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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 0-21419
NAM CORPORATION
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(Name of small business issuer as specified in its charter)
Delaware 23-2753988
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(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
1010 NORTHERN BOULEVARD, SUITE 336
GREAT NECK, NEW YORK 10021
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(Address of Principal Executive Offices)
(516) 829-4343
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock $.001 Par Value NASDAQ Small Cap Market
Warrants NASDAQ Small Cap Market
Title of each class Name of each exchange on which registered
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Common Stock $.001 Par Value Boston Stock Exchange
Warrants Boston Stock Exchange
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes __X__ No____
Check if there is no disclosure of delinquent files in response to Item 405 of
Regulation S-B is not contained in this Form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-KSB
or any amendments to this Form 10-KSB.[ ]
State issuer's revenues for its most recent fiscal year. $4,158,506
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The aggregate market value of the voting stock held by non-affiliates per the
closing stock price of September 16, 1999 is $11,248,155.
As of September 16, 1999, 3,411,983 shares of common stock of the issuer were
outstanding.
Transitional Small Business Disclosure Format Yes____ No__X__
DOCUMENTS INCORPORATED BY REFERENCE
Part I. -- None Part II. -- None
Part III. -- Proxy statement to be filed by October 28, 1999
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PART I
From time to time, including in this annual report on Form 10-KSB, NAM
Corporation (the "Company") may publish forward-looking statements relating to
such matters as anticipated financial performance, business prospects, future
operations, new products, research and development activities, Year 2000
information 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, the Company notes that a variety of factors
could cause the Company's actual results to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include, without limitation, the following; changes in the insurance industry;
the Company's inability to retain current or new hearing officers; changes in
the public court system; and the degree and timing of the market's acceptance of
the Company's electronic settlement and arbitration and mediation management
programs.
ITEM 1. DESCRIPTION OF BUSINESS
The Company
The Company operates in one business segment as a provider of
alternative dispute resolution ("ADR") services principally to insurance
companies, law firms, corporations and municipalities. An ADR proceeding is
designed to replace the public court system as a forum for resolving civil
disputes. The Company offers its clients personalized attention and access to
qualified hearing officers (generally retired judges) to either mediate or
arbitrate their disputes. The Company believes it is one of the leading
providers of ADR services in New York State based upon the number of cases
processed since 1993. The Company operates from locations in New York,
Massachusetts, Pennsylvania and Tennessee, through which it has the ability to
provide ADR services on a nationwide basis with a roster of over 900 qualified
hearing officers.
Additionally, as of the end of June 1999, the Company introduced
clickNsettle.com, an Internet based, interactive virtual court service that
offers an alternative to traditional litigation and provides litigants with the
ability to settle cases via the Internet. The service, with patent pending, can
be accessed 24 hours a day, 7 days a week and is being targeted to the
multi-billion dollar litigation market. Although additional amounts will be
expended in further developing and refining this service during most of fiscal
year 2000, Management believes that clickNsettle.com has the potential to be
successful for the following reasons: (1) designed to process a large volume of
cases electronically with a lower cost per case; (2) ability to broaden the
Company's client base as the program is beneficial to all litigants with
disputes that can be resolved with a monetary settlement; (3) easy accessibility
by potential users via the Internet; (4) ability to reach potential users on a
global basis; (5) lead generator for traditional ADR business; (6) ability to
benchmark data on settlements by injury and venue; and (7) reporting
capabilities to summarize and provide analysis of a client's entire ADR program
including traditional arbitration and mediation conferences and electronic
settlements over the Internet.
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The Company believes that the ADR business is a growing service
industry based upon the continuing inability of the public court system to
manage effectively its docket of civil cases. An ADR proceeding is intended to
streamline the traditional cumbersome public litigation process. As compared to
the public court system, an ADR proceeding generally offers litigants a faster
resolution, confidentiality, reduced expenses, flexibility in procedures and
solutions, and control over the process. The ADR proceeding also has the
potential to preserve business relations among the parties because its nature is
less adversarial and the potential for a prompt resolution.
The Company's objective is to become a global leader within the ADR
industry. The Company intends to achieve this goal by employing the following
strategies. (1) The Company developed and is currently marketing and improving
its Internet settlement service, clickNsettle.com, which is designed to attract
a larger customer base on a global scale with lower incremental costs; (2) The
Company initiated an advertising campaign during the third quarter of fiscal
year 1998 intended to increase awareness of its services with respect to
litigants in most types of civil disputes, including complex commercial issues,
construction, employment, matrimonial and worker's compensation cases. Total
fiscal year 1999 and 1998 advertising and external public relations costs
incurred with respect thereto approximated $390,000 and $566,000, respectively;
(3) In order to increase business, the Company continues to pursue exclusive
relationships with corporations and law firms in order to obtain contracts on a
national and regional basis; (4) The Company continues to explore strategic
alliances with business entities that have the ability to promote NAM's
traditional and electronic ADR services to their customers; (5) The Company has
expanded into the international dispute resolution market as of the first
quarter of fiscal year 2000 and (6) The Company intends to promote its services
to parties involved in Year 2000 computer litigation as well as to litigants who
may not be able to commence timely actions in civil court as a result of the
volume and extent of cases submitted thereto with respect to Year 2000 computer
issues.
The Company believes that the domestic ADR industry is, other than a
few national entities, generally fragmented into small ADR service providers.
The Company further believes that the trend in the ADR industry is towards
consolidation of providers who are capable of offering national and regional ADR
programs. Management believes that its current strategies and marketing plans
will enable the Company to exploit this trend.
The Company was formed on January 12, 1994 under the laws of the State
of Delaware. On October 31, 1994 the Company acquired all of the outstanding
common stock of National Arbitration & Mediation, Inc. ("NA&M"), a New York
corporation, formed on February 6, 1992, which was owned by the Company's Chief
Executive Officer and President, and the Company's Executive Vice President.
NA&M began operations in March 1992 as a provider of ADR services. NA&M was
merged into NAM as of the end of June 1999.
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Services Offered
clickNsettle.com: At the end of June 1999, the Company introduced
clickNsettle.com, an Internet based, interactive virtual court service that
offers an alternative to traditional litigation and provides litigants with the
ability to settle cases via the Internet. clickNsettle.com utilizes a direct
settlement format that allows disputing parties to enter "blind" and
confidential offers and demands, via the Internet, to settle cases. The service
provides disputants with the ability to negotiate a case with their adversary
without actually "tipping their hand" about what amount they would accept for
settlement. The demands and offers are secure and only the final settlement
amount is ever revealed. This ensures that neither party loses any bargaining
power if a settlement is not reached. In the event of non-settlement, the
parties may automatically submit the case for traditional arbitration and
mediation with the Company. The service, with patent pending, can be accessed 24
hours a day, 7 days a week and also provides detailed reporting of both
arbitration and mediation results and settlement statistics.
Arbitration: The Company's arbitration procedure follows a format
essentially similar to a non-jury trial in the public court system. This
procedure is designed to grant the parties a forum in which to present their
cases, while at the same time sparing the litigants the time delays and some of
the cumbersome procedures commonly associated with public court trials. The
Company's hearings are generally governed by its rules of procedure. The
parties, however, may depart from these rules and proceed in the fashion they
deem desirable for the resolution of the case. The parties select a panel member
from the Company's list of hearing officers.
The hearings are non-public, thereby providing a level of
confidentiality not readily available in the public court system. Subject to the
parties' agreement, the proceedings may include discovery, examination of
non-party witnesses, the filing of post-hearing briefs and other matters that
may arise in the conduct of non-jury trials.
The arbitrations are usually one of the following: (i) a regular
arbitration, in which the hearing officer has authority to issue a ruling and/or
award a remedy without limitations; (ii) a "high/low" arbitration, where the
parties may choose to set the parameters of the award by pre-selecting the high
and low dollar limits that can be awarded by the hearing officer; and (iii) the
so-called "baseball" arbitration, which typically involves the submission by
each party of their last best figure and the reason why it should be accepted;
the hearing officer's binding recommendation is restricted to either one figure
or the other. These types of arbitration are not exclusive, and the hearing
officers may fashion remedies in accordance with whatever parameters are agreed
to by the parties.
Generally arbitration decisions are binding in nature and, unless
otherwise stipulated by the parties, are appealable in only limited
circumstances in the public court system. The Company does not currently offer
any type of appeal procedure. The Company's arbitration decisions are generally
enforceable in the public court system by following prescribed filing procedures
in the applicable local jurisdiction.
Mediation (Settlement Conferencing): The mediation method used by the
Company is settlement conferencing, in essence a non-binding process. The
principal advantage of settlement conferencing is that it provides an
opportunity for parties to reach an early, amicable resolution without undue
expense and time-consuming litigation. The voluntary process of settlement
conference mediation can be an effective tool for a wide variety of disputes,
including tort claims and commercial conflicts.
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Settlement conferences are attended by each party to the dispute and/or
a representative of each party and a hearing officer selected by the parties
from a list available in the applicable region. Each party may choose to submit
a settlement conference memorandum setting forth a brief summary of facts,
indicating, for example, why each party has or does not have liability and, if
applicable, a statement of the party's damage. At the settlement conference,
each party is given an opportunity to describe the facts of the case and explain
its position. Thereafter, the hearing officer meets privately with each side on
an alternating basis to evaluate their respective cases, and receives proposed
concessions that each party might make, and potential settlement figures that
each party may offer, with a view toward guiding the parties to the settlement
of their dispute. Settlement figures and possible concessions are typically not
discussed between a party and the hearing officer without the other party's
express consent to disclosing its position. In many instances, the settlement
conference procedure results in the resolution of all issues.
Other ADR Services: In addition to mediations and arbitrations, the
Company offers, among other services, advisory opinions and specialized dispute
resolution programs depending on the parties' particular needs. The Company also
offers Case Resolution Days which are events usually scheduled at an insurance
company client's office in which the Company arranges for parties to hold high
volume direct settlement meetings without the participation of a hearing
officer. In the event that the individual meetings do not resolve the dispute,
the Company provides a hearing officer to mediate the dispute if the parties
wish to pursue settlement.
On-Line Case Management Software Service: During fiscal year 1998, the
Company developed a service allowing its clients the ability to be "on-line"
with the Company. This enables clients to submit cases electronically and to
review the status of their cases from their offices. At the same time, clients
also have the ability to access the status of hearings, updated hearing officer
rosters and schedules, promotional materials and ADR news information. The
Company also maintains a website offering similar information and case
submission capability.
Video Conferencing: The Company has the ability to offer video
conferencing capabilities. This service allows clients to participate in and
observe hearings without leaving their offices, resulting in the reduction of
certain costs to the client associated with the ADR process. This capability
allows the Company to provide services to a wider range of clients on a
geographical basis. In addition, the video conferencing equipment, which can be
purchased or leased directly from the Company, has applications beyond the ADR
area for clients.
Marketing and Sales
At the end of the second quarter of fiscal year 1999, the Company
realigned its sales operations in order to enhance its ability to process a
higher volume of cases as well as to better market its services to potential
customers. Certain account representatives were appointed as regional marketing
supervisors, the main function of which is to actively pursue new business as
well as to increase the volume of business with existing clients through
in-person meetings, presentations, educational seminars relating to ADR services
and periodic monitoring of a client's ADR activity. The remaining account
representatives concentrate their time and efforts on processing case
submissions and working closely with clients on a daily basis to ensure the
highest level of customer satisfaction. Additionally, during the first quarter
of fiscal year 2000, the Company designated a team of account representatives to
concentrate their marketing efforts on its Internet case resolution service,
clickNsettle.com. As of September 16, 1999, the Company employed 17 account
representatives to market both its ADR and Internet case resolution services.
Account representatives are salaried employees.
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For the most part, account executives are supervised directly by the
Vice President of Marketing or the Executive Vice President of clickNsettle.com,
depending upon the product they are marketing. Account executives in the
regional offices may first report to a regional manager who then reports to the
Vice President of Marketing. Several of the employment agreements with regional
managers provide for additional compensation based on the profits of the
manager's operation.
With regard to the hiring and training of account executives, they are
usually interviewed by the Vice President of Marketing or an Executive Vice
President. Account executives are trained over approximately a two-week period.
This training period may vary depending on the overall abilities of each
candidate, the level of prior experience and their aptitude to assimilate the
required marketing skills. The training includes the development of
sales/service techniques and the introduction to customers of the Company. After
this initial period, the new account executive's performance is closely
monitored. In addition, staff meetings are generally held weekly to review
progress against goals and to enhance marketing skills.
The majority of clients of the Company are insurance carriers and law
firms. One insurance company customer represented approximately 9% and 12% of
total revenues for the years ended June 30, 1999 and 1998, respectively.
However, the Company works with more than 70 individual offices of the insurance
company, which in total equal the aforementioned percentages of revenue. The
next largest insurance company customer represented approximately 3% of revenues
for the years ended June 30, 1999 and 1998, respectively. The balance of the
revenue base is distributed among more than 2,200 clients in both fiscal years
1999 and 1998.
The Company, when appropriate, seeks membership contracts with its
clients. Further, the Company is currently enhancing its efforts to obtain
volume commitments from existing and new clients.
Competition
The ADR business is highly competitive, both on a national and regional
level. Management believes that barriers to entry in the ADR business are
relatively low, and new competitors can begin doing business relatively quickly.
The basis of this belief is that the provision of ADR services only requires the
consent of all parties to submit their dispute for resolution through a proposed
ADR provider. There are two types of competitors: not-for-profit and for-profit
entities. The Company believes the largest not-for-profit competitor is the
American Arbitration Association which has significant market share in complex
commercial cases. The insurance industry has also continued its support for
Arbitration Forums, a not-for-profit organization created to service primarily
the insurance subrogation market.
The Company believes that the domestic ADR industry is, other than a
few national entities, generally fragmented into small ADR service providers.
The Company believes that Judicial Arbitration Mediation Services,
Inc./Endispute ("JAMS") is the largest for-profit ADR provider in the country.
The Company's competitors include, among others, JAMS, Resolute, Inc.,
Cybersettle, National Arbitration Forums and Island Arbitration and Mediation.
In addition, several public court systems, including the federal and certain
state courts in New York, the Company's major market, have instituted court
coordinated programs. To the extent that the public courts reduce case backlogs
and provide effective dispute resolution mechanisms, the Company's business
opportunities in such markets may be significantly reduced.
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Increased competition could decrease the fees the Company is able to
charge for its services, and limit the Company's ability to obtain experienced
hearing officers. This could have a materially adverse effect on the Company's
ability to be profitable in the future. In addition, the Company competes with
other ADR providers to retain the services of qualified hearing officers.
As compared to the majority of its competitors, the Company believes
that it competes based primarily upon reputation, price, and the ability to
manage scheduling of hearings effectively. Management believes the Company has
certain advantages that enable it to better serve its clients. These advantages
include: (1) exclusive agreements with qualified hearing officers, who are
generally former judges; (2) an Internet case resolution service which enables
parties to resolve disputes anywhere, 24 hours a day, 7 days a week; (3)
software which provides detailed case management reporting that can be
customized to meet a client's needs; (4) account executives dedicated to
specified clients; (5) the ability to monitor and control the scheduling of
matters; and (6) videoconferencing capability that allows clients to participate
in or observe a proceeding without leaving their office. There can be no
assurance, however, that these perceived advantages will enable the Company to
compete successfully in the future.
Government Regulation
ADR services that are offered by private companies, such as the
Company, are not presently subject to any form of local, state or federal
regulation. ADR services that are offered by the public courts are subject to
the rules set forth by each jurisdiction and the dictates of the individual
judge assigned to preside over the dispute.
Employees
As of September 16, 1999, the Company employed 42 persons, including
one part-time employee; of these, five were in executive positions, three of
which devote substantially all their attention to sales; 21 were sales managers
and sales account representatives and the remaining 16 employees support
operations of the Company with respect to information technology, accounting,
scheduling, confirming, billing and other administrative duties. The Company
also currently utilizes the services of various temporary employees who are
eligible for long-term employment.
Hearing Officers
As of September 16, 1999, the Company maintained relationships with
over 900 hearing officers. The Company has exclusive agreements with respect to
ADR proceedings with a number of these hearing officers. Such hearing officers
accounted for approximately 65% of the number of cases handled by the Company
for the year ended June 30, 1999. The balance of non-exclusive hearing officers
makes their services available to the Company on a case-by-case basis. With the
exception of the exclusive hearing officers, the remainder of the Company's
roster of hearing officers can provide their services to competing ADR
providers. Compensation to the hearing officers is based on the number of
proceedings conducted and the length of time of such proceedings.
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ITEM 2. DESCRIPTION OF PROPERTIES
The Company currently maintains 3 leased facilities, all of which are
located in office buildings. The Company leases 6,330 square feet of space at
1010 Northern Boulevard, Great Neck, New York for its corporate headquarters and
for providing ADR services in the metropolitan New York area. The lease expires
December 2003. The Company also leases: (i) 1,000 square feet of space, which
lease expires February 2000, for its Philadelphia, Pennsylvania office and (ii)
1,320 square feet of space, which lease expires November 2000, for its North
Easton, Massachusetts office. The Company believes this space is adequate for
its reasonably anticipated future needs.
The aggregate rental expense for all of the Company's offices was
$191,983 during the year ended June 30, 1999.
ITEM 3. LEGAL PROCEEDINGS
There is no material litigation currently pending against the Company.
ITEM 4. SUBMISSION OF MATERIALS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. The Company's Common Stock and Warrants are quoted on the NASDAQ Small Cap
Market under the trading symbols "NAMC" and "NAMCW," respectively, and have been
quoted since the Company commenced public trading on November 18, 1996. The
Company voluntarily delisted its units, which consisted of one share of Common
Stock and one redeemable Warrant, from trading on January 26, 1998 in order to
avoid confusion in the marketplace and to avoid additional and future
administrative costs. Prior to November 18, 1996, there was no public market for
the Company's securities. The following table sets forth the range of high and
low closing sales prices (based on transaction data as reported by the NASDAQ
Small Cap Market) for each fiscal quarter during the periods indicated.
<TABLE>
<CAPTION>
Units Common Stock Warrants
High Low High Low High Low
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<S> <C> <C> <C> <C> <C> <C>
Fiscal Year 1999:
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First quarter (07/1/98-9/30/98) NA NA $2.75 $1.25 $0.38 $0.13
Second quarter (10/01/98-12/31/98) NA NA 2.16 1.00 0.25 0.06
Third quarter (01/01/99-03/31/99) NA NA 1.63 0.69 0.19 0.13
Fourth quarter (04/01/99-06/30/99) NA NA 1.75 0.81 0.44 0.09
Fiscal Year 1998:
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First quarter (07/1/97-9/30/97) $4.72 $3.50 $3.88 $2.63 $1.38 $0.63
Second quarter (10/01/97-12/31/97) 5.13 3.50 4.25 2.81 1.41 0.88
Third quarter (01/01/98-03/31/98) 4.50 3.75 4.00 2.00 1.25 0.44
Fourth quarter (04/01/98-06/30/98) NA NA 2.38 1.50 0.50 0.22
</TABLE>
On September 16, 1999 the closing bid price for the Common Stock and
Warrants, as reported by the NASDAQ Small Cap Market, were $5.66 and $1.81,
respectively.
As of September 16, 1999 there were in excess of 300 holders of the
Company's securities.
The payment by the Company of dividends, if any, in the future rests
within the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, capital requirements and financial
condition, as well as other relevant factors. The Company does not contemplate
or anticipate paying any dividends upon its Common Stock in the foreseeable
future.
B. In November 1996, the Company raised additional capital through an initial
public offering of its securities. Net proceeds after offering expenses
approximated $4,700,000 of which $1,305,000 had been utilized through June 30,
1998. During the year ended June 30, 1999, the Company additionally expended
approximately $1,383,000 for working capital and general corporate purposes,
including its advertising campaign. The remaining funds were invested in cash
and cash equivalents and marketable equity securities.
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The preceding information updates Form SR filed by the Company in
February 1997 pursuant to former Rule 463.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company provides ADR services to insurance companies, law firms,
corporations and municipalities. To date, the Company has focused the majority
of its marketing efforts on developing relationships, and expanding existing
relationships, with insurance companies, law firms, corporations and
municipalities which the Company believes are some of the largest consumers of
ADR services.
The Company opened for business in March 1992 in New York and currently
operates from locations in New York, Massachusetts, Pennsylvania and Tennessee.
The Company's objective is to become a global leader within the ADR
industry. The Company intends to achieve this goal by employing the following
strategies. (1) The Company developed and is currently marketing and improving
its Internet settlement service, clickNsettle.com, which is designed to attract
a larger customer base on a global scale with lower incremental costs; (2) The
Company initiated an advertising campaign during the third quarter of fiscal
year 1998 intended to increase awareness of its services with respect to
litigants in most types of civil disputes, including complex commercial issues,
construction, employment, matrimonial and worker's compensation cases. Total
fiscal year 1999 and 1998 advertising and external public relations costs
incurred with respect thereto approximated $390,000 and $566,000, respectively;
(3) In order to increase business, the Company continues to pursue exclusive
relationships with corporations and law firms in order to obtain contracts on a
national and regional basis; (4) The Company continues to explore strategic
alliances with business entities that have the ability to promote NAM's
traditional and electronic ADR services to their customers; (5) The Company has
expanded into the international dispute resolution market as of the first
quarter of fiscal year 2000 and (6) The Company intends to promote its services
to parties involved in Year 2000 computer litigation as well as to litigants who
may not be able to commence timely actions in civil court as a result of the
volume and extent of cases submitted thereto with respect to Year 2000 computer
issues.
Future Trends
Management believes that the ADR industry is, and will continue to be,
undergoing a consolidation of ADR service providers so as to better serve
clients requiring international, national and regional multi-state ADR programs.
The Company's objective is to expand its presence to exploit this trend. In
addition, ADR clients continue to seek volume discounts on the charges applied
by the Company for services rendered. The Company believes that this trend may
have an overall positive impact on the Company because the discounts are usually
applied only when an ADR client makes a commitment to refer a minimum number of
cases to the Company.
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The Company has and will continue to incur net losses in the short-term
future as a result of (a) design, development and continuing costs associated
with clickNsettle.com, its Internet case resolution program and (b) its
advertising campaign. With respect to clickNsettle.com, management has invested
a large portion of the Company's resources in developing and marketing the
product during fiscal year 1999. The Company anticipates incurring additional
expenses during the first three quarters of fiscal year 2000 for further
development of the system, computer hardware and software, legal, marketing,
printing and salary and related expenses including the hiring of an Executive
Vice President of clickNsettle.com in the first quarter of fiscal year 2000.
Management believes that by the end of fiscal year 2000, such costs are expected
to decelerate. Although the Company is actively promoting this product, there
can be no assurance that the revenues to be realized therefrom will exceed the
expenses to be incurred. Additionally, the Company's advertising campaign, which
commenced during the second half of fiscal year 1998, will continue through
fiscal year 2000. In connection therewith, the Company has hired public
relations and investor relations firms to assist in promoting its services,
including clickNsettle.com. Currently, advertisements are scheduled to appear on
television, over the Internet and in a variety of print media. The Company
believes that the campaign will continue to increase awareness of the Company
and its services. However, there can be no assurance that this effort will
result in increased revenues.
In addition, the Company has enhanced the status and capability of its
present offices. Significant costs have been and will continue to be incurred in
connection with establishing, maintaining and operating offices, including
expenses such as leases, office equipment, furnishings and salaries for
management, sales and administrative personnel. The Company believes its
investment in these resources will ultimately be beneficial in that a higher
volume of business will be able to be processed in a more efficient manner when
and if the advertising and public relations campaign produces the desired
effect.
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
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Results of Operations
Revenues. Revenues increased 8% to $4,158,506 for the year ended June
30, 1999 from $3,847,975 for the year ended June 30, 1998. Both the number of
cases heard and the average dollars earned per case increased in the current
year from the prior year. At the end of the second quarter of fiscal year 1999,
the Company realigned its sales operations in order to enhance its ability to
process a higher volume of cases as well as to better market its services to
potential customers. This was evidenced by a 16% increase in revenues in the
fourth quarter of fiscal year 1999 as compared to the fourth quarter of fiscal
year 1998.
Cost of Services. Cost of services increased 12% to $1,081,309 for the
year ended June 30, 1999 from $969,345 for the year ended June 30, 1998. The
higher volume of business serviced resulted in greater hearing officer fees.
Additionally, higher fees were incurred in fiscal year 1999 primarily due to a
compensation charge relating to stock options granted to a hearing officer as
well as payments to hearing officers in connection with the commencement of
exclusive arrangements with the Company. Without these charges, the cost of
services as a percentage of revenues remained stable at 25% for the fiscal years
ended June 30, 1999 and 1998, respectively. The ratio of cost of services to
revenues will fluctuate based on the number of hours per case, as well as the
ability (or inability) of an office to take advantage of volume arrangements
with hearing officers which usually lower the cost per case.
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Sales and Marketing. Sales and marketing costs decreased 2% to
$2,048,058 for the year ended June 30, 1999 from $2,090,591 for the year ended
June 30, 1998. Sales and marketing costs as a percentage of revenues decreased
to 49% for fiscal year 1999 from 54% for fiscal year 1998. The decrease largely
relates to advertising and external public relations expenditures. Such costs
decreased by approximately $176,000 from $566,000 in fiscal year 1998 to
$390,000 in fiscal year 1999. The decrease was largely due to the commencement
of an advertising campaign during the third quarter of the 1998 fiscal year
whereby the Company placed advertisements in a variety of media. The campaign
was aimed at quickly establishing NAM as a brand name within the dispute
resolution industry. As the Company believes it has made significant progress in
achieving this goal, Management has continued advertising to maintain the
Company's name recognition but at a reduced level. There can be no assurance
that such expenditures will produce higher revenues. Offsetting this decline was
an increase in sales salaries and related costs of approximately $102,000 as
sales management and the sales force was strengthened to pursue additional
business opportunities. Additionally, entertainment, promotions and travel
expenses increased by approximately $33,000 as a result of sales visits to
corporate headquarters of targeted clients throughout the country and
Company-sponsored events for clients to promote the NAM brand name.
General and Administrative. General and administrative costs increased
17% to $2,256,309 for the year ended June 30, 1999 from $1,932,158 for the year
ended June 30, 1998. Furthermore, general and administrative costs as a
percentage of revenues increased to 54% for fiscal year 1999 from 50% for fiscal
year 1998. Most of the increase (approximately $185,000) relates to salary and
related items due to increases in staff for data processing and other
administrative functions, including temporary help, to support and develop
clickNsettle.com, as well as NAM's traditional arbitration and mediation
services. Secondly, there was an increase of approximately $67,000 relating to
costs incurred in connection with seminars/conferences sponsored by the Company
for marketing its services to potential clients in the arbitration and mediation
industry and for employee training. Higher expenses were also incurred for rent
(as the New York headquarters was expanded mid-year), legal fees and
depreciation.
Other Income (Expenses). Other income (expenses) changed from income of
$514,985 for the year ended June 30, 1998 to an expense of ($67,595) for the
year ended June 30, 1999. Other income (expense) is composed primarily of
investment income and realized gains (losses) generated from investments. During
the 1999 fiscal year, the Company sold a substantial portion of its marketable
securities. As a result, net realized losses approximated ($166,000) for the
year ended June 30, 1999 as compared to $356,000 of realized gains for the year
ended June 30, 1998. In addition, investment income also declined as the Company
reduced its investment portfolio and conservatively decreased its equity
portfolio in favor of a larger concentration in money market funds.
Income Taxes. Tax benefits resulting from net losses incurred for the
years ended June 30, 1999 and 1998 were not recognized as the Company recorded a
full valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 1999, the Company had net operating loss carryforwards
for Federal tax purposes of approximately $2,062,000 and net capital loss
carryforwards for Federal tax purposes of approximately $166,000.
Net Loss. For the year ended June 30, 1999, the Company had a net loss
of ($1,294,765) or ($.39) loss per share as compared to a net loss of ($629,134)
or ($.19) loss per share for the year ended June 30, 1998. The loss increased
primarily due to lower investment income mainly as a result of losses realized
from the sale of marketable equity securities, as well as higher costs incurred
to develop, market and support its new electronic case resolution products and
anticipated future growth.
13
<PAGE>
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
- -------------------------------------------------------------
Results of Operations
Revenues. Revenues increased 14% to $3,847,975 for the year ended June
30, 1998 from $3,377,062 for the year ended June 30, 1997. Management attributes
this increase in sales to a growing acceptance of the Company's services as
shown by the overall increase in the number of cases heard. Additionally, the
opening of the Midwest region in the third quarter of the 1997 fiscal year
contributed approximately $100,000 to the revenue growth in fiscal 1998.
Cost of Services. Cost of services increased 14% to $969,345 for the
year ended June 30, 1998 from $853,048 for the year ended June 30, 1997. The
higher volume of business serviced resulted in greater hearing officer fees.
Cost of services as a percentage of revenue remained stable at 25% for both
fiscal years. The ratio of cost of services to revenues will fluctuate based on
the number of hours per case, as well as the ability (or inability) of an office
to take advantage of volume arrangements with hearing officers which usually
lower the cost per case.
Sales and Marketing. Sales and marketing costs increased 48% to
$2,090,591 for the year ended June 30, 1998 from $1,412,348 for year ended June
30, 1997. Sales and marketing costs as a percentage of revenues increased to 54%
for fiscal year 1998 from 42% for fiscal year 1997. Most of this increase
relates to advertising costs which rose by approximately $472,000 to $566,000
for the year ended June 30, 1998. The increase was largely due to the
commencement of an advertising campaign during the third quarter of the 1998
fiscal year whereby the Company placed advertisements in a variety of media
(newspapers, law journals, insurance and business publications, outdoor, radio
and television). The objective of the campaign was to increase awareness of the
Company and its services. There can be no assurance that such expenditures will
produce higher revenues. The remaining increase (approximately $206,000) relates
to salary and related items. Firstly, higher sales commissions were incurred
based on the higher volume of business. Secondly, primarily during the second
half of fiscal year 1997 and into fiscal year 1998, personnel were hired to
staff and support the Company's expansion plans. In particular, sales management
was strengthened at the Company's headquarters in New York to better prepare the
Company for a higher volume of cases. Finally, the Midwest region opened during
the third quarter of fiscal 1997.
General and Administrative. General and administrative costs increased
10% to $1,932,158 for the year ended June 30, 1998 from $1,761,994 for the year
ended June 30, 1997. Furthermore, general and administrative costs as a
percentage of revenues decreased slightly to 50% for fiscal year 1998 from 52%
for fiscal year 1997. Salary-related costs increased by approximately $189,000
as the Company expanded personnel, particularly at its headquarters in New York,
primarily during the second half of fiscal year 1997 and into fiscal year 1998.
All corporate activities, including marketing, finance, data processing, billing
and collections, purchasing and scheduling of hearings, are centralized in New
York. Management believes that this structure provides a uniform and
high-quality level of service for clients, in addition to enhancing the control
environment and producing a more streamlined and efficient approach as the
Company grows. Higher costs with respect to fees relating to being a public
company (approximately $18,000) were more than offset by a decline in
professional fees ($40,000).
14
<PAGE>
Other Income (Expenses). Other income (expenses) increased from $12,771
for the year ended June 30, 1997 to $514,985 for the year ended June 30, 1998.
In the current fiscal year, other income was composed primarily of investment
income and realized gains (losses) generated from investments. During the second
half of the 1998 fiscal year, the Company sold a portion of its marketable
securities and, as a result, net realized gains increased to approximately
$356,000 for the year ended June 30, 1998 from approximately $16,000 for the
year ended June 30, 1997. Also, in the prior year, in connection with the
initial public offering, the Company contributed warrants underlying units sold
by two executive officers and also agreed to pay the underwriting costs
associated with shares sold by them. With respect thereto, the Company expensed
$115,500 upon the consummation of the initial public offering in the second
quarter of fiscal year 1997. In addition, other expenses in that period also
included interest expense from a past private placement financing. This debt was
satisfied in full as of November 20, 1996 with proceeds from the Company's
initial public offering.
Income Taxes. Tax benefits resulting from net losses incurred for the
years ended June 30, 1998 and 1997 were not recognized as the Company recorded a
full valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 1998, the Company had net operating loss carryforwards
for Federal tax purposes of approximately $1,110,000.
Net Loss. For the year ended June 30, 1998, the Company had a net loss
of ($629,134) or ($.19) loss per share as compared to a net loss of ($637,557)
or ($.23) loss per share for the year ended June 30, 1997. The loss decreased
slightly as expenditures for a comprehensive advertising campaign and an
investment in the Company's infrastructure to support future growth were
partially offset by higher revenues and realized gains on marketable securities.
Liquidity and Capital Resources
At June 30, 1999, the Company had a working capital surplus of
$1,925,911 as compared to $3,060,771 at June 30, 1998. Net cash used in
operating activities was $973,516 for the year ended June 30, 1999 versus
$688,132 for the year ended June 30, 1998. The decrease in working capital and
the increase in net cash used in operating activities occurred as a result of
(a) the loss from operations and (b) realized losses from the sales of
marketable securities.
Net cash provided by investing activities was $1,332,497 for the year
ended June 30, 1999 versus $1,929,926 for the year ended June 30, 1998. During
fiscal 1999, various investments in government securities matured and the
Company sold a portion of its corporate bonds and equity securities. Such
proceeds were largely reinvested in money market funds.
The Company anticipates that cash flows, together with cash and
marketable securities on hand, will be sufficient to fund the Company's
operations for the next year.
15
<PAGE>
The Year 2000
- -------------
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company has
substantially completed its evaluation of the impact of the Year 2000 issue on
its business and currently does not expect to incur significant costs in fiscal
year 2000 associated with Year 2000 compliance or that Year 2000 issues will
have a material impact on the Company's business, results of operations or
financial condition. The Company's financial reporting system is currently Year
2000 compliant. The relational database system used to manage the operations of
the Company is already capable of recognizing four digits to designate the year.
The Company has converted its usage of the date fields from two digits to four
digits with respect to its major operating system. The Company has also upgraded
its network operating systems and all servers, including its main system, email,
web site and file transfer protocol (ftp) servers to be Year 2000 compliant. The
Company has also contacted most of its major vendors that provide non-operating
systems (ie., those which supply payroll and benefit information, in particular)
to ensure that they have properly addressed Year 2000 issues.
ITEM 7. FINANCIAL STATEMENTS
Information in response to this item is set forth in the Financial
Statements, beginning on Page F-1 of this filing.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
16
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Changes in Stockholders' Equity
and Comprehensive Loss F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-21
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
NAM Corporation
We have audited the accompanying consolidated balance sheets of NAM Corporation
and Subsidiaries (the "Company") as of June 30, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and
comprehensive loss, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NAM Corporation
and Subsidiaries as of June 30, 1999 and 1998, and the consolidated results of
their operations and their consolidated cash flows for the years then ended in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Melville, New York
August 30, 1999
F-2
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,776,261 $ 1,417,280
Marketable securities 436,283 1,950,880
Accounts receivable (net of allowance for doubtful
accounts of $110,000 and $90,000, respectively) 515,088 385,300
Other receivables 86,496 17,945
Prepaid expenses 79,918 45,080
----------- -----------
Total current assets 2,894,046 3,816,485
FURNITURE AND EQUIPMENT - AT COST,
less accumulated depreciation 269,393 248,679
OTHER ASSETS 37,514 44,392
----------- -----------
$ 3,200,953 $ 4,109,556
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 313,740 $ 315,323
Accrued liabilities 249,551 163,641
Accrued payroll and employee benefits 166,620 126,361
Deferred revenues 238,224 150,389
----------- -----------
Total current liabilities 968,135 755,714
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 5,000,000 shares
authorized; none issued - -
Common stock - $.001 par value; 15,000,000 shares authorized; shares
issued and outstanding, 3,370,739 in 1999 and 3,334,978 in 1998 3,371 3,335
Additional paid-in capital 4,797,637 4,778,179
Accumulated deficit (2,663,446) (1,368,681)
Accumulated other comprehensive income (loss) 95,256 (58,888)
Unearned compensation - stock bonus plan - (103)
----------- -----------
Total stockholders' equity 2,232,818 3,353,842
----------- -----------
$ 3,200,953 $ 4,109,556
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net revenues $ 4,158,506 $ 3,847,975
----------- -----------
Operating costs and expenses
Cost of services 1,081,309 969,345
Sales and marketing expenses 2,048,058 2,090,591
General and administrative expenses 2,256,309 1,932,158
----------- -----------
5,385,676 4,992,094
----------- -----------
Loss from operations (1,227,170) (1,144,119)
Other income (expenses)
Investment (loss) income (85,581) 510,063
Other income 17,986 4,922
----------- -----------
(67,595) 514,985
----------- -----------
Loss before income taxes (1,294,765) (629,134)
Income taxes - -
----------- -----------
NET LOSS $(1,294,765) $ (629,134)
=========== ===========
Net loss per common share - basic and diluted $(.39) $(.19)
===== =====
Weighted average shares outstanding - basic and diluted 3,337,623 3,334,978
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other
----------------------- paid-in Accumulated comprehensive
Shares Amount capital deficit income (loss)
---------- ------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at July 1, 1997 3,334,978 $3,335 $4,772,569 $ (739,547) $ 79,224
Compensation related to stock
option plan 5,610
Net loss (629,134)
Change in unrealized gain (loss) on
marketable securities (138,112)
Earned portion of stock bonus plan
--------- ------ --------- ----------- ---------
Comprehensive loss
Balances at June 30, 1998 3,334,978 3,335 4,778,179 (1,368,681) (58,888)
Compensation related to stock
option plan 19,494
Shares issued pursuant to restricted
stock award 35,761 36 (36)
Net loss (1,294,765)
Change in unrealized gain (loss) on
marketable securities 154,144
Earned portion of stock bonus plan
--------- ------ --------- ----------- ---------
Comprehensive loss
Balances at June 30, 1999 3,370,739 $3,371 $4,797,637 $(2,663,446) $ 95,256
========= ====== ========== =========== =========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
Unearned
compensation - Total
stock stockholders' Comprehensive
bonus plan equity loss
----------------- ----------- -------------
<S> <C> <C> <C>
Balances at July 1, 1997 $(205) $4,115,376
Compensation related to stock
option plan 5,610
Net loss (629,134) $ (629,134)
Change in unrealized gain (loss) on
marketable securities (138,112) (138,112)
Earned portion of stock bonus plan 102 102
--- ---------- -----------
Comprehensive loss $ (767,246)
===========
Balances at June 30, 1998 (103) 3,353,842
Compensation related to stock
option plan 19,494
Shares issued pursuant to restricted
stock award
Net loss (1,294,765) $(1,294,765)
Change in unrealized gain (loss) on
marketable securities 154,144 154,144
Earned portion of stock bonus plan 103 103
--- ---------- -----------
Comprehensive loss $(1,140,621)
===========
Balances at June 30, 1999 $ - $2,232,818
==== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,294,765) $ (629,134)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 101,948 75,488
Provision for bad debts 20,000 10,000
Losses (gains) on sales of marketable securities 166,259 (356,390)
Losses on sales of furniture and equipment 490 129
Earned portion of stock bonus plan 103 102
Compensation related to stock option plan 19,494 5,610
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (149,788) 12,960
(Increase) decrease in other receivables (13,125) 16,545
(Increase) decrease in prepaid expenses (34,838) 9,602
(Increase) decrease in other assets (1,715) 7,848
Increase in accounts payable and accrued liabilities 84,327 195,189
Increase (decrease) in accrued payroll and employee benefits 40,259 (47,754)
Increase in deferred revenues 87,835 11,673
------------ ------------
Net cash used in operating activities (973,516) (688,132)
----------- -----------
Cash flows from investing activities
Purchases of marketable securities (1,334,887) (2,313,195)
Proceeds from sales of marketable securities 2,267,481 2,311,367
Proceeds from maturities of marketable securities 570,000 2,075,000
Increase in receivable for securities sold (55,426) -
Decrease in payable for securities purchased - (15,263)
Purchases of furniture and equipment (115,471) (133,113)
Sales of furniture and equipment 800 5,130
------------- -------------
Net cash provided by investing activities 1,332,497 1,929,926
---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 358,981 1,241,794
Cash and cash equivalents at beginning of year 1,417,280 175,486
---------- -----------
Cash and cash equivalents at end of year $ 1,776,261 $ 1,417,280
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
NAM Corporation ("NAM") provides a broad range of Alternative Dispute
Resolution ("ADR") services, including arbitration and mediation, in the
United States. NAM incorporated on January 12, 1994 and began operations on
February 15, 1994. On October 31, 1994, National Arbitration & Mediation,
Inc. ("NA&M"), which was owned by NAM's Chief Executive Officer and
Executive Vice President, was acquired by and became a wholly-owned
subsidiary of NAM. The transaction was accounted for as a transfer of
assets between companies under common control, with the assets and
liabilities of NA&M combined with those of NAM at their historical carrying
values. NA&M also provided a broad range of ADR services, including
arbitrations and mediations. NA&M began operations in March 1992.
In June 1999, NA&M was merged into NAM, along with several other
wholly-owned subsidiaries, National Video Conferencing Inc. and NAMSYS
Corporation. Additionally, Michael Marketing LLC and clickNsettle.com LLC,
wholly-owned limited liability companies, were formed in June 1999 in
Delaware. Michael Marketing, Inc., a Delaware corporation formed in
November 1991, formerly a wholly-owned subsidiary, was merged into Michael
Marketing LLC in June 1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting and reporting policies applied on a
consistent basis which conform with generally accepted accounting
principles follow:
a. Basis of Presentation
The accompanying consolidated financial statements of NAM Corporation
and Subsidiaries include the accounts of its wholly-owned subsidiaries,
Michael Marketing LLC, clickNsettle.com LLC and its merged entities,
NA&M, National Video Conferencing Inc. and NAMSYS Corporation,
effective in 1999, (collectively referred to herein as the "Company").
The Company operates in one business segment, ADR. All significant
intercompany transactions and balances were eliminated in
consolidation.
F-7
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 2 (continued)
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the revenues and expenses during
the reporting period. Actual results may differ from those estimates.
Estimates are used when accounting for the allowance for uncollectible
accounts receivable, depreciation, taxes and contingencies, among
others.
c. Revenue Recognition
The Company principally derives its revenues from fees charged for
arbitration and mediation services. Each party to a proceeding is
charged an administrative fee, a portion of which is nonrefundable when
each party agrees to utilize the Company's services. The Company
recognizes revenue when the arbitration or mediation occurs. Fees
received prior to the arbitration or mediation are reflected as
deferred revenue.
d. Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, money market funds
and short-term notes with a maturity at date of purchase of three
months or less.
e. Marketable Securities
Investments classified as marketable securities include fixed
maturities (bonds and redeemable preferred stocks) and equity
securities (common and nonredeemable preferred stocks) which are
reported at their fair values. Unrealized gains or losses on these
securities are reported as a separate component of accumulated other
comprehensive income (loss), net of related tax effects, within
stockholders' equity. The Company categorizes all fixed maturity and
equity securities as available-for-sale in order to provide the Company
flexibility to respond to various factors, including changes in market
conditions and tax planning considerations.
F-8
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 2 (continued)
Investment income, consisting of interest and dividends, is recognized
when earned. Realized gains and losses on sales, maturities or
liquidation of investments are determined on a specific identification
basis. The amortization of premiums and accretion of discounts for
fixed maturity securities are computed on a straight-line basis. Fair
values of investments are based on quoted market prices or on dealer
quotes.
f. Furniture and Equipment
Furniture and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method
to allocate the cost of those assets over their expected useful lives
which generally range from five to seven years. Leasehold improvements
are amortized over the life of the remaining lease.
g. Product Development Costs
Product development costs include expenses incurred by the Company to
develop, enhance, manage and operate the Company's website and its
internet case resolution service, click Nsettle.com. Product
development costs are expensed as incurred.
h. Income Taxes
The Company follows the asset and liability method of accounting for
income taxes by applying statutory tax rates in effect at the balance
sheet date to differences among the book and tax bases of assets and
liabilities. The resulting deferred tax liabilities or assets are
adjusted to reflect changes in tax laws or rates by means of charges or
credits to income tax expense. A valuation allowance is recognized to
the extent a portion or all of a deferred tax asset may not be
realizable.
i. Advertising Costs
The cost of advertising is expensed when the advertising takes place.
During the second half of fiscal 1998, the Company commenced an
advertising campaign intended to increase awareness of its services
with respect to litigants in most types of civil disputes, including
complex commercial issues, construction, employment, matrimonial and
worker's compensation cases. The Company incurred $389,553 and $566,084
for advertising and external public relations costs in fiscal 1999 and
1998, respectively.
F-9
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 2 (continued)
j. Earnings (Loss) Per Common Share
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which
requires public companies to present basic earnings per share and, if
applicable, diluted earnings per share. Basic earnings per share are
based on the weighted average number of common shares outstanding
without consideration of potential common stock. Diluted earnings per
share are based on the weighted average number of common and potential
common shares outstanding. The calculation takes into account the
shares that may be issued upon exercise of stock options, 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 would be antidilutive as the Company incurred net losses
for the years ended June 30, 1999 and 1998.
NOTE 3 - COMPREHENSIVE INCOME (LOSS)
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of SFAS No.
130 had no impact on the Company's net loss or stockholders' equity. SFAS
No. 130 requires unrealized gains or losses on marketable securities which,
prior to adoption, were reported separately in stockholders' equity, to be
included in accumulated other comprehensive income (loss). Prior year
financial statements have been reclassified to conform to the requirements
of SFAS No. 130.
Accumulated other comprehensive loss represents the unrealized gain (loss)
on marketable equity securities, net of tax effects of $0 in 1999 and 1998.
F-10
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 3 (continued)
The components of comprehensive loss, net of tax effects, are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ------------
<S> <C> <C>
Net loss $(1,294,765) $(629,134)
Unrealized gain (loss) on marketable securities, net of
tax effects of $ 0 in 1999 and 1998, respectively
Unrealized gains (losses) arising in period 95,256 (59,963)
Reclassification adjustment - gain (loss) included
in net loss 58,888 (78,149)
----------- ---------
Net unrealized gain (loss) 154,144 (138,112)
----------- --------
Comprehensive loss $(1,140,621) $(767,246)
========== =========
</TABLE>
F-11
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 4 - MARKETABLE SECURITIES
Marketable securities are carried at fair value. A summary of investments
in marketable securities and a reconciliation of amortized cost to the fair
value follow:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
------------ ----------- -------------- -----------
<S> <C> <C> <C> <C>
June 30, 1999
Equity securities $ 341,027 $95,256 $ - $ 436,283
---------- ------ ------------- ----------
Total marketable securities $ 341,027 $95,256 $ - $ 436,283
========== ====== ============= ==========
June 30, 1998
Fixed maturities
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 669,889 $ 209 $ (75) $ 670,023
Corporate preferred securities 250,000 5,620 - 255,620
---------- ------- -------------- ----------
919,889 5,829 (75) 925,643
Equity securities 1,089,879 38,083 (102,725) 1,025,237
--------- ------ -------- ---------
Total marketable securities $2,009,768 $43,912 $(102,800) $1,950,880
========= ====== ======== =========
</TABLE>
Proceeds on sales of securities were $2,267,481 and $2,311,367 for the
years ended June 30, 1999 and 1998, respectively. During fiscal 1999 and
1998, gross gains of $235,431 and $386,155, respectively, and gross losses
of $401,690 and $29,765, respectively, were realized on these sales. Net
unrealized gains (losses) on marketable securities were $95,256 and
$(58,888) at June 30, 1999 and 1998, respectively. During fiscal 1999 and
1998, no income taxes (benefits) were provided on the unrealized gains
(losses) due to the Company's net operating loss.
F-12
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 5 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
June 30,
------------------------
1999 1998
--------- ---------
Furniture $ 186,060 $ 169,717
Equipment 382,011 307,311
Leasehold improvements 21,993 -
--------- --------
590,064 477,028
Less accumulated depreciation (320,671) (228,349)
-------- --------
$ 269,393 $ 248,679
========= =========
Depreciation expense for the years ended June 30, 1999 and 1998 was $93,467
and $80,288, respectively.
NOTE 6 - INCOME TAXES
Temporary differences which give rise to deferred taxes are summarized as
follows:
1999 1998
------------ --------
Deferred tax assets
Net operating loss and other
carryforwards $ 840,000 $ 406,000
Provision for bad debts 44,000 36,000
Deferred compensation 39,000 21,000
Deferred rent and other 33,000 10,000
Depreciation 9,000 -
--------- ---------
965,000 473,000
Deferred tax liabilities
Depreciation - 6,000
--------- ---------
Net deferred tax asset before valuation
allowance 965,000 467,000
Valuation allowance (965,000) (467,000)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
F-13
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 6 (continued)
The Company has recorded a full valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized.
The Company's effective income tax rate differs from the statutory Federal
income tax rate as a result of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -------
<S> <C> <C>
Benefit at statutory rate $(440,220) $(213,906)
State and local benefit, net of Federal tax (74,750) (42,096)
Nondeductible expenses/nontaxable (income) - net 16,592 (24,668)
Increase in the valuation allowance 498,378 280,670
--------- ---------
$ - $ -
========= =========
</TABLE>
The provision for Federal income taxes has been determined on the basis of
a consolidated tax return. At June 30, 1999, the Company had a net
operating loss carryforward for Federal income tax reporting purposes
amounting to approximately $2,062,000, expiring from 2012 through 2019.
Additionally, the Company has a net capital loss carryforward for Federal
income tax reporting purposes amounting to $166,000 expiring in 2004. No
Federal income taxes were paid in the years ended June 30, 1999 and 1998.
NOTE 7 - STOCKHOLDERS' EQUITY
a. Redeemable Warrants
In November 1996, the Company completed an initial public offering
("IPO") which consisted of 1,400,000 units, each unit consisting of one
share of common stock and one redeemable warrant. Each redeemable
warrant entitles the holder to purchase one share of common stock at
$6.00 per share, subject to adjustment, at any time from issuance until
November 13, 2001. Such warrants are redeemable by the Company, with
the prior written consent of the underwriter, at a redemption price of
$.05 commencing November 13, 1997 provided that the average closing bid
price of the common stock equals or exceeds $9.00, subject to
adjustment, for a specified period of time. In addition, there was an
overallotment option for 210,000 units which was exercised by the
underwriter.
F-14
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 7 (continued)
In connection with the IPO, the Company sold to the underwriter, for
nominal consideration, warrants to purchase from the Company 140,000
units (the "underwriter's warrants"). The underwriter's warrants are
initially exercisable at $5.80. The shares of common stock and
redeemable warrants issuable upon exercise of the underwriter's
warrants are identical to those offered to the public. The
underwriter's warrants contain provisions providing for adjustment of
the number of warrants and exercise price under certain circumstances.
The underwriter's warrants grant to the holders thereof certain rights
of registration of the securities issuable upon exercise of the
underwriter's warrants.
b. Stock Award Plan
In June 1994, the Company adopted an Executive Stock Bonus Plan. Under
the plan, the Company granted shares to three employees pursuant to
their employment agreements. All of the shares vest after providing two
to five years of service to the Company from the grant date. Unearned
compensation based on the estimated market value per share at date of
grant of $0.01 was recorded and shown as a separate component of
stockholders' equity. The Company recognized compensation expense of
$103 and $102 during the years ended June 30, 1999 and 1998,
respectively, representing the amortization of unearned compensation
over the vesting period. As of June 30, 1999, 36,744 awards are
outstanding, all of which will vest in July 1999 provided such
employees are employed by the Company at that time.
In addition, in September 1994, the Company granted the manager of a
regional office restricted common stock for the purchase price of $0.17
per share, pursuant to his employment agreement. Of the total shares
granted, 7,152 vested and were issued in June 1996, while the remaining
35,761 shares vested in June 1999.
F-15
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 7 (continued)
c. Stock Option Plan
In May 1996, the Company adopted an Incentive and Nonqualified Stock
Option Plan (the "Plan") for employees, officers, directors,
consultants and advisors of the Company, pursuant to which the Company
may grant options to purchase up to 750,000 shares of the Company's
common stock. The Plan was amended in December 1998 to increase the
number of shares of common stock authorized for issuance thereunder
from 750,000 shares to 2,000,000 shares. The Plan is administered by
the board of directors, which has the authority to designate the number
of shares to be covered by each award and the vesting schedule of such
award, among other terms. The option period during which an option may
be exercised shall not exceed ten years from the date of grant and will
be subject to such other terms and conditions of the Plan. Unless the
board of directors provides otherwise, option awards terminate when a
participant's employment or services end, except that a participant may
exercise an option to the extent that it was exercisable on the date of
termination for a period of time thereafter. The Plan will terminate
automatically on April 1, 2006.
Directors who are not officers of the Company receive annually, on the
last trading day of June, stock options for 1,000 shares at an exercise
price equal to the fair market value of the stock on the date of grant.
In December 1998, the Plan was amended to increase the number of
options granted annually to each non-employee director from options to
purchase 1,000 shares to options to purchase 2,500 shares.
On May 11, 1998, the Company's Board of Directors approved the
repricing of outstanding stock options previously granted to employees.
The repricing provided for the exercise price of 230,500 options to be
reduced from a range of $3.00 to $4.38 per share to a range of $1.63 to
$2.25 per share, to reflect current fair value. The repricing did not
affect the term or vesting period of the options.
F-16
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 7 (continued)
The Company's stock option awards granted to employees, directors and
consultants as of and for the years ended June 30, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 373,500 $2.01 155,500 $ 3.18
Awards granted 590,500 $2.02 451,500 $ 2.22
Awards exercised - -
Awards canceled (55,000) $1.71 (233,500) $ 3.20
-------- --------
Outstanding at end of year 909,000 $2.03 373,500 $ 2.01
======= ========
Options exercisable at year-end 201,500 $3.37 37,000 $ 2.49
======= =========
Weighted-average fair value
of options granted during
the year $ .75 $ .99
</TABLE>
The following information applies to options outstanding and
exercisable at June 30, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------- -----------------------------
Weighted-
average Weighted- Weighted-
remaining average average
Number life in exercise Number exercise
Range of exercise prices outstanding years price exercisable price
------------------------ ----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$.81 to $1.69 615,000 7.64 $1.40 51,500 $1.60
$1.78 to $2.25 196,000 6.81 $2.02 80,000 $2.01
$3.00 to $4.00 37,000 6.89 $3.41 20,000 $3.00
$5.00 to $10.00 61,000 8.00 $7.62 50,000 $7.50
-------- --------
909,000 201,500
======= =======
</TABLE>
Stock option awards are granted at prices equal to or above the closing
bid price on the date of grant. As of June 30, 1999, 1,091,000 shares
were available for granting of options under the Plan.
F-17
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 7 (continued)
The Company accounts for stock-based compensation under the guidelines
of APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," as allowed by Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation."
Accordingly, no compensation expense was recognized concerning options
granted to key employees and to members of the board of directors, as
such options were granted to board members in their capacity as
directors. Compensation expense of $19,494 and $5,610 was recognized in
fiscal 1999 and 1998, respectively, for options granted to consultants.
If the Company had elected to recognize compensation expense based upon
the fair value at the grant date for options granted to key employees
and to members of the board of directors consistent with the "fair
value" methodology prescribed by SFAS No. 123, the Company's net loss
and net loss per share for the years ended June 30, 1999 and 1998 would
be reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Net loss
As reported $(1,294,765) $(629,134)
Pro forma (1,520,232) (762,728)
Net loss per common share - basic and diluted
As reported $ (.39) $(.19)
Pro forma (.46) (.23)
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to awards made before 1996. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1999
and 1998, respectively: dividend yields of zero for both years;
risk-free interest rates ranging from 4.51% to 5.50% in 1999 and 5.52%
to 5.94% in 1998; expected terms of 4 years in 1999 and 2 to 5 years in
1998; and expected stock price volatility of 74.61% in 1999 and 64.15%
in 1998.
F-18
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES
Certain members of the board of directors perform services for the benefit
of the Company. The related expenditures for these services for the years
ended June 30, 1999 and 1998 were $49,038 and $75,425, respectively.
In June 1999, the Company purchased from NAM's Chief Executive Officer the
rights to a time-share property to be used as part of an employee incentive
program. The sales price of $18,450 was established at the current market
value of the time share.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
a. Leases
As of June 30, 1999, the Company has lease agreements for equipment and
office space. Rent expense amounted to $220,542 and $205,308 for the
years ended June 30, 1999 and 1998, respectively. The minimum lease
payments under noncancelable leases as of June 30, 1999 are as follows:
2000 $197,500
2001 187,200
2002 173,400
2003 176,300
2004 89,300
--------
$823,700
b. Employment/Consulting Agreements
The Company's employment agreement with its Chief Executive Officer
expires June 30, 2002 and provides for an annual base salary of
$225,000 as of July 1, 1997, an annual cost of living increase of the
greater of 6% per annum or the increase in the Urban Consumer Price
Index and an annual bonus at the discretion of the Company's Board of
Directors. If this agreement is terminated as a result of a change in
duties of the executive or due to a change in control, the officer will
be entitled to a lump-sum severance payment equal to three times his
then current base salary.
F-19
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 9 (continued)
The Company has also entered into employment agreements with two
officers expiring through June 14, 2001. Such contracts are cancelable
at any time without further liability to the Company with the exception
of one contract which provides for six months of severance pay. Minimum
salary commitments under these contracts follow:
2000 $186,397
2001 112,260
-------
$298,657
========
The Company has also entered into employment agreements with certain of
its regional office managers. Certain of these agreements provide for
additional compensation based on the profits of the manager's
operation.
In July 1996, the Company entered into a financial public relations
consulting agreement with two individuals who are founders of the
Company, current stockholders and former directors. The agreement has a
four-year term and provides for annual payments of $48,000 payable in
equal monthly payments of $4,000 through November 2000. In November
1998, the agreement was amended to reduce the fee as of October 1998 to
$2,000 per month. The related expense for the year ended June 30, 1999
and 1998 was $30,000 and $48,000, respectively.
c. Advertising
As of March 1999, the Company signed a noncancellable, two-year media
agreement to advertise its services on televised sports events in New
York. Minimum commitments under the contract are approximately $115,000
and $59,000 in 2000 and 2001, respectively.
d. Legal
The Company is subject to various forms of litigation in the normal
course of business. It is the opinion of management that the outcome of
such litigation will not have a material adverse effect on the
Company's financial condition and results of operations.
F-20
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999 and 1998
NOTE 10 - EMPLOYEE RETIREMENT PLAN
Effective January 1, 1999, the Company implemented a non-contributory
401(k) savings and retirement plan, whereby eligible employees may
contribute 15% of their salaries up to the maximum allowed under the
Internal Revenue Code. Although the Company may make discretionary
contributions, none were made in 1999.
NOTE 11 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1999 and 1998, the Company's financial instruments included
cash and cash equivalents, marketable securities, receivables and accounts
payable. The fair values of cash and cash equivalents, receivables and
accounts payable approximated carrying values because of the short-term
nature of these instruments. The estimated fair values of marketable
securities were determined based on broker quotes or quoted market prices.
NOTE 12 - CREDIT CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, marketable securities and accounts receivable.
The Company maintains its cash which consists primarily of demand deposits
and an insured money market fund with one financial institution. Such
balances generally do not exceed the Federally insured limits.
Additionally, the Company maintains its cash equivalents and all other
investments with two financial institutions.
The Company primarily sells it services to insurance companies and law
firms. One insurance company customer represented approximately 12% of
total revenues for the year ended June 30, 1998. However, the Company works
with more than 70 individual offices of the insurance company, which, in
total, equal the aforementioned percentages of revenue. In fiscal 1999, no
customer exceeded 10% of total revenue. The Company monitors exposure to
credit losses and maintains allowances for anticipated losses considered
necessary under the circumstances.
F-21
<PAGE>
PART III
ITEM 9. (Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act); ITEM 10. (Executive
Compensation); ITEM 11 (Security Ownership of Certain Beneficial Owners and
Management); and ITEM 12 (Certain Relationships and Related Transactions) will
be incorporated in the Company's Proxy Statement to be filed within 120 days of
June 30, 1999, and are incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Number Description of Document
- ------ -----------------------
3.1 Certificate of Incorporation, as amended (1)
3.2 By-Laws of the Company, as amended (4)
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)
10.3 Employment Agreement between Company and Cynthia Sanders (4)
10.4 Employment Agreement between Company and Daniel Jansen (1)
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 **
11 Consent of Independent Certified Public Accountants**
27 Financial Data Schedule**
- ------------
(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 March 31, 1998.
(4) Incorporated herein in its entirety by reference to the Company's 1998
Annual Report on Form 10-KSB.
** Filed herewith.
Reports on Form 8-K: None during the fourth quarter.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NAM CORPORATION
Date: September 24, 1999 By: /s/Roy Israel
------------------------------------------
Roy Israel, Chairman of the
Board, CEO and President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: September 24, 1999 By: /s/Roy Israel
------------------------------------------
Roy Israel, Chairman of the
Board, CEO and President
Date: September 24, 1999 By: /s/ Patricia Giuliani-Rheaume
------------------------------------------
Patricia Giuliani-Rheaume, Vice President,
Chief Financial Officer and Treasurer
Date: September 24, 1999 By: /s/Cynthia Sanders
------------------------------------------
Cynthia Sanders, Executive Vice President
and Director
Date: September 24, 1999 By: /s/ Daniel P. Jansen
------------------------------------------
Daniel P. Jansen, National Accounts
Manager and Director
Date: September 24, 1999 By: /s/ Anthony J. Mercorella
------------------------------------------
Anthony J. Mercorella, Director
Date: September 24, 1999 By: /s/ Ronald Katz
------------------------------------------
Ronald Katz, Director
<PAGE>
SECOND AMENDMENT
TO
LEASE
AMENDMENT made as of this 9th day of November, 1998 by and between THE
1010 COMPANY ("Owner"), a New York Limited Partnership, having an office c/o
Schmergel Enterprises Corp. 1010 Northern Boulevard, Great Neck, New York and
NAM CORPORATION ("Tenant")a Delaware Corporation, having an address at 1010
Northern Boulevard, Great Neck, New York.
BACKGROUND
Owner and Tenant are parties to a certain lease dated September 13,
1995 and letter agreement amending the lease dated October 16, 1995 (the "First
Amendment to Lease"). The lease as so amended by such prior amendment and this
Second Amendment to Lease is hereinafter referred to as the "Lease". Pursuant to
the Lease Tenant is leasing 4,800 rentable square feet of space (the "Existing
Premises") on the third floor in the building known as 1010 Northern Boulevard,
Great Neck, New York (the "Building"). Pursuant to Article 69 of the Lease,
Tenant has exercised its option to lease additional space on the third floor of
the Building consisting of 1,530 rentable square feet of space (the "Additional
Space"), as more particularly described on Exhibit A attached hereto. Owner and
Tenant desire to amend the Lease to reflect, among other things, the addition of
the Additional Space to the Existing Premises and the modifications to the Lease
which are related thereto.
AGREEMENT
For and in consideration of the premises and other mutual covenants
herein contained, Owner and Tenant hereby covenant and agree as follows:
Section 1. The term of the Lease as set forth in the "Witnesseth"
paragraph on the first page of the printed portion of the Lease is extended to
the last day of the month (the "Revised Termination Date") which is five (5)
years after the Additional Space Commencement Date (as defined in Section 5
hereof).
Section 2. Effective on the Additional Space Commencement Date and
continuing until the Revised Termination Date, the Lease shall be amended as
follows:
(A) The term Premises as set forth in the "Witnesseth"
paragraph on the first page of the printed portion of
the Lease shall be amended to include the Existing
Premises and the Additional Space.
(B) The annual rental rate set forth in the "Witnesseth"
paragraph on the first page of the printed portion of
the Lease shall be as follows:
<PAGE>
(i) $175,372.68 ($27.705/s.f.) payable in equal
monthly installments of $14,614.39 for the
period commencing on the Additional Space
Commencement Date and ending on October 31,
1999. Notwithstanding the foregoing,
provided Tenant is not in default beyond
applicable grace periods, the monthly rent
(exclusive of the Electric Charge pursuant
to Article 38 of the Lease and the Tax
Payment pursuant to Article 41 of the Lease)
for the month of April 1999, shall be
abated.
(ii) $182,398.92 ($28.815/s.f.) payable in equal
monthly installments of $15,199.91 for the
period commencing on November 1, 1999 and
ending on October 31, 2000. Notwithstanding
the foregoing, provided Tenant is not in
default beyond applicable grace periods, the
monthly rent (exclusive of the Electric
Charge pursuant to Article 38 of the Lease
and the Tax Payment pursuant to Article 41
of the Lease) for the month of April 2000,
shall be abated.
(iii) $170,530.20 ($26.94/s.f.) payable in equal
monthly installments of $14,210.85 for the
period commencing on November 1, 2000 and
ending on October 31, 2001.
(iv) $173,948.40 ($27.48/s.f.) payable in equal
monthly installments of $14,495.70 for the
period commencing on November 1, 2001 and
ending on October 31, 2002.
(v) $177,429.96 ($28.03/s.f.) payable in equal
monthly installments of $14,785.83 for the
period commencing on November 1, 2002 and
ending on October 31, 2003.
(vi) $180,974.76 ($28.59/s.f.) payable in equal
monthly installments of $15,081.23 for the
period commencing on November 1, 2003 and
ending on the Revised Termination Date.
(C) For the purposes of subparagraph (1) of Paragraph B
of Article 40, the Premises shall be deemed to
contain a floor area of 6,330 square feet.
(D) "Tenant's Share" as set forth in subparagraph (1) of
Paragraph B of Article 40 shall be increased from
.0311 to .0410.
<PAGE>
Section 3. The Security as set forth in Article 34 of the Lease shall
be increased from $19,704.00 to $26,768.78 by Tenant depositing with Owner the
sum of $7,064.78 upon the Additional Space Commencement Date.
Section 4. A. Owner agrees to perform the work (the "Initial
Installations") in the Premises shown on the construction drawings A-1 and A-2,
prepared by Owner's architect, Onmitech, dated October 7, 1998 as revised
October 15, 1998.
The total cost (including all permits and fees)of the Initial
Installations is $41,844.00 to which Owner shall apply a credit of $19,651 and
Tenant shall pay the balance in the amount of $22,193.00 as follows: $10,000.00
upon the execution of this Agreement; $10,000.00 upon Substantial Completion of
the Initial Installations; and $2,193.00 upon final completion of the Initial
Installations (including all punchlist items).
Section 5. The term "Additional Space Commencement Date" shall mean a
date after the date hereof which is the later of: (i) November 15, 1998 or (ii)
the date on which the Initial Installations in the Premises have been
substantially completed; and it shall be so deemed notwithstanding the fact that
minor or insubstantial details of construction, mechanical adjustment or
decoration remain to be performed, the noncompletion of which does not
materially interfere with Tenant's use of the Premises or the conduct of normal
business therein. Following the Additional Space Commencement Date Owner and
Tenant shall execute and deliver to each other copies of a document which states
the Additional Space Commencement Date and the Revised Termination Date.
Section 6. This agreement shall not be binding on Owner unless and
until it is executed and delivered to Tenant by Owner.
Section 7. To the extent that any capitalized terms not defined in this
Amendment are defined in the Lease, the definition in the Lease shall govern
herein.
<PAGE>
Section 8. Except as modified herein, the Additional Space, is let to
Tenant upon the terms and conditions contained in the Lease.
Section 9. Except as herein modified, the Lease remains in full force
and effect in accordance with its terms.
THE 1010 COMPANY
By: 1010, LLC
By: ______________________________________________________
F. William Schmergel, Managing Member
NAM CORPORATION
By: _______________________________________________________
Name: Patricia Giuliani-Rheaume
Title: Vice President & Chief Financial Officer
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated August 30, 1999, accompanying the consolidated
financial statements included in the Annual Report of NAM Corporation and
Subsidiaries on Form 10-KSB for the fiscal year ended June 30, 1999. We hereby
consent to the incorporation by reference of said report in the Registration
Statement of NAM Corporation and Subsidiaries on Form S-8 (File No. 333-66893,
effective November 6, 1998).
GRANT THORNTON LLP
Melville, New York
August 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-KSB FOR
THE YEAR ENDING JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,776
<SECURITIES> 436
<RECEIVABLES> 625
<ALLOWANCES> 110
<INVENTORY> 0
<CURRENT-ASSETS> 2,894
<PP&E> 590
<DEPRECIATION> 321
<TOTAL-ASSETS> 3,201
<CURRENT-LIABILITIES> 968
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 2,230
<TOTAL-LIABILITY-AND-EQUITY> 3,201
<SALES> 4,159
<TOTAL-REVENUES> 4,159
<CGS> 1,081
<TOTAL-COSTS> 5,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,295)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,295)
<EPS-BASIC> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
