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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, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 0-21419
clickNsettle.com, Inc. (formerly 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. $3,987,928
The aggregate market value of the voting stock held by non-affiliates per the
closing stock price of September 11, 2000 is $7,806,886.
As of September 11, 2000, 4,318,776 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, 2000
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PART I
From time to time, including in this annual report on Form 10-KSB,
clickNsettle.com, Inc. (formerly NAM Corporation) (the "Company" or "we") may
publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, future operations, new products,
research and development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, we note that a
variety of factors could cause our actual results to differ materially from the
anticipated results or other expectations expressed in our forward-looking
statements. The risks and uncertainties that may affect the operations,
performance, development and results of our business include, without
limitation, the following; changes in the insurance and legal industries; our
inability to retain current or new hearing officers; changes in the public court
systems; and the degree and timing of the market's acceptance of our web site
and in-person and video-conferenced arbitration and mediation programs.
ITEM 1. DESCRIPTION OF BUSINESS
The Company
We operate in one business segment as a provider of arbitration and
mediation services, also known as alternative dispute resolution services, or
ADR services, principally to insurance companies, law firms, corporations and
municipalities. An ADR proceeding is an alternative forum to the public court
system for resolving civil disputes.
Our objective is to become the leading global provider of dispute
resolution services by providing the total solution for our clients; by offering
one-step shopping for anyone involved in any type of dispute, anywhere in the
world; and to provide this service more quickly, economically and efficiently
than previously possible. We intend to achieve this goal by employing the
following strategies: (1) marketing our comprehensive suite of web-enabled
dispute resolution tools which are designed to attract a larger customer base on
a global scale with lower incremental costs; (2) positioning clickNsettle.com as
a necessary component of e-commerce transactions so as to provide a mechanism
for the resolution of any potential dispute, should one occur, among parties who
may be geographically diverse; (3) focusing our advertising campaign towards
building brand recognition; (4) accelerating efforts to secure exclusive
relationships with corporations and law firms in order to obtain contracts on an
international basis by capitalizing on our market position; (5) continue to
explore strategic alliances with business entities that have the ability to
promote clickNsettle.com; and (6) becoming a primary provider of international,
no-fault and intellectual property dispute resolution.
clickNsettle.com, with patent pending on its unique fully-interactive
blind bid negotiation process, can be accessed 24 hours a day, 7 days a week and
is being targeted to the multi-billion dollar litigation market. We believe that
our web-enabled suite of dispute resolution tools provide us with the following
capabilities: (1) ability to process a large volume of cases electronically with
a lower cost per case; (2) easy accessibility by potential users via the
Internet; (3) ability to reach potential users on a global basis; (4) lead
generator for our in-person arbitration and mediation services which offer a
roster of 1,300 arbitrators and mediators worldwide; (5) ability to benchmark
data on settlements by injury and venue; and (6) reporting capabilities to
summarize and provide analysis of a client's entire ADR program including
in-person arbitration and mediation conferences and electronic settlements over
the Internet.
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We believe that the ADR business is a growing industry based upon (a)
the continuing inability of the public court system to manage effectively its
docket of civil cases and (b) the explosion of e-commerce transactions and the
subsequent need for an electronic dispute resolution tool to address a potential
new source of litigation. An ADR proceeding streamlines 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. With respect to business-to-business disputes, ADR proceedings also can
preserve business relations among the parties because its nature is less
adversarial and disputes may be resolved promptly.
The Company was formed on January 12, 1994 under the laws of the State
of Delaware. On October 31, 1994, we acquired all of the outstanding common
stock of National Arbitration & Mediation, Inc. ("NA&M"), a New York
corporation, formed on February 6, 1992, which was owned by our Chief Executive
Officer and President, and our former Executive Vice President. NA&M began
operations in March 1992 as a provider of ADR services. NA&M was merged into the
Company as of the end of June 1999. In June 2000, shareholder approval was
obtained to change the name of the Company from NAM Corporation to
clickNsettle.com, Inc. to more appropriately reflect the present and future
scope of our business and prospects.
Services Offered
Online, blind bid negotiation process: At the end of June 1999, we
introduced our online, blind bid negotiation process which is an Internet based,
interactive virtual court service that offers an alternative to traditional
litigation. The program utilizes a direct settlement format that allows
disputing parties to enter an unlimited number of "blind" and confidential
offers and demands, via the Internet, to settle cases. Through this service, we
provide 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. Only the final settlement figures
are 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 in-person arbitration and mediation with us.
The service, with patent pending, can be accessed 24 hours a day, 7 days a week
and also provides detailed reporting of both in-person arbitration and mediation
results and electronic settlement statistics.
Arbitration: Our arbitration procedure follows a format essentially
similar to a non-jury trial in the public court system. Parties are given a
forum in which to present their cases. Litigants utilize this process to save a
significant amount in fees relative to traditional court costs and are spared
the time delays and some of the cumbersome procedures commonly associated with
public court trials. Our hearings are generally governed by our 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 our list of 1,300 worldwide hearing officers.
The hearings are private, 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
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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. We do not currently offer any type of
appeal procedure. Our 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 us is
settlement conferencing, a non-binding process. Settlement conferencing 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.
The parties and a hearing officer attend the settlement conference.
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 damages. 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 online, blind bid negotiations and
in-person mediations and arbitrations, we offer, among other services, advisory
opinions and specialized dispute resolution programs depending on the parties'
particular needs. We also offer Case Resolution Days. Case Resolution Days are
events usually scheduled at an insurance company client's office in which we
arrange for parties to hold high volume direct settlement meetings without the
participation of a hearing officer. If the individual meetings do not resolve
the dispute, we provide a hearing officer to mediate the dispute if the parties
wish to pursue settlement.
Video Conferencing: We have the ability to offer video conferencing
capabilities that allows us to provide services to a wider range of clients on a
geographical basis. By using this service, clients can participate in and
observe hearings without leaving their offices. This results in the reduction of
certain costs to the client associated with the ADR process. In addition, the
video conferencing equipment, which can be purchased or leased directly from us,
has applications beyond the ADR area for clients.
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Marketing and Sales
During the second half of fiscal year 2000, we completed the major
portion of our development phase with respect to our web-enabled suite of
dispute resolution tools and shifted our focus towards exploiting the assets we
had developed. We appointed certain account representatives as national account
managers who began marketing the total ADR solution, both online and in-person,
to promote all aspects of our service. National account managers are charged
with the goal of pursuing new business as well as increasing 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. As of
September 11, 2000, we employed 19 account representatives to market our
services. Account representatives are salaried employees and are eligible for
additional commissions/incentives based on revenue generated.
Our president, assistant general counsel and vice president of client
services have become active in working with our account executives. Account
executives in the regional offices may first report to a regional manager who
then reports to the vice president of client services. The regional managers'
employment agreements provide for additional compensation based on the profits
of the manager's operation.
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 our customers. 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 our clients are insurance carriers and law firms. In
fiscal years 2000 and 1999, no customer exceeded 10% of net revenues. We have a
diversified customer base with our revenue distributed among more than 2,000
clients in both fiscal years 2000 and 1999.
When appropriate, we seek membership contracts with our clients.
Further, we continue to enhance our efforts to obtain volume commitments from
existing and new clients.
Competition
The ADR business is highly competitive, on an international, national
and regional level. We believe that barriers to entry in the private ADR
business are relatively low, and new competitors can begin doing business
relatively quickly. We believe this because 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. We believe the largest not-for-profit
competitor is the American Arbitration Association and that they have a
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.
We believe that the domestic private 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. ("JAMS") is
the largest for-profit ADR provider in the country. The Company's competitors
include, among others, JAMS, Cybersettle, National Arbitration Forums and Island
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Arbitration and Mediation. In addition, several public court systems, including
the federal and certain state courts in New York, our major market, have
instituted court-coordinated programs. To the extent that the public courts
reduce case backlogs and provide effective dispute resolution mechanisms, our
business opportunities in such markets may be reduced.
Increased competition could decrease the fees charged for our services,
and limit our ability to obtain experienced hearing officers. This could have a
materially adverse effect on our ability to be profitable in the future. In
addition, we compete with other ADR providers to retain the services of
qualified hearing officers.
As compared to the majority of our competitors, we believe that our
total solution, comprised of an online, blind bid program and in-person global
arbitration and mediation services, is unique. We believe we have certain
advantages that enable us to better serve our clients. These advantages include:
(1) a fully interactive case resolution web site which enables parties to
resolve disputes by making an unlimited number of blind and confidential
settlement offers and demands via the Internet from anywhere in the world, 24
hours a day, 7 days a week; (2) exclusive agreements with many of our qualified
hearing officers, who are generally former judges; (3) the ability to monitor
and control the scheduling of matters; and (4 ) videoconferencing capability
that allows clients to participate in or observe a proceeding without leaving
their office. We cannot assure you, however, that these perceived advantages
will enable us to compete successfully in the future.
Government Regulation
ADR services that are offered by private companies, like us, 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 11, 2000, we employed 47 persons, including three
part-time employees; 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 21 employees support our
operations with respect to information technology, accounting, scheduling,
confirming, billing and other administrative duties. The Company also currently
utilizes the services of two temporary employees who are eligible for long-term
employment.
Hearing Officers
As of September 11, 2000, we maintained relationships with over 1,300
hearing officers. We have exclusive agreements with respect to ADR proceedings
with a number of these hearing officers. Such hearing officers accounted for
approximately 63% of the number of in-person cases handled by us for the year
ended June 30, 2000. The balance of non-exclusive hearing officers makes their
services available to us on a case-by-case basis. With the exception of the
exclusive hearing officers, the remainder of our 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
We maintain 2 leased facilities, which are located in office buildings.
Currently, we lease 9,080 square feet of space at 1010 Northern Boulevard, Great
Neck, New York for our corporate headquarters and for providing ADR services in
the metropolitan New York area. The lease expires June 2005. We also lease 1,320
square feet of space, which lease expires November 2000, for our North Easton,
Massachusetts office. We believe this space is adequate for our reasonably
anticipated future needs.
The aggregate rental expense for all of our offices was $188,455 during
the year ended June 30, 2000.
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
On June 15, 2000, we held a special meeting of shareholders. At the
meeting, the shareholders voted on three proposals. The following represents the
results of the voting, both in person and by proxy:
For ratification of amendment of the Certificate of Incorporation, as amended,
to change the Company's name from NAM Corporation to clickNsettle.com, Inc.:
2,985,294 votes for;
231,126 votes against;
200 abstenations.
For ratification of the issuance by the Company of common stock pursuant to the
Equity Line of Credit Agreement:
1,867,602 votes for;
256,883 votes against;
7,555 abstenations;
1,084,580 not voted.
For ratification of the issuance by the Company of common stock pursuant to the
conversion of Series A Exchangeable Preferred Stock:
1,871,345 votes for;
250,733 votes against;
9,962 abstenations;
1,084,580 not voted.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. Our Common Stock and Warrants are quoted on the NASDAQ Small Cap Market under
the trading symbols "CLIK" and "CLIKW," respectively, and have been quoted since
we commenced public trading on November 18, 1996. Prior to November 18, 1996,
there was no public market for our 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.
Common Stock Warrants
High Low High Low
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Fiscal Year 2000:
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First quarter (07/1/99-9/30/99) $9.00 $2.00 $3.22 $0.53
Second quarter (10/01/99-12/31/99) 8.09 4.69 2.69 1.06
Third quarter (01/01/00-03/31/00) 8.06 4.88 3.00 1.06
Fourth quarter (04/01/00-06/30/00) 6.88 3.50 2.25 0.97
Fiscal Year 1999:
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First quarter (07/1/98-9/30/98) $2.75 $1.25 $0.38 $0.13
Second quarter (10/01/98-12/31/98) 2.16 1.00 0.25 0.06
Third quarter (01/01/99-03/31/99) 1.63 0.69 0.19 0.13
Fourth quarter (04/01/99-06/30/99) 1.75 0.81 0.44 0.09
On September 11, 2000 the closing bid price for the Common Stock and
Warrants, as reported by the NASDAQ Small Cap Market, were $3.313 and $0.625,
respectively.
As of September 11, 2000 there were in excess of 300 holders of our
securities.
The payment of common stock dividends, if any, in the future rests
within the discretion of our board of directors and will depend, among other
things, upon our earnings, capital requirements and financial condition, as well
as other relevant factors. We do not contemplate or anticipate paying any
dividends upon our common stock in the foreseeable future.
The Series A Exchangeable Preferred Stock accrues dividends at a rate
of 4% annually, unless the thirty-day trading price of our 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 our option, in cash or in registered common stock.
B. In November 1996, we raised additional capital through an initial public
offering of our securities. Net proceeds after offering expenses approximated
$4,700,000 of which $2,688,000 had been utilized through June 30, 1999. During
the year ended June 30, 2000, we additionally expended approximately $1,174,000
for working capital and general corporate purposes. The remaining funds were
invested in cash and cash equivalents and marketable equity securities.
The preceding information updates Form SR filed by the Company in
February 1997 pursuant to former Rule 463.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
We provide ADR services to insurance companies, law firms, corporations
and municipalities, on an in-person basis, via video conferencing and on the
Internet through our clickNsettle.com web site. We focus the majority of our
marketing efforts on developing and expanding relationships with these entities,
which we believe are some of the largest consumers of ADR services. We believe
that with our global roster of qualified hearing officers, video conferencing
capabilities, knowledge of dispute resolution, reputation within the corporate
and legal communities and Internet based dispute resolution programs, we are
uniquely positioned to provide a comprehensive web-enabled solution to disputing
parties worldwide.
We opened for business in March 1992 in New York and currently operate
from locations in New York, Massachusetts and Tennessee.
Our objective is to become the leading global provider of dispute
resolution services by providing the total solution for our clients; by offering
one-step shopping for anyone involved in any type of dispute, anywhere in the
world; and to provide this service more quickly, economically and efficiently
than previously possible. We intend to achieve this goal by employing the
following strategies: (1) marketing our comprehensive suite of web-enabled
dispute resolution tools which are designed to attract a larger customer base on
a global scale with lower incremental costs; (2) positioning clickNsettle.com as
a necessary component of e-commerce transactions so as to provide a mechanism
for the resolution of any potential dispute, should one occur, among parties who
may be geographically diverse; (3) focusing our advertising campaign towards
building brand recognition; (4) accelerating efforts to secure exclusive
relationships with corporations and law firms in order to obtain contracts on an
international basis by capitalizing on our market position; (5) continue to
explore strategic alliances with business entities that have the ability to
promote clickNsettle.com; and (6) becoming a primary provider of international,
no-fault and intellectual property dispute resolution.
Future Trends
We believe that ADR is becoming a more commonly utilized option for the
resolution of various dispute types including insurance, contract, commercial,
matrimonial, mass-tort and e-commerce. In addition, the ADR industry is, and
will continue to be, undergoing a consolidation of ADR service providers as
clients seek vendors who can offer technologically sophisticated international,
national and regional multi-state ADR programs. We believe our Internet-based
business, with more efficient primary customer service and national account
arrangements, will exploit this trend. We further believe ADR clients will
continue to seek volume discounts on the charges applied by us for services
rendered. We believe that this trend may have an overall positive impact on our
business because the discounts are usually applied only when an ADR client makes
a commitment to refer a minimum number of cases to us.
We have and may continue to incur net losses in the short-term future
as a result of (a) continuing development and other costs associated with
clickNsettle.com and (b) our advertising campaign. Although we are actively
promoting this product, there can be no assurance that the revenues to be
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realized therefrom will exceed the expenses to be incurred. Additionally, our
advertising campaign will continue through fiscal year 2002. In August 2000, we
signed an agreement with American Lawyer Media, the nation's leading legal
journalism and information company, to provide $1,000,000 of advertising and
promotional opportunities in their national and regional publications over a
two-year period in exchange for 184,422 shares of our common stock. We believe
that targeting our advertising to the legal community will continue to increase
awareness of our comprehensive suite of dispute resolution services. However,
there can be no assurance that this effort will result in increased revenues.
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
Results of Operations
Revenues. Revenues decreased 4% to $3,987,928 for the year ended June
30, 2000 from $4,158,506 for the year ended June 30, 1999. The decrease in
revenue is attributable to an overall decline in the number of hearings
conducted during the year. We believe this is primarily the result of many of
our resources being devoted to the development, introduction and promotion of
our web-enabled suite of dispute resolution tools. It is our belief that in
addition to providing a global marketing platform, our Internet-based business
will provide more efficient primary customer service and national account
arrangements rather than require numerous "brick and mortar" regional locations.
During the second quarter of fiscal year 2000, we introduced an enhanced version
of our online, blind bid program that featured a unique, unlimited bid,
real-time negotiating format. We believe that continuous improvement of the
Internet negotiating model is critical to our success and we will continue to
invest resources in this area.
Cost of Services. Cost of services decreased 6% to $1,013,611 for the
year ended June 30, 2000 from $1,081,309 for the year ended June 30, 1999. The
decrease relates primarily to the decline in sales and to a compensation charge
in 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 us. As a result, the cost of
services as a percentage of revenues decreased to 25.4% for fiscal year 2000
from 26.0% for fiscal year 1999. The ratio of cost of services to revenues will
fluctuate based on the number of hours per case, as well as our ability (or
inability) to take advantage of volume arrangements with hearing officers which
usually lower the cost per case.
Sales and Marketing. Sales and marketing costs increased 11% to
$2,274,318 for the year ended June 30, 2000 from $2,048,058 for the year ended
June 30, 1999. Sales and marketing costs as a percentage of revenues increased
to 57% for fiscal year 2000 from 49% for fiscal year 1999. Most of the increase
(approximately $275,000) relates to higher employee costs and related items and
travel costs to promote our web-enabled dispute resolution services. This
increase was partially offset by a decline in advertising and external public
relations costs of approximately $67,000 from the prior year.
General and Administrative. General and administrative costs increased
16% to $2,625,513 for the year ended June 30, 2000 from $2,256,309 for the year
ended June 30, 1999. Furthermore, general and administrative costs as a
percentage of revenues increased to 66% for fiscal year 2000 from 54% for fiscal
year 1999. Most of the increase (approximately $221,000) 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 our
online, blind bid negotiation process and our in-person arbitration and
mediation services. Furthermore, corporate legal fees increased by $110,000
which is primarily attributable to patent and trademark filings related to our
electronic settlement program. Finally, other professional fees increased by
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approximately $40,000 as additional fees were principally incurred for a market
research study aimed at identifying new business opportunities with respect to
our comprehensive suite of dispute resolution services.
Other Income (Expenses). Other income (expenses) changed from an
expense of ($67,595) for the year ended June 30, 1999 to income of $381,415 for
the year ended June 30, 2000. Other income (expense) is composed primarily of
investment income and realized gains (losses) generated from investments. The
change between the years relates primarily to an increase in realized gains from
sales of marketable securities from a net loss of approximately ($166,000) for
fiscal year 1999 to a net gain of approximately $259,000 for fiscal year 2000.
Additionally, investment income increased by approximately $34,000 due to higher
invested balances as a result of additional financing received in the second
half of fiscal year 2000.
Income Taxes. Tax benefits resulting from net losses incurred for the
years ended June 30, 2000 and 1999 were not recognized as we recorded a full
valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 2000, we had net operating loss carryforwards for
Federal tax purposes of approximately $3,797,000.
Net Loss. For the year ended June 30, 2000, we had a net loss of
($1,544,099) as compared to a net loss of ($1,294,765) for the year ended June
30, 1999. The loss increased as additional expenditures were made for salaries,
marketing and legal and professional fees in order to enhance and promote our
comprehensive suite of web-enabled dispute resolution services, offset by
realized gains from marketable securities.
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
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,
we realigned our sales operations in order to enhance our ability to process a
higher volume of cases as well as to better market our 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 us. 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 our ability (or
inability) to take advantage of volume arrangements with hearing officers which
usually lower the cost per case.
Sales and Marketing. Sales and marketing costs decreased 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
12
<PAGE>
of an advertising campaign during the third quarter of the 1998 fiscal year
whereby we placed advertisements in a variety of media. The campaign was aimed
at quickly establishing a brand name within the dispute resolution industry. As
we believe we have made significant progress in achieving this goal, we have
continued advertising to maintain our 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 our 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 our 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 us for marketing
our 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, we sold a substantial portion of our 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 we reduced
our investment portfolio and conservatively decreased our 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 we recorded a full
valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 1999, we 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, we had a net loss of
($1,294,765) as compared to a net loss of ($629,134) 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 our electronic case
resolution products and anticipated future growth.
Liquidity and Capital Resources
At June 30, 2000, the Company had a working capital surplus of
$5,944,827 as compared to $1,925,911 at June 30, 1999. The increase in working
capital was attributed to net proceeds realized from the issuance of 1,850
shares of Series A Exchangeable Preferred Stock in February 2000 and from the
issuance of common stock in a private placement offering in May 2000, offset by
cash used in operating activities to fund the net loss for the year ended June
30, 2000.
13
<PAGE>
Net cash used in investing activities was $64,478 for the year ended
June 30, 2000 versus net cash provided by investing activities of $1,332,497 for
the year ended June 30, 1999. 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 year as compared to the prior year.
Net cash provided by financing activities increased to $5,649,230 for
the year ended June 30, 2000 from $0 for the year ended June 30, 1999. The
increase was largely due to net proceeds from the issuance of Series A
Exchangeable Preferred Stock in February 2000 and the issuance of 642,570 shares
of common stock to a single investor in May 2000.
We anticipate that cash flows, together with funds received in
connection with the issuance of preferred and common stock as described above,
will be sufficient to fund our operations for the next year. Additionally, in
February 2000, we entered into an Equity Line of Credit Agreement. Under this
agreement, we have the right, until February 15, 2003, to require that the
investor purchase between $500,000 and $7,000,000 of our common stock. The
amounts of the purchases are subject to a floating number based on the closing
bid price of our 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 us including the
achievement of minimum levels of cash and cash equivalents and quarterly
revenues.
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.
<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 - F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-25
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
clickNsettle.com, Inc.
We have audited the accompanying consolidated balance sheets of
clickNsettle.com, Inc. and Subsidiaries (formerly known as NAM Corporation) (the
"Company") as of June 30, 2000 and 1999, 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 auditing standards generally accepted
in the United States of America. 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 clickNsettle.com,
Inc. and Subsidiaries as of June 30, 2000 and 1999, and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
GRANT THORNTON LLP
Melville, New York
August 25, 2000
F-2
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
CONSOLIDATED BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS 2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,976,439 $ 1,776,261
Marketable securities 601,188 436,283
Accounts receivable (net of allowance for doubtful
accounts of $140,000 and $110,000, respectively) 443,469 515,088
Other receivables 9,718 86,496
Prepaid expenses 76,528 79,918
----------- -----------
Total current assets 7,107,342 2,894,046
FURNITURE AND EQUIPMENT - AT COST,
less accumulated depreciation 290,836 269,393
OTHER ASSETS 30,711 37,514
----------- -----------
$ 7,428,889 $ 3,200,953
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 406,078 $ 313,740
Accrued liabilities and dividends payable 356,611 249,551
Accrued payroll and employee benefits 93,822 166,620
Deferred revenues 306,004 238,224
----------- -----------
Total current liabilities 1,162,515 968,135
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A Exchangeable Preferred Stock - $.001 par value; 2,100 shares
authorized; 1,850 shares issued and outstanding in 2000;
liquidation preference of $1,000 per share 1,634,789 -
Common stock - $.001 par value; 15,000,000 shares authorized;
shares issued and outstanding, 4,093,279 in 2000 and
3,370,739 in 1999 4,093 3,371
Additional paid-in capital 8,939,677 4,797,637
Accumulated deficit (4,326,628) (2,663,446)
Accumulated other comprehensive income 14,443 95,256
----------- -----------
Total stockholders' equity 6,266,374 2,232,818
----------- -----------
$ 7,428,889 $ 3,200,953
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net revenues $ 3,987,928 $ 4,158,506
----------- -----------
Operating costs and expenses
Cost of services 1,013,611 1,081,309
Sales and marketing expenses 2,274,318 2,048,058
General and administrative expenses 2,625,513 2,256,309
----------- -----------
5,913,442 5,385,676
----------- -----------
Loss from operations (1,925,514) (1,227,170)
Other income (expenses)
Investment income (loss) 363,381 (85,581)
Other income 18,034 17,986
----------- -----------
381,415 (67,595)
----------- -----------
Loss before income taxes (1,544,099) (1,294,765)
Income taxes - -
----------- -----------
NET LOSS (1,544,099) (1,294,765)
Preferred stock dividend and deemed dividend on preferred
stock for beneficial conversion (119,083) -
----------- -----------
Net loss attributable to common stockholders $(1,663,182) $(1,294,765)
=========== ===========
Net loss per common share - basic and diluted $(.47) $(.39)
===== =====
Weighted-average shares outstanding - basic and diluted 3,516,913 3,337,623
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
Years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Preferred stock Common stock Additional
--------------------- --------------------- paid-in Accumulated
Shares Amount Shares Amount capital deficit
-------- -------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1998 3,334,978 $ 3,335 $4,778,179 $(1,368,681)
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
Earned portion of stock bonus
plan
--------- ------ ---------- -----------
Comprehensive loss
Balances at June 30, 1999
(carried forward) 3,370,739 3,371 4,797,637 (2,663,446)
Accumulated Unearned
other compen-
compre- sation
hensive stock Total
income bonus stockholders' Comprehensive
(loss) plan equity loss
------------ -------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at June 30, 1998 $ (58,888) $(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 154,144 154,144 154,144
Earned portion of stock bonus
plan 103 103
--------- ----- ----------- -----------
Comprehensive loss $(1,140,621)
============
Balances at June 30, 1999
(carried forward) 95,256 - 2,232,818
</TABLE>
F-5
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS (continued)
Years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Preferred stock Common stock Additional
--------------------- --------------------- paid-in Accumulated
Shares Amount Shares Amount capital deficit
-------- -------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1999
(brought forward) 3,370,739 $3,371 $4,797,637 $(2,663,446)
Compensation related to stock
options and warrants 36,988
Shares issued pursuant to
restricted stock awards 36,744 37 (37)
Shares issued upon exercise of
stock options and warrants 33,226 33 53,312
Gain on shareholder's stock 1,720
Shares and warrants issued
pursuant to preferred
stock and equity line of credit
offerings, net of issuance
costs of $221,282 1,850 $1,543,456 10,000 10 85,252
Preferred stock dividend and
deemed dividend on
preferred stock for
beneficial conversion 91,333 (119,083)
Shares issued pursuant to
private placement, net of
issuance costs of $34,553 642,570 642 3,964,805
Net loss (1,544,099)
Change in unrealized gain
(loss) on marketable securities
----- ---------- --------- ------ ---------- -----------
Comprehensive loss
Balances at June 30, 2000 1,850 $1,634,789 4,093,279 $4,093 $8,939,677 $(4,326,628)
===== ========= ========= ====== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated Unearned
other compen-
compre- sation
hensive stock Total
income bonus stockholders' Comprehensive
(loss) plan equity loss
------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at June 30, 1999
(brought forward) $ 95,256 $ - $ 2,232,818
Compensation related to stock
options and warrants 36,988
Shares issued pursuant to
restricted stock awards
Shares issued upon exercise of
stock options and warrants 53,345
Gain on shareholder's stock 1,720
Shares and warrants issued
pursuant to preferred
stock and equity line of credit
offerings, net of issuance
costs of $221,282 1,628,718
Preferred stock dividend and
deemed dividend on
preferred stock for beneficial
conversion (27,750)
Shares issued pursuant to
private placement, net of
issuance costs of $34,553 3,965,447
Net loss (1,544,099) $(1,544,099)
Change in unrealized gain
(loss) on marketable securities (80,813) (80,813) (80,813)
--------- ---- ----------- -----------
Comprehensive loss $(1,624,912)
Balances at June 30, 2000 $ 14,443 $ - $ 6,266,374
========= ==== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,544,099) $(1,294,765)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 115,445 101,948
Provision for bad debts 30,000 20,000
(Gains) losses on sales of marketable securities (259,194) 166,259
Losses on sales of furniture and equipment 383 490
Earned portion of stock bonus plan 103
Compensation related to stock options and warrants 36,988 19,494
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable 41,619 (149,788)
Decrease (increase) in other receivables 21,352 (13,125)
Decrease (increase) in prepaid expenses 3,390 (34,838)
Decrease (increase) in other assets 2,912 (1,715)
Increase in accounts payable and accrued liabilities 171,648 84,327
(Decrease) increase in accrued payroll and employee benefits (72,798) 40,259
Increase in deferred revenues 67,780 87,835
----------- -----------
Net cash used in operating activities (1,384,574) (973,516)
----------- -----------
Cash flows from investing activities
Purchases of marketable securities (1,118,675) (1,334,887)
Proceeds from sales of marketable securities 932,150 2,267,481
Proceeds from maturities of marketable securities 200,000 570,000
Decrease (increase) in receivable for securities sold 55,426 (55,426)
Purchases of furniture and equipment (133,379) (115,471)
Sales of furniture and equipment 800
----------- -----------
Net cash (used in) provided by investing activities (64,478) 1,332,497
----------- -----------
Cash flows from financing activities
Issuance of common stock, net of issuance costs 4,018,792
Issuance of preferred stock and warrants, net of issuance costs 1,628,718
Gain on shareholder's stock 1,720
-----------
Net cash provided by financing activities 5,649,230
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,200,178 358,981
Cash and cash equivalents at beginning of year 1,776,261 1,417,280
----------- -----------
Cash and cash equivalents at end of year $ 5,976,439 $ 1,776,261
=========== ===========
Supplemental disclosure of cash flow information:
Noncash financing activities
Preferred stock dividend and deemed dividend on preferred
stock for beneficial conversion $ 119,083 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
clickNsettle.com, Inc. ("CLIK") (formerly known as NAM Corporation)
provides a broad range of Alternative Dispute Resolution ("ADR") services,
including an online, blind bid negotiation program and in-person
arbitrations and mediations, principally in the United States. CLIK
incorporated on January 12, 1994 and began operations on February 15, 1994.
On October 31, 1994, National Arbitration & Mediation, Inc. ("NA&M"), which
was owned by CLIK's Chief Executive Officer and former Executive Vice
President, was acquired by and became a wholly-owned subsidiary of CLIK.
The transaction was accounted for as a transfer of assets between companies
under common control, with the assets and liabilities of NA&M combined with
those of CLIK at their historical carrying values. NA&M also provided a
broad range of ADR services, including arbitrations and mediations. NA&M
began operations in March 1992.
In June 1999, NA&M was merged into CLIK, 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.
In June 2000, shareholder approval was obtained to change the name of the
Company from NAM Corporation to clickNsettle.com, Inc. to more
appropriately reflect the present and future scope of the Company's
business and prospects.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting and reporting policies applied on a
consistent basis which conform with accounting principles generally
accepted in the United States of America follows:
a. Basis of Presentation
The accompanying consolidated financial statements of clickNsettle.com,
Inc. 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, (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-8
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 2 (continued)
b. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
revenues and expenses during the reporting period. Actual results may
differ from those estimates. 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
in-person arbitrations and mediations and from online negotiation
services. Each party to an in-person 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 in-person arbitration or mediation occurs. Fees
received prior to such arbitration or mediation are reflected as
deferred revenue.
The Company recognizes revenue from online negotiation services when an
offer or demand is entered and if and when the legal dispute is
settled.
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 may 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-9
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
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
online negotiation service. 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.
The Company incurred $322,566 and $389,553 for advertising and external
public relations costs in fiscal 2000 and 1999, respectively.
F-10
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 2 (continued)
j. Earnings (Loss) Per Common 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 and warrants and conversion of preferred
stock, reduced by the shares that may be repurchased with the funds
received from the exercise and conversion, based on the average price
during the period. Diluted earnings per share is the same as basic
earnings per share as potential common shares of 3,647,809 and
2,799,000 at June 30, 2000 and 1999, respectively, would be
antidilutive as the Company incurred net losses for the years ended
June 30, 2000 and 1999.
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).
Accumulated other comprehensive loss represents the unrealized gain on
marketable equity securities, net of tax effects of $0 in fiscal 2000 and
1999, respectively.
The components of comprehensive loss, net of tax effects, are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net loss $(1,544,099) $(1,294,765)
----------- -----------
Unrealized gain (loss) on marketable securities, net of tax
effects of $0 in 2000 and 1999, respectively
Unrealized gains arising in period 14,443 95,256
Reclassification adjustment - (loss) gain included
in net loss (95,256) 58,888
----------- -----------
Net unrealized (loss) gain (80,813) 154,144
----------- -----------
Comprehensive loss $(1,624,912) $(1,140,621)
=========== ===========
</TABLE>
F-11
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
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, 2000
Equity securities $586,745 $113,612 $(99,169) $601,188
-------- -------- -------- --------
Total marketable securities $586,745 $113,612 $(99,169) $601,188
======== ======== ======== ========
June 30, 1999
Equity securities $341,027 $ 95,256 $ - $436,283
-------- --------- -------- --------
Total marketable securities $341,027 $ 95,256 $ - $436,283
======== ========= ======== ========
</TABLE>
Proceeds on sales of securities were $932,150 and $2,267,481 for the years
ended June 30, 2000 and 1999, respectively. During fiscal 2000 and 1999,
gross gains of $275,644 and $235,431, respectively, and gross losses of
$16,450 and $401,690, respectively, were realized on these sales. Net
unrealized gains on marketable securities were $14,443 and $95,256 at June
30, 2000 and 1999, respectively. During fiscal 2000 and 1999, no income
taxes were provided on the unrealized gains due to the Company's net
operating loss.
F-12
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 5 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
June 30,
----------------------------------
2000 1999
---------- ----------
Furniture $ 192,440 $ 186,060
Equipment 508,340 382,011
Leasehold improvements 21,993 21,993
--------- ---------
722,773 590,064
Less accumulated depreciation (431,937) (320,671)
--------- ---------
$ 290,836 $ 269,393
========= =========
Depreciation expense for the years ended June 30, 2000 and 1999 was
$111,552 and $93,467, respectively.
NOTE 6 - INCOME TAXES
Temporary differences which give rise to deferred taxes are summarized as
follows:
2000 1999
---------- ----------
Deferred tax assets
Net operating loss and other
carryforwards $ 1,378,000 $ 840,000
Provision for bad debts 56,000 44,000
Deferred compensation 52,000 39,000
Deferred rent and other 49,000 33,000
Depreciation 19,000 9,000
----------- ---------
Net deferred tax asset before
valuation allowance 1,554,000 965,000
Valuation allowance (1,554,000) (965,000)
----------- ---------
Net deferred tax asset $ - $ -
=========== =========
F-13
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
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:
2000 1999
---------- ----------
Benefit at statutory rate $(524,994) $(440,220)
State and local benefit, net of Federal tax (88,469) (74,750)
Nondeductible expenses - net 24,454 16,592
Increase in the valuation allowance 589,009 498,378
--------- ---------
$ - $ -
========= =========
The provision for Federal income taxes has been determined on the basis of
a consolidated tax return. At June 30, 2000, the Company had a net
operating loss carryforward for Federal income tax reporting purposes
amounting to approximately $3,797,000, expiring from 2012 through 2020. No
Federal income taxes were paid in the years ended June 30, 2000 and 1999.
NOTE 7 - STOCKHOLDERS' EQUITY
a. Preferred Stock
The Company's board of directors has authorized 5,000,000 shares of
$.001 par value preferred stock, of which 2,100 shares are designated
as Series A Exchangeable Preferred Stock. The Series A Exchangeable
Preferred Stock has (a) no voting rights, except that holders of 75% of
the Series A preferred stock must approve changes to the Certificate of
Designation and issuance of securities with rights senior to the Series
A preferred stock and (b) an annual dividend rate of 4%.
b. Series A Exchangeable Preferred Stock
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
F-14
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 7 (continued)
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 $101,482 of the proceeds from the
offering to additional paid-in capital. The beneficial conversion
feature is accounted for as a deemed 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 year ended June 30,
2000 was $91,333, 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 cancelled. Dividends may be paid at the
Company's option, in cash or in registered common stock. Accrued
dividends at June 30, 2000 aggregated $27,750.
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.
F-15
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 7 (continued)
The Company issued 5,000 shares of its common stock and paid a fee of
$92,500 to the placement agent, Triton West Group, Inc., for the
offering.
c. Equity Line of Credit
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. The agreement limits the Company's ability to enter
into a similar agreement at prices below the then current bid price
without prior consent of Moldbury Holdings Limited.
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.
F-16
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 7 (continued)
d. Private Placement
On May 10, 2000, the Company entered into a Stock Purchase Agreement
(the "Stock Purchase Agreement") with ISO Investment Holdings, Inc.
("ISO"), whereby the Company issued 642,570 common shares, par value
$.001 per share, to ISO at a price of $6.225 per share or $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,
exercisable on or after May 10, 2000 and expiring on August 15, 2005.
The exercise price and number of warrant shares are subject to
adjustment in certain circumstances (stock split, dilutive issuances at
less than market price, etc.).
Pursuant to the Stock Purchase Agreement, ISO has the right to
designate one individual to be nominated as a member of the Company's
board of directors. Additionally, under certain circumstances, ISO is
entitled to purchase, upon the same terms, such number of securities to
enable it to retain its fully diluted ownership position in the Company
that it held immediately prior to a proposed issuance, sale or exchange
of the Company's equity securities (see Note 13).
Pursuant to the Stock Purchase Agreement, ISO has one demand
registration right commencing May 10, 2001 and unlimited incidental
registration rights commencing immediately. In the case of a demand for
registration by ISO, the Company shall not be required to file any such
registration statement unless the anticipated aggregate gross offering
price is at least $2,000,000. The registration rights granted under the
Stock Purchase Agreement terminate upon the earlier of (i) May 10, 2004
and (ii) such time as ISO shall be permitted to sell all of its
purchased securities in any three-month period under Rule 144
promulgated under the Securities Act.
e. 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. As of June 30, 2000, 100 warrants have been redeemed;
1,609,900 redeemable warrants are outstanding.
F-17
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
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. During fiscal 2000, 17,500 of these warrants
were exercised on a cashless basis pursuant to which 8,376 units were
issued. As of June 30, 2000, 122,500 underwriter's warrants are
outstanding.
f. 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 during the year ended June 30, 1999, representing the amortization
of the remaining unearned compensation being recognized over the
vesting period.
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.
g. Stock Option Plan
The Company has 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 2,000,000 shares of the Company's common stock. 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
F-18
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 7 (continued)
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 2,500 shares at an exercise
price equal to the fair market value of the stock on the date of grant.
The Company's stock option awards granted to employees, directors and
consultants as of and for the years ended June 30, 2000 and 1999 are
summarized as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------- --------------------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 909,000 $2.03 373,500 $2.01
Awards granted 486,000 $5.49 590,500 $2.02
Awards exercised (24,750) $2.13 -
Awards canceled/forfeited (54,000) $2.93 (55,000) $1.71
--------- -------
Outstanding at end of year 1,316,250 $3.27 909,000 $2.03
========= =======
Options exercisable at year-end 505,750 $2.52 201,500 $3.37
========= =======
Weighted-average fair value
of options granted during
the year $4.15 $ .75
</TABLE>
F-19
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 7 (continued)
The following information applies to options outstanding and
exercisable at June 30, 2000:
<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> <C>
$0.81 - $1.13 110,500 6.86 $1.10 - -
$1.37 - $1.94 563,250 7.00 $1.53 333,750 $ 1.57
$2.09 - $3.00 106,000 5.80 $2.32 101,000 $ 2.32
$4.00 - $5.94 414,500 8.18 $5.16 39,000 $ 4.98
$6.37 - $10.00 122,000 7.13 $7.64 32,000 $10.00
--------- -------
1,316,250 505,750
========= =======
</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, 2000, 659,000 shares
were available for granting of options under the Plan.
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 employees and to members of the board of directors, as such
options were granted to board members in their capacity as directors.
F-20
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 7 (continued)
If the Company had elected to recognize compensation expense based upon
the fair value at the grant date for options granted to employees and
to members of the board of directors consistent with the "fair value"
methodology prescribed by SFAS No. 123, the Company's net loss
attributable to common stockholders and net loss per share for the
years ended June 30, 2000 and 1999 would be increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net loss attributable to common stockholders
As reported $(1,663,182) $(1,294,765)
Pro forma (2,236,246) (1,520,232)
Net loss per common share - basic and diluted
As reported $(.47) $ (.39)
Pro forma (.64) (.46)
</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 2000
and 1999, respectively: dividend yields of zero for both years;
risk-free interest rates ranging from 5.82% to 6.73% in 2000 and 4.51%
to 5.50% in 1999; expected terms of two and one-half to four years in
2000 and four years in 1999; expected stock price volatility of 109.37%
in 2000 and 74.61% in 1999 and forfeiture rate of 10% in 2000.
Compensation expense of $20,888 and $19,494 was recognized in fiscal
2000 and 1999, respectively, for options granted to consultants.
F-21
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 7 (continued)
h. Stock Warrants
In April 2000, the Company entered into an agreement with a financial
public relations firm whereby the Company agreed to grant warrants to
purchase 40,000 shares of the Company's common stock, of which 10,000
warrants were granted upon execution of the agreement. The remaining
30,000 warrants are to be granted in intervals of 10,000 every six
months for a period of 18 months. All warrants vest the earlier of six
months from date of grant or upon termination of the agreement, and are
to be issued at a 25% premium to the market price of the common stock
as of the date of each grant. Once vested, the warrants are immediately
exercisable. The warrants expire April 11, 2005. In the event that the
financial public relations services are terminated, no further warrants
are to be issued other than that portion already granted. Compensation
expense of $16,100, relating to the fair value of the warrants, was
recorded in fiscal 2000. In August 2000, the Company terminated the
agreement and no additional warrants in excess of the 10,000 warrants
were granted.
i. Common Stock Reserved
At June 30, 2000, the Company has reserved for issuance 4,306,809
shares of its common stock issuable pursuant to: the Company's stock
option plan, the exercise of redeemable and underwriter's warrants, the
exercise of warrants issued to consultants and investors and upon
conversion of the Series A Exchangeable Preferred Stock.
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, 2000 and 1999 were $34,725 and $49,038, respectively.
In June 1999, the Company purchased from CLIK'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.
F-22
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 9 - COMMITMENTS AND CONTINGENCIES
a. Leases
As of June 30, 2000, the Company has lease agreements for equipment and
office space. Rent expense amounted to $212,342 and $220,542 for the
years ended June 30, 2000 and 1999, respectively. The minimum lease
payments under non-cancelable leases as of June 30, 2000 are as
follows:
2001 $ 263,000
2002 248,500
2003 252,900
2004 257,900
2005 263,000
----------
$1,285,300
==========
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.
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 years ended June 30, 2000
and 1999 was $24,000 and $30,000, respectively.
F-23
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 9 (continued)
c. Advertising
The Company entered into non-cancelable media agreements to advertise
its services on sports event broadcasts in New York. Minimum
commitments under the contracts are approximately $108,000 for fiscal
year 2001.
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.
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 fiscal years 2000 and 1999.
NOTE 11 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 2000 and 1999, 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.
F-24
<PAGE>
clickNsettle.com, Inc. and Subsidiaries
(formerly known as NAM Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000 and 1999
NOTE 12 (continued)
The Company maintains its cash which consists primarily of demand deposits
and an insured money market fund with two financial institutions. Such
balances generally do not exceed the Federally insured limits.
Additionally, the Company maintains its cash equivalents and all other
investments with two other financial institutions.
The Company sells it services principally to insurance companies and law
firms. In fiscal years 2000 and 1999, no customer exceeded 10% of net
revenues. The Company monitors exposure to credit losses and maintains
allowances for anticipated losses considered necessary under the
circumstances.
NOTE 13 - SUBSEQUENT EVENT
On August 11, 2000, the Company entered into an advertising agreement with
American Lawyer Media, Inc. ("ALM"), whereby the Company issued 184,422
common shares to ALM in exchange for $1 million of advertising and
promotional opportunities in national and regional ALM properties over a
two-year term. The number of shares issued by the Company was calculated as
$770,000 divided by $4.175 the average per share closing price of the
common stock for the five trading days prior to August 11, 2000. The
Company is contingently liable for $250,000 in additional advertising in
the year subsequent to the initial two-year term if certain agreed-upon
criteria are not achieved on February 11, 2002.
Pursuant to the Stock Purchase Agreement between the Company and ISO, ISO
is entitled to purchase, upon the same terms, such number of securities to
enable it to retain its fully diluted ownership position in the Company
after the issuance of shares to ALM. ISO exercised this preemptive right on
August 21, 2000, whereby the Company issued 18,662 shares of common stock
to ISO. The total offering price was $77,914 (see Note 7(d)).
F-25
<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, 2000, 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)
3.1 (b) Certificate of Designation of Series A Exchangeable Preferred Stock
(7)
3.1 (c) Certificate of Correction of Certificate of Designation of Series A
Exchangeable Preferred Stock (8)
3.1 (d) Certificate of Amendment of Certificate of Incorporation (10)
3.2 By-Laws of the Company, as amended (4)
4.1 Stock Purchase Agreement dated May 10, 2000 (9)
4.2 Stock Purchase Warrant dated May 10, 2000 (9)
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 facility (5)
10.7.2 Second Amendment to Lease Agreement for Great Neck, New York
facility**
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 and
Company (7)
10.12 Private Equity Line of Credit Registration Rights Agreement (7)
10.13 Stock Purchase Warrant for Moldbury Holdings Limited (7)
10.14 Advertising Agreement dated August 11, 2000 (11)
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.
<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 September 30, 1997.
(4) Incorporated herein in its entirety by reference to the Company's 1998
Annual Report on Form 10-KSB.
(5) Incorporated herein in its entirety by reference to the Company's 1999
Annual Report on Form 10-KSB.
(6) Incorporated herein in its entirety by reference to the Company's 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.
(9) Incorporated herein in its entirety by reference to the Company's Form 8-K
filed on May 17, 2000.
(10) Incorporated herein in its entirety by reference to the Company's Form 8-K
filed on June 21, 2000.
(11) Incorporated herein in its entirety by reference to the Company's Form 8-K
filed on August 24, 2000.
** Filed herewith.
Reports on Form 8-K:
Form 8-K was filed on May 17, 2000 in conjunction with the issuance of 642,570
shares of the Company's common stock to ISO Investment Holdings, Inc. Form 8-K
was filed on June 21, 2000 to announce the change of the name of the Company
from NAM Corporation to clickNsettle.com, Inc.
Form 8-K was filed on August 24, 2000 in conjunction with the issuance of
184,422 shares of the Company's common stock to American Lawyer Media, Inc. in
exchange for $1,000,000 of advertising and promotional opportunities in national
and regional American Lawyer Media properties.
<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 21, 2000 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 21, 2000 By: /s/ Roy Israel
------------------------------------------
Roy Israel, Chairman of the
Board, CEO and President
Date: September 21, 2000 By: /s/ Patricia Giuliani-Rheaume
------------------------------------------
Patricia Giuliani-Rheaume, Vice President,
Chief Financial Officer and Treasurer
Date: September 21, 2000 By: /s/ Anthony J. Mercorella
------------------------------------------
Anthony J. Mercorella, Director
Date: September 21, 2000 By: /s/ Ronald Katz
------------------------------------------
Ronald Katz, Director
Date: September 21, 2000 By: /s/ Frank J. Coyne
------------------------------------------
Frank J. Coyne, Director
