. Sales and marketing costs as a percentage of revenues increased to 61% in the third quarter of fiscal year 2001 from 54% in the third quarter of fiscal year 2000. General and Administrative. General and administrative costs decreased 2.1% to $593,869 for the third quarter ended March 31, 2001 from $606,459 for the third quarter ended March 31, 2000. As part of an effort to reduce overhead, we reduced expenditures for legal fees, seminars, auto expenses, telephone, recruitment fees and miscellaneous expenses that approximated $61,300. Offsetting these declines was an increase in salary and related items (including payroll taxes, benefits and outside services) which rose by approximately $31,300 due to increases in staff for data processing and other administrative functions to support and enhance "our total solution" offering. The remaining increase was largely related to higher rent and utilities in the amount of $17,900 due to the leasing of additional space at our headquarters in Great Neck, New York as of July 1, 2000. General and administrative costs as a percentage of revenues increased to 72% in the third quarter of fiscal year 2001 from 64% for the comparable prior period. Other (Expenses) Income. Other (expenses) income changed from income of $65,289 for the third quarter ended March 31, 2000 to an expense of ($53,228) for the third quarter ended March 31, 2001. Other (expenses) income is composed primarily of investment income and realized gains (losses) generated from investments. As of March 31, 2001, the Company evaluated the carrying value of its investments in marketable equity securities, especially those in the technology sector. As a result, the Company recognized a writedown for other than a temporary decline in the value of such securities. Such realized loss is included in investment income (loss) on the accompanying statement of operations for the three months ended March 31, 2001. As a result, net realized losses approximated $133,100 for the third quarter of fiscal year 2001 as compared to gains of approximately $45,500 in the prior fiscal period. Offsetting this decline was an increase in investment income of approximately $47,700 which rose due to higher invested balances in money market accounts as a result of additional financing received in the second half of fiscal year 2000. At March 31, 2001, approximately 92% 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 three-month periods ended March 31, 2001 and 2000 were not recognized as we recorded a full valuation allowance against the net operating loss carryforwards during the periods. 12 Net Loss. For the three months ended March 31, 2001, we had a net loss of ($532,841) as compared to a net loss of ($339,786) for the three months ended March 31, 2000. The loss increased primarily due to the writedown of marketable securities for an other than temporary decline in value as well as a decline in revenue which was partially offset by a decrease in operating costs and expenses which reduced overhead. Nine Months Ended March 31, 2001 Compared to Nine Months Ended March 31, 2000 Revenues. Revenues decreased 5.2% to $2,771,375 for the nine months ended March 31, 2001 from $2,921,989 for the comparable prior period. The decrease in revenues is attributable to a decline in the number of in-person hearings conducted at our satellite offices. As such, we elected to close these offices as the expense of running additional non-hub locations adversely affected earnings. Utilizing the www.clickNsettle.com web site as a centralized dispute resolution location, we began migrating our marketing efforts towards fewer but more efficient primary customer service centers and national account arrangements rather than numerous smaller regional locations. We believe that building on the present platform is the appropriate strategy to enhance operating results. Furthermore, due to inclement weather in the northeast during March, several days of hearings had to be adjourned and cancelled. Offsetting this decline was a rise in the average dollars earned per in-person hearing, fees earned from international/commercial cases and revenues from a video-conferencing dispute resolution contract. Cost of Services. Cost of services decreased 5.3% to $687,327 for the nine months ended March 31, 2001 from $725,698, for the nine months ended March 31, 2000. Additionally, the cost of services as a percentage of revenues remained the same at approximately 25% in the first nine months of fiscal year 2001 as well as the first nine months of fiscal year 2000. The ratio of cost of services to revenues will fluctuate based on the amount of electronic revenue (which does not require the services of an in-person hearing officer), the number of hours per case, as well as our ability (or inability) to take advantage of volume arrangements with hearing officers which usually lower the cost per case. Sales and Marketing. Sales and marketing costs increased by 14.5% to $1,798,533 for the nine months ended March 31, 2001 from $1,570,858 for the nine months ended March 31, 2000. Sales and marketing costs as a percentage of revenues increased to 65% for the first nine months of fiscal year 2001 from 54% for the first nine months of fiscal year 2000. The increase largely relates to advertising and external public relations costs, which rose by approximately $282,000 from the first nine months of fiscal year 2000 to the first nine months of fiscal year 2001. Additional expenditures for print advertising will be incurred during the remainder of the fiscal year and into fiscal year 2002 in connection with our agreement with American Lawyer Media, Inc. Due to the economic slowdown, many businesses are decreasing the level of advertising and therefore, as commercial clutter lessens, we believe that our targeted campaign should be more prominent and receive more attention. Furthermore, trade show and promotions expense increased by about $87,600 as the Company participated in several large legal and insurance related exhibitions earlier in the year to promote the "total solution." Offsetting these increases were declines in salaries and related costs (including benefits and payroll taxes) and travel and entertainment expenses which in total approximated $140,000. Having consolidated our offerings into a one-stop, comprehensive suite of web-enabled dispute resolution tools, we were able to streamline sales management and reduce related costs including travel and entertainment expenses. 13 General and Administrative. General and administrative costs increased 16.7% to $2,130,755 for the nine months ended March 31, 2001 from $1,825,880 for the nine months ended March 31, 2000. A portion of the increase (approximately $214,100) relates to professional fees for various consulting services, a majority of which related to market research, systems evaluations and investor relations projects which were completed by the end of the second quarter of fiscal year 2001. These initiatives were undertaken in order to position us for future growth and to enhance operating efficiencies. Secondly, salary and related items (including payroll taxes, benefits and outside services) rose by approximately $92,500 due to increases in staff for data processing and other administrative functions to support and enhance "our total solution" offering. Thirdly, we incurred approximately $38,000 in one-time costs to promote our company to investors overseas. The remaining increase was largely related to higher rent and utilities in the amount of $51,600 due to the leasing of additional space at our headquarters in Great Neck, New York as of July 1, 2000. Offsetting the above were declines in legal fees, seminars, auto expenses, telephone costs and miscellaneous expenses approximating $99,300. Furthermore, general and administrative costs as a percentage of revenues increased to 77% in the first nine months of fiscal year 2001 from 62% for the comparable prior period. Other (Expenses) Income. Other income declined from $320,991 for the first nine months of fiscal year 2000 to an expense of ($4,493) for the first nine months of fiscal year 2001. Other income (expenses) is composed primarily of investment income and realized gains (losses) generated from investments. As of March 31, 2001, the Company evaluated the carrying value of its investments in marketable equity securities, especially those in the technology sector. As a result, the Company recognized a writedown for other than a temporary decline in the value of such securities. Such realized loss is included in investment income (loss) on the accompanying statement of operations for the nine months ended March 31, 2001. Additionally, during the first six months of the fiscal year, we sold a portion of our marketable securities. As a result, net realized losses (including the writedown of $133,100) approximated $254,100 for the first nine months of fiscal year 2001 as compared to gains of approximately $258,800 in the prior fiscal period. Offsetting this decline was an increase in investment income of approximately $178,500 which rose due to higher invested balances in money market accounts as a result of additional financing received in the second half of fiscal year 2000. At March 31, 2001, approximately 92% 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 nine-month periods ended March 31, 2001 and 2000 were not recognized as we recorded a full valuation allowance against the net operating loss carryforwards during the periods. Net Loss. For the nine months ended March 31, 2001, we had a net loss of ($1,849,733) as compared to a net loss of ($879,456) for the nine months ended March 31, 2000. The loss increased primarily due to investments in advertising and, for the most part, non-continuing consulting projects as well as realized losses on the sale and writedown of marketable securities. 14 Liquidity and Capital Resources At March 31, 2001, we had working capital surplus of $4,526,698 compared to $5,944,827 at June 30, 2000. Net cash used in operating activities was $1,293,382 for the nine months ended March 31, 2001 versus $1,006,530 in the prior comparable period. The decrease in working capital and the increase in net cash used in operating activities occurred primarily as a result of the loss from operations. Net cash used in investing activities was $191,152 for the nine months ended March 31, 2001 versus $23,622 of cash provided in the comparable prior period. The change is due to the fact that purchases of investments and furniture and equipment exceeded sales in the current period while there was a higher proportion of maturities and sales of securities in the investment portfolio in the prior period. Net cash provided by financing activities was $93,847 for the nine months ended March 31, 2001 versus $1,712,511 for the prior comparable period. In the prior year period, we issued Series A Exchangeable Preferred stock for $1,850,000 less issuance costs. No similar transaction occurred in the current period. On April 5, 2001, pursuant to approval by the Board of Directors, the Company bought back all of its Series A Exchangeable Preferred stock at par value. There were 1,800 shares outstanding before the redemption and the Company paid $1,800,000 to buy back these shares. The 4% accrued dividend on the preferred shares, aggregating $82,517 at March 31, 2001, was terminated retroactively resulting in no payment of dividends from the inception of the issuance of the preferred shares in February 2000. We anticipate that funds received in connection with the issuance of common stock in the prior fiscal year will be sufficient to fund our operations for the next year. Additionally, under an Equity Line of Credit Agreement, we have the right, until February 15, 2003, to require that the investor purchase between $500,000 and $7,000,000 of our common stock. The availability to use this line is limited based on the closing bid price of our common stock and the average trading volume of such stock in a thirty-day period. If the closing bid price and average trading volume are below a defined minimum, the maximum amount available at that point in time is $250,000. There is also a minimum of 15 days between each request for investment. NASDAQ Continued Listing On March 6, 2001, 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 last 30 consecutive trading days. As a result, the Company has been provided 90 calendar days, or until June 4, 2001, to regain compliance with this requirement. If the Company is unable to demonstrate compliance with this rule on or before June 4, 2001, the Company's common stock may be delisted. At that time, the Company may appeal the decision to delist the common stock. The appeal process may take up to an additional 45 days to occur. During this period, if the Company demonstrates compliance, the listing status could be preserved. 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings. Not applicable. Item 2. Changes in Securities and Use of Proceeds. In November 1996, we raised additional capital through an initial public offering of our securities. Net proceeds after offering expenses approximated $4,700,000, of which $3,862,000 had been utilized through June 30, 2000 as disclosed in our Form 10-KSB. During the nine months ended March 31, 2001, we additionally expended the remaining balance of approximately $838,000 for working capital and general corporate purposes. Item 3. Defaults upon Senior Securities. Not applicable. Item 4. Submission of matters to a Vote of Security Holders. Not applicable. 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 (6) 3.1 (c) Certificate of Correction of Certificate of Designation of Series A Exchangeable Preferred Stock (7) 3.1 (d) Certificate of Amendment of Certificate of Incorporation (9) 3.2 By-Laws of the Company, as amended (4) 4.1 Stock Purchase Agreement dated May 10, 2000 (8) 4.2 Stock Purchase Warrant Agreement dated May 10, 2000 (8) 10.1 1996 Stock Option Plan, amended and restated (4) 10.2 Employment Agreement between Company and Roy Israel(3) 10.2.1 Amendment to Employment Agreement between Company and Roy Israel (4) 10.5 Employment Agreement between Company and Patricia Giuliani-Rheaume (2) 10.7 Lease Agreement for Great Neck, New York facility (1) 10.7.1 Amendment to Lease Agreement for Great Neck, New York facility (5) 10.7.2 Second Amendment to Lease Agreement for Great Neck, New York facility (11) 10.8 Exchangeable Preferred Stock and Warrants Purchase Agreement (6) 10.9 Preferred Stock Registration Rights Agreement (6) 10.11 Private Equity Line of Credit Agreement between Moldbury Holdings and Company (6) 10.12 Private Equity Line of Credit Registration Rights Agreement (6) 10.13 Stock Purchase Warrant for Moldbury Holdings Limited (6) 10.14 Advertising Agreement dated August 11, 2000 (10)
- ---------- (1) Incorporated herein in its entirety by reference to the Company's Registration Statement on Form SB-2, Registration No. 333-9493, as filed with the Securities and Exchange Commission on August 2, 1996. (2) Incorporated herein in its entirety by reference to the Company's 1997 Annual Report on Form 10-KSB. (3) Incorporated herein in its entirety by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997. (4) Incorporated herein in its entirety by reference to the Company's 1998 Annual Report on Form 10-KSB. (5) Incorporated herein in its entirety by reference to the Company's 1999 Annual Report on Form 10-KSB. (6) Incorporated herein in its entirety by reference to the Company's SB-2 filed on March 28, 2000. (7) Incorporated herein in its entirety by reference to the Company's SB-2A filed on April 21, 2000. (8) Incorporated herein in its entirety by reference to the Company's Form 8-K filed on May 17, 2000. (9) Incorporated herein in its entirety by reference to the Company's Form 8-K filed on June 21, 2000. (10) Incorporated herein in its entirety by reference to the Company's Form 8-K filed on August 24, 2000. (11) Incorporated herein in its entirety by reference to the Company's 2000 Annual Report on Form 10-KSB. (b) Reports on Form 8-K. Form 8-K was filed on March 23, 2001 to announce the extension of our March 1998 purchase plan to acquire up to 800,000 shares of our common stock for a one-year period. Form 8-K was filed on April 11, 2001 in conjunction with the redemption of all of our outstanding Series A Exchangeable Preferred stock at par value. 17 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CLICKNSETTLE.COM, INC. Date: May 14, 2001 By: /s/ Roy Israel -------------------------------- Roy Israel, President and CEO Date: May 14, 2001 By: /s/ Patricia A. Giuliani-Rheaume -------------------------------- Patricia A. Giuliani-Rheaume, Vice President, Treasurer and CFO 18 -----END PRIVACY-ENHANCED MESSAGE-----