<PAGE>
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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] 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
- ---------------------------------- ------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1010 Northern Boulevard
Great Neck, New York 11021
--------------------------
(Address of Principal Executive Offices)
(516) 829-4343
--------------
(Issuer's Telephone Number,
Including Area Code)
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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 report), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of May 12, 2000, 4,093,179 shares of common stock of the issuer were
outstanding.
Transitional small business disclosure format (check one): Yes
No X
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<PAGE>
NAM CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets at
March 31, 2000 and June 30, 1999 3
Consolidated Statements of Operations
for the three and nine month periods
ended March 31, 2000 and 1999 4
Consolidated Statements of Changes in
Stockholders' Equity and Comprehensive
Loss for the nine month periods ended
March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows
for the nine month periods ended
March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities
and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
2
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,505,864 $ 1,776,261
Marketable securities 668,792 436,283
Accounts receivable (net of allowance for doubtful
accounts of $110,000) 432,923 515,088
Other receivables 42,721 86,496
Prepaid expenses 82,269 79,918
----------- -----------
Total current assets 3,732,569 2,894,046
FURNITURE AND EQUIPMENT - AT COST, less accumulated depreciation 289,551 269,393
OTHER ASSETS 32,434 37,514
----------- -----------
$ 4,054,554 $ 3,200,953
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 247,253 $ 313,740
Accrued liabilities and dividends payable 311,675 249,551
Accrued payroll and employee benefits 95,547 166,620
Deferred revenues 282,468 238,224
----------- -----------
Total current liabilities 936,943 968,135
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A Exchangeable Preferred stock - $.001 par value; 2,100 shares
authorized; 1,850 and 0 shares issued and
outstanding, respectively; liquidation preference of $1,000 per share 1,573,901 -
Common stock - $.001 par value; 15,000,000 shares authorized;
3,450,609 and 3,370,739 shares issued and outstanding, respectively 3,451 3,371
Additional paid-in capital 4,982,279 4,797,637
Accumulated deficit (3,582,597) (2,663,446)
Accumulated other comprehensive income 140,577 95,256
----------- -----------
Total stockholders' equity 3,117,611 2,232,818
----------- -----------
$ 4,054,554 $ 3,200,953
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31, Nine months ended March 31,
2000 1999 2000 1999
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues $ 946,237 $ 857,530 $ 2,921,989 $ 2,969,786
---------- ---------- ----------- ------------
Operating costs and expenses
Cost of services 231,290 213,156 725,698 778,944
Sales and marketing expenses 513,563 412,980 1,570,858 1,531,843
General and administrative expenses 606,459 514,358 1,825,880 1,615,034
---------- ---------- ----------- ------------
1,351,312 1,140,494 4,122,436 3,925,821
---------- ---------- ----------- ------------
Loss from operations (405,075) (282,964) (1,200,447) (956,035)
Other income (expenses)
Investment income (loss) 62,065 123,115 306,600 (136,317)
Other income 3,224 1,078 14,391 11,180
---------- ---------- ----------- ------------
65,289 124,193 320,991 (125,137)
---------- ---------- ----------- ------------
Loss before income taxes (339,786) (158,771) (879,456) (1,081,172)
Income taxes - - - -
---------- ---------- ----------- ------------
Net loss $ (339,786) $ (158,771) $ (879,456) $ (1,081,172)
Preferred stock dividend and accretion of beneficial conversion (39,695) - (39,695) -
---------- ---------- ----------- ------------
Net loss attributable to common stockholders $ (379,481) $ (158,771) $ (919,151) $ (1,081,172)
========== ========== =========== ============
Net loss per common share - basic and diluted $ (0.11) $ (0.05) $ (0.27) $ (0.32)
========== ========== =========== ============
Weighted average shares outstanding - basic and diluted 3,432,783 3,334,978 3,419,670 3,334,978
========== ========== =========== ============
</TABLE>
4
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
Nine months ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Preferred stock Common stock
--------------- ------------
Shares Amount Shares Amount
----------------------------------------------------
<S> <C> <C>
Balances at July 1, 1998 3,334,978 $ 3,335
Compensation related to stock option plan
Net loss
Change in unrealized (loss) gain on marketable securities
Earned portion of stock bonus plan
Comprehensive loss
----------------------------------------------------
Balances at March 31, 1999 3,334,978 $ 3,335
====================================================
Balances at July 1, 1999 3,370,739 $ 3,371
Compensation related to stock option plan
Shares issued pursuant to restricted stock awards 36,744 37
Shares issued upon exercise of stock options and warrants 33,126 33
Gain on shareholder's stock
Shares and warrants issued pursuant to preferred stock
offering, net of issuance costs of $191,954 1,850 $1,543,456 10,000 10
Preferred stock dividend and accretion of beneficial conversion 30,445
Net loss
Change in unrealized gain (loss) on marketable securities
Comprehensive loss
----------------------------------------------------
Balances at March 31, 2000 1,850 $1,573,901 3,450,609 $ 3,451
====================================================
</TABLE>
<PAGE>
[RESTUBBED]
<TABLE>
<CAPTION>
Accumulated
Additional other
paid-in Accumulated comprehensive
capital deficit income (loss)
----------------------------------------------------
<S> <C> <C> <C>
Balances at July 1, 1998 $ 4,778,179 $ (1,368,681) $ (58,888)
Compensation related to stock option plan 21,093
Net loss (1,081,172)
Change in unrealized (loss) gain on marketable securities 126,426
Earned portion of stock bonus plan
Comprehensive loss
-------------------------------------------------
Balances at March 31, 1999 $ 4,799,272 $ (2,449,853) $ 67,538
=================================================
Balances at July 1, 1999 $ 4,797,637 $ (2,663,446) $ 95,256
Compensation related to stock option plan 15,667
Shares issued pursuant to restricted stock awards (37)
Shares issued upon exercise of stock options and warrants 52,712
Gain on shareholder's stock 1,720
Shares and warrants issued pursuant to preferred stock
offering, net of issuance costs 114,580
Preferred stock dividend and accretion of beneficial conversion (39,695)
Net loss (879,456)
Change in unrealized gain (loss) on marketable securities 45,321
Comprehensive loss
-------------------------------------------------
Balances at March 31, 2000 $ 4,982,279 $ (3,582,597) $ 140,577
=================================================
</TABLE>
<PAGE>
[RESTUBBED]
<TABLE>
<CAPTION>
Unearned
compensation- Total
stock bonus stockholders' Comprehensive
plan equity loss
------------------------------------------------
<S> <C> <C>
Balances at July 1, 1998 $ (103) $ 3,353,842
Compensation related to stock option plan 21,093
Net loss (1,081,172) $ (1,081,172)
Change in unrealized (loss) gain on marketable securities 126,426 126,426
Earned portion of stock bonus plan 77 77
------------
Comprehensive loss $ (954,746)
============
--------------------------
Balances at March 31, 1999 $ (26) $ 2,420,266
==========================
Balances at July 1, 1999 $ - $ 2,232,818
Compensation related to stock option plan 15,667
Shares issued pursuant to restricted stock awards -
Shares issued upon exercise of stock options and warrants 52,745
Gain on shareholder's stock 1,720
Shares and warrants issued pursuant to preferred stock
offering, net of issuance costs 1,658,046
Preferred stock dividend and accretion of beneficial conversion (9,250)
Net loss (879,456) $ (879,456)
Change in unrealized gain (loss) on marketable securities 45,321 45,321
------------
Comprehensive loss $ (834,135)
============
--------------------------
Balances at March 31, 2000 $ - $ 3,117,611
==========================
</TABLE>
5
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended March 31,
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (879,456) (1,081,172)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 87,160 75,706
Provision for bad debts - 10,000
(Gains) losses on sales of marketable securities (259,194) 199,687
Losses on sales/disposals of furniture and equipment 383 490
Earned portion of stock bonus plan - 77
Compensation related to stock option plan 15,667 21,093
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable 82,165 (22,002)
(Increase) in other receivables (11,651) (22,409)
(Increase) in prepaid expenses (2,351) (50,072)
Decrease (increase) in other assets 1,189 (1,715)
(Decrease) in accounts payable and accrued liabilities (13,613) (57,545)
(Decrease) in accrued payroll and employee benefits (71,073) (60,611)
Increase in deferred revenues 44,244 95,801
----------- -----------
Net cash used in operating activities (1,006,530) (892,672)
----------- -----------
Cash flows from investing activities
Purchases of marketable securities (960,144) (1,310,637)
Proceeds from sales of marketable securities 932,150 2,094,097
Proceeds from maturities of marketable securities 100,000 570,000
Decrease in receivable for securities sold 55,426
Purchases of furniture and equipment (103,810) (86,050)
Sales of furniture and equipment - 800
----------- -----------
Net cash provided by investing activities 23,622 1,268,210
----------- -----------
Cash flows from financing activities
Issuance of common stock 52,745 -
Issuance of preferred stock and warrants, net of issuance costs 1,658,046 -
Gain on shareholder's stock 1,720 -
----------- -----------
Net cash provided by financing activities 1,712,511 -
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 729,603 375,538
Cash and cash equivalents at beginning of period 1,776,261 1,417,280
----------- -----------
Cash and cash equivalents at end of period $ 2,505,864 $ 1,792,818
=========== ===========
Supplemental disclosure of cash flow information:
Non-cash financing activities
Preferred stock dividend and accretion of beneficial conversion $ 39,695 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
NAM CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Nine months ended March 31, 2000
(Unaudited)
1. The consolidated balance sheet as of March 31, 2000 and the related
consolidated statements of operations for the three and nine month periods ended
March 31, 2000 and 1999 have been prepared by NAM Corporation, including the
accounts of its wholly-owned subsidiaries. In the opinion of management, all
adjustments necessary to present fairly the financial position as of March 31,
2000 and for all periods presented, consisting of normal recurring adjustments,
have been made. Results of operations for the three and nine month periods ended
March 31, 2000 are not necessarily indicative of the operating results expected
for the full year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended June 30,
1999 included in the Company's Annual Report on Form 10-KSB. The accounting
policies used in preparing these consolidated financial statements are the same
as those described in the June 30, 1999 consolidated financial statements.
2. The components of comprehensive income (loss) are as follows:
Three months ended March 31,
2000 1999
---------- -----------
Net loss $ (339,786) $ (158,771)
Change in unrealized gain (loss)
on marketable securities 105,274 (78,346)
---------- -----------
Comprehensive loss $ (234,512) $ (237,117)
---------- -----------
Nine months ended March 31,
2000 1999
---------- -----------
Net loss $ (879,456) $(1,081,172)
Change in unrealized gain (loss)
on marketable securities 45,321 126,426
---------- -----------
Comprehensive loss $ (834,135) $ (954,746)
---------- -----------
7
<PAGE>
3. On February 15, 2000, the Company issued 1,850 shares of its Series A
Exchangeable Preferred Stock for an aggregate purchase price of $1,850,000.
Holders of the Series A Exchangeable Preferred Stock may exchange such shares
into shares of the Company's common stock at any time and must exchange such
shares at the Company's request, which cannot be made until the earlier of
February 14, 2002 or the date upon which the average closing bid price of the
Company's common stock for five consecutive trading days is at least $10 and the
average daily trading volume for the thirty consecutive trading days ending on
the fifth day is at least 40,000 shares and the common stock underlying the
outstanding Series A Exchangeable Preferred Stock is registered pursuant to a
then-effective registration statement.
Until July 15, 2000, the exchange rate for each share of the Series A
Exchangeable Preferred Stock is equal to $1,000 divided by $10.45. On July 15,
2000 and thereafter, the exchange rate for each share of Series A Exchangeable
Preferred Stock is equal to $1,000 divided by the lesser of (i) $10.45 or (ii)
the market price, which is the average of any three consecutive closing bid
prices of the Company's common stock selected by the holders during the thirty
trading day period ending on the day immediately prior to the exchange. Until
February 14, 2001, the exchange rate will never be greater than $10.45 or less
than $2.375. These adjustments to the market price could potentially result in a
conversion price below the then trading market price of the stock on the date of
the exchange. In recognition of this beneficial conversion feature, the Company
allocated approximately $101,000 of the proceeds from the offering to additional
paid-in capital. The beneficial conversion feature is accounted for as an
imputed dividend and is being accreted to preferred stock over the five-month
period from February 15, 2000 through July 15, 2000. The amount accreted for the
quarter ended March 31, 2000 was $30,445 which increased the net loss
attributable to common stockholders.
In the event of a liquidation of the Company, the holders of the Series A
Exchangeable Preferred Stock shall receive, before any payments to common
stockholders, $1,000 per share plus any accrued but unpaid dividends.
The Series A Exchangeable Preferred Stock accrues dividends at a rate of 4%
annually, unless the thirty-day average trading price of the Company's common
stock is equal to or greater than $9 at any time after July 15, 2000, in which
case dividends will cease to accrue and accrued but unpaid dividends will be
canceled. Dividends may be paid at the Company's option, in cash or in
registered common stock.
In connection with the sale of the Series A Exchangeable Preferred Stock, the
Company issued warrants to the preferred holders to purchase an aggregate of
56,250 shares of common stock at a price per share of $10.52. The warrants
expire on August 15, 2005. The fair value of the warrants approximated $205,000.
Such amount reduced the stated value of the preferred stock and increased
additional paid-in capital, resulting in no net change to stockholders' equity.
8
<PAGE>
The Company issued 5,000 shares of its common stock to the placement agent for
the offering, Triton West Group, Inc. They also received a fee of $92,500 in
connection with the placement.
4. On February 16, 2000, the Company entered into an Equity Line of Credit
Agreement with Moldbury Holdings Limited. Under this agreement, the Company has
the right, until February 15, 2003, to require that Moldbury Holdings Limited
purchase between $500,000 and $7,000,000 of the Company's common stock. The
maximum and minimum amounts that Moldbury Holdings Limited would be required to
purchase at any given time are subject to a floating number based on the closing
bid price of the Company's common stock and the average trading volume of such
stock in a thirty-day period. The price per share in each such purchase shall be
the greater of (i) 89% of the average closing bid price for the day of the
Company's notice to Moldbury Holdings Limited requesting its purchase and the
two days preceding the notice and the two days following the notice and (ii) the
minimum price set by the Company for such purchase. Moldbury Holdings Limited is
not required to make any purchase if the shares being purchased are not
registered pursuant to a then-effective registration statement. Under the
agreement, the equity line may be increased on or about April 16, 2001 to
$14,000,000 provided that certain criteria are met by the Company including the
achievement of minimum levels of cash and cash equivalents and quarterly
revenues.
In connection with the Equity Line of Credit Agreement, the Company issued a
warrant to Moldbury Holdings Limited to purchase 60,000 shares of common stock
at a price per share of $9.34, of which 45,000 warrants were issued on February
16, 2000 and the remaining 15,000 warrants are to be issued immediately after
Moldbury Holdings Limited has invested $3,500,000 to purchase shares of common
stock under the terms and conditions of the Equity Line of Credit Agreement. The
warrants expire on August 16, 2003. The Company issued 5,000 shares of its
common stock to the placement agent for the offering, Triton West Group, Inc. A
fee of 5% of the gross proceeds will be paid when Moldbury Holdings Limited
purchases the Company's common stock, at the Company's request, pursuant to the
Equity Line of Credit Agreement.
5. On May 11, 2000, the Company issued 642,570 common shares to Insurance
Services Office, Inc. (ISO) for $4,000,000. In connection therewith, the Company
issued a warrant to ISO to purchase 180,000 common shares at an exercise price
of $8.09 per share. The warrant expires on August 15, 2005. ISO has the right to
designate one individual to be nominated as a member of the Company's Board of
Directors.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").
The Company desires to avail itself of certain "safe harbor" provisions of the
Act and therefore is including this special note to enable it to do so.
Forward-looking statements contained herein involve risks and uncertainties. The
Company's actual results and experience could differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including changes in the legal and insurance industries; 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 its clickNsettle.com
website and in-person and video-conferenced arbitration and mediation programs.
General
The Company provides alternative dispute resolution ("ADR") services
principally to insurance companies, law firms, corporations and municipalities,
on an in-person basis, via video conferencing and on the Internet through its
clickNsettle.com website. To date, the Company has focused the majority of its
marketing efforts on developing new relationships and expanding existing
relationships with these entities which the Company believes are significant
consumers of ADR services. The Company believes that with its global roster of
qualified hearing officers, video conferencing capabilities, knowledge of
dispute resolution, reputation within the corporate and legal communities and
Internet- based dispute resolution programs, it is uniquely positioned to
provide a comprehensive web-enabled solution to disputing parties worldwide.
The Company opened for business in March 1992 in New York and currently
operates from locations in New York, Massachusetts and Tennessee.
The Company's objective is to become the leading global provider of
web-enabled dispute resolution services; to offer one-stop shopping for anyone
involved in any type of dispute, anywhere in the world; and to provide this
service more quickly, economically and efficiently than previously possible. The
Company intends to achieve this goal by employing the following strategies: (1)
marketing its Internet settlement website, clickNsettle.com, which is designed
to attract a larger customer base on a global scale with lower incremental
costs; (2) expanding the functionality of clickNsettle.com to address
multi-party disputes, class-action litigation and other new markets, including
multi-jurisdictional claims which are becoming more commonplace as a result of
the global transition towards e-commerce;(3) focusing the advertising campaign
initiated during fiscal year 1998 towards building brand recognition of
clickNsettle.com; (4) accelerating efforts to secure exclusive relationships
with corporations and law firms in order to obtain contracts on a national and
regional basis by capitalizing on the Company's market position; (5) exploring
strategic alliances with business entities that have the ability to promote
clickNsettle.com and NAM's legacy ADR services to their customers; and (6)
becoming a primary provider of international dispute resolution services.
10
<PAGE>
In June 1999, the Company introduced clickNsettle.com, an Internet
website which offers a cost effective forum to resolve disputes globally using a
unique, fully interactive blind bid negotiating process. 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 expanding,
enhancing and marketing this service during 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 any litigant with a dispute which
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) captures valuable case
information providing the user with a data-mining source to benchmark
information 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.
Third Quarter Ended March 31, 2000 Compared to Third Quarter Ended
March 31, 1999
Revenues. Revenues increased 10% to $946,237 for the third quarter
ended March 31, 2000 from $857,530 for the comparable prior period. The increase
in revenues is attributable to a larger number of hearings as well as an
increase in average revenue per case. Additionally, the current period included
revenues generated by clickNsettle.com, the Company's Internet settlement
website which was first introduced in June 1999.
Cost of Services. Cost of services increased 9% to $231,290 for the
third quarter ended March 31, 2000 from $213,156 for the third quarter ended
March 31, 1999. The increase in absolute dollars relates primarily to the
increase in sales. Cost of services as a percentage of revenues decreased
slightly to 24.4% for the third quarter of fiscal year 2000 from 24.9% for the
third quarter of fiscal year 1999. The ratio of cost of services to revenues
will fluctuate based on electronic revenues and 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.
11
<PAGE>
Sales and Marketing. Sales and marketing costs increased 24% to
$513,563 for the third quarter ended March 31, 2000 from $412,980 for the third
quarter ended March 31, 1999. Sales and marketing costs as a percentage of
revenues increased to 54% in the third quarter of fiscal year 2000 from 48% in
the third quarter of fiscal year 1999. The Company increased its marketing staff
and secured public relations services, thereby incurring higher salary, travel
and advertising costs, to promote the Company's web-enabled dispute resolution
and international services.
General and Administrative. General and administrative costs increased
18% to $606,459 for the third quarter ended March 31, 2000 from $514,358 for the
third quarter ended March 31, 1999. A portion of the increase (approximately
$38,000) relates to salary and related items (including payroll taxes, benefits,
employee recruitment fees and outside services) due to increases in staff for
data processing and other administrative functions, including temporary help, to
support and enhance clickNsettle.com as well as NAM's in-person traditional
arbitration and mediation services. Additionally, the Company incurred higher
corporate legal fees (partially attributable to patent and trademark filings
related to clickNsettle.com). Furthermore, general and administrative costs as a
percentage of revenues increased to 64% in the third quarter of fiscal year 2000
from 60% for the comparable prior period.
Other Income. Other income decreased 47% from $124,193 in the third
quarter of fiscal year 1999 to $65,289 in the third quarter of fiscal year 2000.
Other income is composed primarily of investment income and realized gains
(losses) generated from investments. The change between the periods relates
primarily to a decline in realized gains from sales of marketable securities
from approximately $103,000 in the third quarter of fiscal year 1999 to
approximately $46,000 in the third quarter of fiscal year 2000.
Income Taxes. Tax benefits resulting from net losses incurred for the
periods ended March 31, 2000 and 1999 were not recognized as the Company
recorded a full valuation allowance against the net operating loss carryforwards
during the periods.
Net Loss. For the three months ended March 31, 2000, the Company had a
net loss of ($339,786) as compared to a net loss of ($158,771) for the three
months ended March 31, 1999. The loss increased as additional expenditures were
made for salaries, marketing and legal costs in order to enhance and promote the
Company's web-based dispute resolution services.
12
<PAGE>
Nine Months Ended March 31, 2000 Compared to Nine Months Ended March 31, 1999
Revenues. Revenues decreased 2% to $2,921,989 for the nine months ended
March 31, 2000 from $2,969,786 for the comparable prior period. The decrease in
revenues is attributable to an overall decline in the number of hearings
conducted during the period. Management believes this is primarily the result of
many of the Company's marketing and other resources being devoted to the
introduction and promotion of clickNsettle.com in the first quarter and the
subsequent shift towards an Internet-based business with more efficient primary
customer service centers and national account arrangements rather than numerous
regional locations. During the second quarter of fiscal year 2000, the Company
introduced an enhanced version of clickNsettle.com which focused on its unique,
unlimited bid, real-time negotiating format. The Company believes that
continuous improvement of its Internet negotiating model is critical to the
success of the clickNsettle.com website and will continue to invest resources in
this area.
Cost of Services. Cost of services decreased 7% to $725,698 for the
nine months ended March 31, 2000 from $778,944, for the nine months ended March
31, 1999. The decrease relates primarily to the decrease in sales and to a
charge in the nine months of fiscal year 1999 for the granting and vesting of
stock options with respect to a hearing officer as well as payments to hearing
officers in connection with the commencement of exclusive arrangements with the
Company. As a result, the cost of services as a percentage of revenues decreased
to 24.8% for the first nine months of fiscal year 2000 from 26.2% for the first
nine months of fiscal year 1999. The ratio of cost of services to revenues will
fluctuate based on electronic revenues and 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 3% to
$1,570,858 for the nine months ended March 31, 2000 from $1,531,843 for the nine
months ended March 31, 1999. Sales and marketing costs as a percentage of
revenues increased to 54% for the nine months ended March 31, 2000 from 52% for
the comparable prior period. The increase largely relates to higher salary and
travel costs to promote the Company's web-enabled dispute resolution and
international services. This increase was offset by a decline in advertising
costs of approximately $128,000 from the first nine months of fiscal year 1999
to the first nine months of fiscal year 2000.
General and Administrative. General and administrative costs increased
13% to $1,825,880 for the nine months ended March 31, 2000 from $1,615,034 for
the nine months ended March 31, 1999. Most of the increase (approximately
$129,000) relates to salary and related items (including payroll taxes,
benefits, employee recruitment fees and outside services) due to increases in
staff for data processing and other administrative functions, including
temporary help, to support and develop clickNsettle.com, as well as NAM's
in-person traditional arbitration and mediation services. The remaining increase
was largely related to higher corporate legal fees (partially attributable to
patent and trademark filings related to clickNsettle.com). Furthermore, general
and administrative costs as a percentage of revenues increased to 62% in the
first nine months of fiscal year 2000 from 54% for the comparable prior period.
13
<PAGE>
Other Income. Other income (expenses) changed from an expense of
($125,137) for the first nine months of fiscal year 1999 to income of $320,991
for the first nine months of fiscal year 2000. Other income is composed
primarily of investment income and realized gains (losses) generated from
investments. The change between the periods relates primarily to an increase in
realized gains from sales of marketable securities from a net loss of
approximately $200,000 for the nine months ended March 31, 1999 to a net gain of
approximately $259,000 for the nine months ended March 31, 2000.
Income Taxes. Tax benefits resulting from net losses incurred for the
nine month periods ended March 31, 2000 and 1999 were not recognized as the
Company recorded a full valuation allowance against the net operating loss
carryforwards during the periods.
Net Loss. For the nine months ended March 31, 2000, the Company had a
net loss of ($879,456) as compared to a net loss of ($1,081,172) for the nine
months ended March 31, 1999. The loss decreased primarily due to higher realized
gains on the sale of marketable securities offset by higher salaries, marketing
and legal costs in order to enhance and promote the Company's web-based dispute
resolution services.
Liquidity and Capital Resources
At March 31, 2000, the Company had working capital surplus of
$2,795,626 compared to $1,925,911 at June 30, 1999. The increase in working
capital was primarily due to the issuance of 1,850 shares of Series A
Exchangeable Preferred Stock in February 2000 offset by cash used in operating
activities to fund the net loss for the nine months ended March 31, 2000.
Net cash provided by investing activities was $23,622 for the nine
months ended March 31, 2000 versus $1,268,210 for the comparable prior period.
The change in cash from investing activities was principally due to a lower
level of net sales and maturities of marketable securities in the current period
as compared to the prior period.
Net cash provided by financing activities increased to $1,712,511 for
the nine months ended March 31, 2000 from 0 in the prior comparable period. The
increase was largely due to the issuance of Series A Exchangeable Preferred
Stock in February 2000 for $1,850,000 less issuance costs.
14
<PAGE>
On May 11, 2000, the Company received $4,000,000 from the issuance of
642,570 shares of common stock to a single investor.
The Company anticipates that cash flows, together with funds received
in connection with its recent issuance of preferred and common stock as
described above, will be sufficient to fund the Company's operations for the
next year. Additionally, in February 2000, the Company entered into an Equity
Line of Credit Agreement. Under this agreement, the Company has the right, until
February 15, 2003, to require that the investor purchase between $500,000 and
$7,000,000 of the Company's common stock. The amounts of the purchases are
subject to a floating number based on the closing bid price of the Company's
common stock and the average trading volume of such stock in a thirty-day
period. The equity line may be increased on or about April 16, 2001 to
$14,000,000 provided that certain criteria are met by the Company including the
achievement of minimum levels of cash and cash equivalents and quarterly
revenues.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
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 $2,688,000 had been utilized through June 30, 1999 as
disclosed in the Company's Form 10-KSB. During the nine months
ended March 31, 2000, the Company additionally expended
approximately $870,000 for working capital and general
corporate purposes, including the development and marketing of
clickNsettle.com.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of matters to a Vote of Security Holders.
None.
Item 5. Other information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended (1)
3.1(b) Certificate of Designatrion of Series A Exchangeable Preferred Stock (7)
3.1(c) Certificate of Correction of Certificate of Designation of Series A
Exchangeable Preferred Stock (8)
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)
10.6 Employment Agreement between Company and Robert Mack (6)
10.7 Lease Agreement for Great Neck, New York facility (1)
10.7.1 Amendment to Lease Agreement for Great Neck, New York faciity (5)
10.8 Exchangeable Preferred Stock and Warrants Purchase Agreement (7)
10.9 Preferred Stock Registration Rights Agreement (7)
10.11 Private Equity Line of Credit Agreement between Moldbury Holdings Limited
and the Company (7)
10.12 Private Equity Line of Credit Registration Rights Agreement (7)
10.13 Stock Purchase Warrant for Moldbun Holdings Limited (7)
27 Financial Data Schedule **
</TABLE>
- ---------------------------
(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.
16
<PAGE>
(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 December 31, 1997.
(4) Incorporated herein in its entirety by reference to the
Company's 1998 Annual Report on Form 10-KSB.
(5) Incorporated herein in its entirety by reference to the
Company's 1999 Annual Report on Form 10-KSB.
(6) Incorporated herein in its entirety by reference to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1999.
(7) Incorporated herein in its entirety by reference to the
Company's SB-2 filed on March 28, 2000.
(8) Incorporated herein in its entirety by reference to the
Company's SB-2A filed on April 21, 2000.
** Filed herewith.
(b) Reports on Form 8-K.
Form 8-K was filed on March 29, 2000 in conjunction with
the issuance of 1,850 shares of the Company's Series A
Exchangeable Preferred Stock. Form 8-K was filed on April
20, 2000 to announce the Company's extension of its March
1998 purchase plan to acquire up to 600,000 shares of its
common stock during a one-year period.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NAM CORPORATION
Date: May 12, 2000 By: /s/ Roy Israel
--------------------------------
Roy Israel, President and CEO
Date: May 12, 2000 By: /s/ Patricia A. Giuliani-Rheaume
--------------------------------
Patricia A. Giuliani-Rheaume,
Vice President, Treasurer and CFO
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,506
<SECURITIES> 669
<RECEIVABLES> 543
<ALLOWANCES> 110
<INVENTORY> 0
<CURRENT-ASSETS> 3,733
<PP&E> 693
<DEPRECIATION> 403
<TOTAL-ASSETS> 4,055
<CURRENT-LIABILITIES> 937
<BONDS> 0
0
1,574
<COMMON> 3
<OTHER-SE> 4,982
<TOTAL-LIABILITY-AND-EQUITY> 3,118
<SALES> 2,922
<TOTAL-REVENUES> 2,922
<CGS> 726
<TOTAL-COSTS> 4,122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (919)
<INCOME-TAX> 0
<INCOME-CONTINUING> (919)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (919)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
