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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-21419
CLICKNSETTLE.COM, INC.
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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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1010 Northern Boulevard
Great Neck, New York 11021
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(Address of Principal Executive Offices)
(516) 829-4343
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of February 7, 2002, 1,408,176 shares of common stock of the issuer were
outstanding.
Transitional small business disclosure format (check one): Yes No X
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CLICKNSETTLE.COM, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
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ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets at
December 31, 2001 and June 30, 2001 3
Consolidated Statements of Operations
for the three and six month periods ended
December 31, 2001 and 2000 4
Consolidated Statements of Changes in
Stockholders' Equity and Comprehensive
Loss for the six month periods ended
December 31, 2001 and 2000 5
Consolidated Statements of Cash Flows
for the six month periods ended
December 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 4. Submission of matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2001 2001
-------------------- --------------------
(unaudited) (derived from
audited financial
ASSETS statements)
CURRENT ASSETS
Cash and cash equivalents $ 2,051,612 $ 2,558,372
Marketable securities 326,968 402,807
Accounts receivable (net of allowance for doubtful
accounts of $140,000) 343,774 355,674
Prepaid expenses and other current assets 352,833 469,885
-------------------- --------------------
Total current assets 3,075,187 3,786,738
FURNITURE AND EQUIPMENT - AT COST, less accumulated depreciation 261,986 309,242
OTHER ASSETS 42,975 91,452
-------------------- --------------------
$ 3,380,148 $ 4,187,432
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 211,025 $ 179,196
Accrued liabilities 245,605 284,412
Accrued payroll and employee benefits 36,620 35,020
Deferred revenues 288,839 284,113
-------------------- --------------------
Total current liabilities 782,089 782,741
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $.001 par value; 15,000,000 shares authorized;
1,450,259 shares issued; 1,408,176 and 1,444,676 shares
outstanding, respectively 1,450 1,450
Additional paid-in capital 10,110,354 10,109,385
Accumulated deficit (7,428,934) (6,687,254)
Accumulated other comprehensive loss (893) (6,135)
Less common stock in treasury at cost,
42,083 and 5,583 shares, respectively (83,918) (12,755)
-------------------- --------------------
Total stockholders' equity 2,598,059 3,404,691
-------------------- --------------------
$ 3,380,148 $ 4,187,432
==================== ====================
The accompanying notes are an integral part of these statements
3
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended December 31, Six months ended December 31,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Net revenues $ 1,005,278 $ 959,688 $ 1,827,897 $ 1,946,436
--------------- --------------- --------------- ---------------
Operating costs and expenses
Cost of services 234,433 259,579 439,295 475,860
Sales and marketing expenses 401,639 687,239 814,338 1,299,317
General and administrative expenses 608,644 764,308 1,291,677 1,536,886
--------------- --------------- --------------- ---------------
1,244,716 1,711,126 2,545,310 3,312,063
--------------- --------------- --------------- ---------------
Loss from operations (239,438) (751,438) (717,413) (1,365,627)
Other (expenses) income
Investment (loss) income (34,537) (42,045) (32,290) 42,515
Other income 3,545 3,178 8,023 6,220
--------------- --------------- --------------- ---------------
(30,992) (38,867) (24,267) 48,735
--------------- --------------- --------------- ---------------
Loss before income taxes (270,430) (790,305) (741,680) (1,316,892)
Income taxes -- -- -- --
--------------- --------------- --------------- ---------------
NET LOSS $ (270,430) $ (790,305) $ (741,680) $ (1,316,892)
Preferred stock dividend and deemed dividend on
preferred stock for beneficial conversion -- (18,200) -- (46,782)
--------------- --------------- --------------- ---------------
Loss before cumulative effect of change
in accounting principle for deemed
dividend on preferred stock for beneficial
conversion $ (270,430) $ (808,505) $ (741,680) $ (1,363,674)
Cumulative effect of change in accounting principle for
deemed dividend on preferred stock for beneficial
conversion -- (217,583) -- (217,583)
--------------- --------------- --------------- ---------------
Net loss attributable to common stockholders $ (270,430) $ (1,026,088) $ (741,680) $ (1,581,257)
=============== =============== =============== ===============
Loss per common share - basic and diluted:
Loss before cumulative effect of change in
accounting principle $ (0.19) $ (0.56) $ (0.52) $ (0.96)
Cumulative effect of change in accounting principle -- (0.15) -- (0.15)
--------------- --------------- --------------- ---------------
Net loss per common share $ (0.19) $ (0.71) $ (0.52) $ (1.11)
=============== =============== =============== ===============
Weighted-average shares outstanding - basic and diluted 1,408,859 1,439,592 1,419,123 1,421,458
=============== =============== =============== ===============
The accompanying notes are an integral part of these statements.
4
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
Six months ended December 31, 2001 and 2000
Preferred stock Common stock
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Balances at June 30, 2000 1,850 $ 1,634,789 4,093,279 $ 4,093
Compensation related to stock options and warrants
Common shares issued upon exercise of stock options 11,250 11
Common shares issued in exchange for future advertising services,
net of issuance costs of $1,015 184,422 184
Common shares issued 18,662 19
Preferred stock dividend and deemed dividend on preferred stock
for beneficial conversion 10,149
Common shares issued pursuant to conversion of preferred stock (30) (26,674) 11,163 12
Cumulative effect of change in accounting principle for deemed
dividend on preferred stock for beneficial conversion
Net loss
Change in unrealized gain (loss) on marketable securities
Comprehensive loss
------------- ------------- ------------- -------------
Balances at December 31, 2000 1,820 $ 1,618,264 4,318,776 $ 4,319
============= ============= ============= =============
Balances at June 30, 2001 4,350,776 $ 4,351
One-for-three reverse stock split effectuated on August 20, 2001 (2,900,517) (2,901)
------------- ------------- ------------- -------------
1,450,259 1,450
Compensation related to stock options
Purchase of common shares for treasury
Net loss
Change in unrealized gain (loss) on marketable securities
Comprehensive loss
------------- ------------- ------------- -------------
Balances at December 31, 2001 -- -- 1,450,259 $ 1,450
============= ============= ============= =============
Accumulated
Additional other Common
paid-in Accumulated comprehensive stock in
capital deficit income (loss) treasury
------------- ------------- ------------- -------------
Balances at June 30, 2000 $ 8,939,677 $ (4,326,628) $ 14,443
Compensation related to stock options and warrants 28,507
Common shares issued upon exercise of stock options 21,084
Common shares issued in exchange for future advertising services,
net of issuance costs of $1,015 768,801
Common shares issued 77,895
Preferred stock dividend and deemed dividend on preferred stock
for beneficial conversion (46,782)
Common shares issued pursuant to conversion of preferred stock 26,662
Cumulative effect of change in accounting principle for deemed
dividend on preferred stock for beneficial conversion 217,583 (217,583)
Net loss (1,316,892)
Change in unrealized gain (loss) on marketable securities (139,303)
Comprehensive loss
------------- ------------- ------------- -------------
Balances at December 31, 2000 $ 10,080,209 $ (5,907,885) $ (124,860) $ 5,670,047
============= ============= ============= =============
Balances at June 30, 2001 $ 10,106,484 $ (6,687,254) $ (6,135) $ (12,755)
One-for-three reverse stock split effectuated on August 20, 2001 2,901
------------- ------------- ------------- -------------
10,109,385 (6,687,254) (6,135) (12,755)
------------- ------------- ------------- -------------
Compensation related to stock options 969
Purchase of common shares for treasury (71,163)
Net loss (741,680)
Change in unrealized gain (loss) on marketable securities 5,242
Comprehensive loss
------------- ------------- ------------- -------------
Balances at December 31, 2001 $ 10,110,354 $ (7,428,934) $ (893) $ (83,918)
============= ============= ============= =============
Total Compre-
stockholders' hensive
equity loss
------------- -------------
Balances at June 30, 2000 $ 6,266,374
Compensation related to stock options and warrants 28,507
Common shares issued upon exercise of stock options 21,095
Common shares issued in exchange for future advertising services,
net of issuance costs of $1,015 768,985
Common shares issued 77,914
Preferred stock dividend and deemed dividend on preferred stock
for beneficial conversion (36,633)
Common shares issued pursuant to conversion of preferred stock
Cumulative effect of change in accounting principle for deemed
dividend on preferred stock for beneficial conversion
Net loss (1,316,892) $ (1,316,892)
Change in unrealized gain (loss) on marketable securities (139,303) (139,303)
-------------
Comprehensive loss $ (1,456,195)
=============
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Balances at December 31, 2000 $ $5,670,047
=============
Balances at June 30, 2001 $ 3,404,691
One-for-three reverse stock split effectuated on August 20, 2001
-------------
3,404,691
-------------
Compensation related to stock options 969
Purchase of common shares for treasury $ (71,163)
Net loss (741,680) $ (741,680)
Change in unrealized gain (loss) on marketable securities 5,242 5,242
-------------
Comprehensive loss $ (736,438)
=============
-------------
Balances at December 31, 2001 $ 2,598,059
=============
The accompanying notes are an integral part of these statements.
5
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31,
2001 2000
-------------------- --------------------
Cash flows from operating activities
Net loss $ (741,680) $ (1,316,892)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 51,621 53,893
Losses on sales of marketable securities 8,655 120,946
Write-down of marketable securities 56,625 --
Advertising in exchange for common stock 225,718 124,812
Compensation related to stock options and warrants 969 28,507
Changes in operating assets and liabilities
Decrease in accounts receivable 11,900 102,699
(Increase) in prepaid expenses and other current assets (60,189) (22,871)
(Increase) in other assets -- (12,575)
(Decrease) in accounts payable and accrued liabilities (6,978) (63,750)
Increase (decrease) in accrued payroll and employee benefits 1,600 (56,855)
Increase (decrease) in deferred revenues 4,726 (66,710)
-------------------- --------------------
Net cash used in operating activities (447,033) (1,108,796)
-------------------- --------------------
Cash flows from investing activities
Purchases of marketable securities (22,385) (67,703)
Proceeds from sales of marketable securities 38,186 122,547
Decrease in receivable for securities sold -- (10,031)
Purchases of furniture and equipment (4,365) (119,523)
-------------------- --------------------
Net cash provided by (used in) investing activities 11,436 (74,710)
-------------------- --------------------
Cash flows from financing activities
Issuance of common stock, net of issuance costs and proceeds
from exercise of stock options -- 97,994
Purchase of treasury stock at cost (71,163) --
-------------------- --------------------
Net cash (used in) provided by financing activities (71,163) 97,994
-------------------- --------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (506,760) (1,085,512)
Cash and cash equivalents at beginning of period 2,558,372 5,976,439
-------------------- --------------------
Cash and cash equivalents at end of period $ 2,051,612 $ 4,890,927
==================== ====================
Supplemental disclosure of cash flow information:
Noncash financing activities
Preferred stock dividend and deemed dividend on preferred
stock for beneficial conversion $ 46,782
Issuance of common stock in exchange for prepaid advertising 770,000
Conversion of preferred stock to common stock 26,674
The accompanying notes are an integral part of these statements
6
CLICKNSETTLE.COM, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
Six months ended December 31, 2001
(Unaudited)
1. The consolidated balance sheet as of December 31, 2001 and the related
consolidated statements of operations for the three and six month periods ended
December 31, 2001 and 2000 have been prepared by clickNsettle.com, Inc.,
including the accounts of its wholly-owned subsidiaries. In the opinion of
management, all adjustments necessary to present fairly the financial position
as of December 31, 2001 and for all periods presented, consisting of normal
recurring adjustments, have been made. Results of operations for the three and
six month periods ended December 31, 2001 are not necessarily indicative of the
operating results expected for the full year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended June 30,
2001 included in the Company's Annual Report on Form 10-KSB. The accounting
policies used in preparing these consolidated financial statements are the same
as those described in the June 30, 2001 consolidated financial statements.
2. On August 20, 2001, the Company effected a 1-for-3 reverse stock split. All
references to number of shares and per share data in the consolidated financial
statements and accompanying notes have been restated. The par value of the
common stock remained unchanged at $.001 per share.
3. On November 13, 2001, the Company's redeemable warrants and underwriter's
warrants expired. Prior to such expiration, there were 1,609,900 redeemable
warrants and 40,833 underwriter's warrants outstanding.
4. 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 478,939 and 1,382,536 at
December 31, 2001 and 2000, respectively, would be antidilutive as the Company
incurred net losses for the three month and six month periods ended December 31,
2001 and 2000.
5. The cost of advertising is expensed when the advertising takes place. For
advertising and external public relations costs, the Company incurred
approximately $132,100 and $186,300 for the quarters ended December 31, 2001 and
2000, respectively, and approximately $261,500 and $336,900 for the six months
ended December 31, 2001 and 2000, respectively. Of such totals, non-cash
advertising charges comprise approximately $117,600 and $106,500, respectively,
for the second quarter of fiscal year 2002 and 2001, respectively, and
approximately $225,700 and $124,800, respectively, for the six months ended
December 31, 2001 and 2000, respectively. In accordance with the terms of the
August 2000 advertising agreement with American Lawyer Media, Inc., the Company
will purchase $250,000 of advertising in the year subsequent to the initial
two-year term. Such advertising is expected to take place from August 2002
through August 2003.
6. On March 6, 2001, the Company received a letter from The Nasdaq SmallCap
Market that its common stock had failed to maintain a minimum bid price of $1.00
over the previous 30 consecutive trading days. As a result, the Company was
provided 90 calendar days, or until June 4, 2001, to regain compliance. As the
Company was unable to demonstrate compliance with this rule, the Company
requested and was granted a meeting on July 19, 2001 to seek continued listing
on The Nasdaq SmallCap Market. On September 27, 2001, Nasdaq implemented a
moratorium on the minimum bid price and market value of public float
requirements for continued listing on The Nasdaq SmallCap Market until January
2, 2002. On October 2, 2001, the Company received a determination from the
Nasdaq Listing Qualifications Panel to continue the listing of the Company's
common stock and the hearing file has been closed.
7
7. On March 23, 2001, the Company extended its March 1998 purchase plan (the
"Plan"), pursuant to which the number of shares of common stock of the Company
eligible for purchase under the Plan was increased from 200,000 to an aggregate
of 266,667 shares. The Plan shall expire on the earlier of all of the shares
being purchased or March 23, 2002, provided, however, that the Plan may be
discontinued at any time by the Company. As of December 31, 2001, the Company
had purchased 42,083 shares under the Plan for an aggregate cost of $83,918.
8. In July 2001, the Company signed a letter of intent to acquire E-Vue, Inc., a
development stage company engaged in developing next-generation end-to-end
solutions for multimedia delivery over broadband and/or wireless networks based
on the MPEG-4 standard and associated compliant technologies. The proposed
purchase price under the letter of intent consisted of a combination of common
stock and convertible preferred stock to be issued by the Company depending on
certain financing conditions on the part of E-Vue, Inc. In the event either
party breached the agreement, the non-breaching party was to be reimbursed for
actual costs incurred up to a maximum of $100,000 and was entitled to a $100,000
breakup fee. The acquisition, which would have required shareholder approval,
was initially expected to close in October 2001. However, the Nasdaq Listing
Qualifications Panel informed the Company that the proposed merger would have
resulted in a change of control for purposes of Nasdaq Marketplace rules, and
therefore the combined entities would have been required to evidence compliance
with all requirements for initial listing on The Nasdaq SmallCap Market
immediately upon consummation of the transaction. On January 8, 2002, the
Company announced that discussions had ended with respect to the proposed merger
of the entities and that the acquisition of E-Vue, Inc. would not be concluded.
9. The components of comprehensive income (loss) are as follows:
Three months ended December 31,
2001 2000
-------------------- --------------------
Net loss $ (270,430) $ (790,305)
Change in unrealized gain (loss)
on marketable securities 122,000 36,566
-------------------- --------------------
Comprehensive loss $ (148,430) $ (753,739)
-------------------- --------------------
Six months ended December 31,
2001 2000
-------------------- --------------------
Net loss $ (741,680) $ (1,316,892)
Change in unrealized gain (loss)
on marketable securities 5,242 (139,303)
-------------------- --------------------
Comprehensive loss $ (736,438) $ (1,456,195)
-------------------- --------------------
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From time to time, including in this quarterly report on Form
10-QSB, clickNsettle.com, Inc. (formerly NAM Corporation) (the Company or we)
may publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, future operations, new products,
research and development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, we note that a
variety of factors could cause our actual results to differ materially from the
anticipated results or other expectations expressed in our forward-looking
statements. The risks and uncertainties that may affect the operations,
performance, development and results of our business include, without
limitation, the following: changes in the insurance and legal industries; our
inability to retain current or new hearing officers; changes in the public court
systems; and the degree and timing of the market's acceptance of our web site
and in-person and video-conferenced arbitration and mediation programs.
General
We provide alternative dispute resolution services, or ADR
services, to insurance companies, law firms, corporations and municipalities on
an in-person basis and via video conferencing. 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 services, we are
uniquely positioned to provide a comprehensive web-enabled total solution to
disputing parties worldwide.
We currently operate from locations in New York and
Massachusetts.
Our objective is to become the leading global provider of
dispute resolution services by providing a "total solution" for our clients; by
offering one-stop shopping for anyone involved in any type of dispute, anywhere
in the world; and by providing this service quicker, more economically and more
efficiently than previously possible. We intend to achieve this goal by
employing the following strategies: (1) building brand recognition of NAM (the
arbitration company) as the premier provider of dispute resolution services
through our advertising campaign; (2) attracting and retaining the services of
the most talented, former top-tier judges and attorneys; (3) broadening the type
and complexity of dispute resolution cases we administer; and (4) exploiting
potential revenue streams driven by our investment in technology, software,
systems and intellectual property such as (i) the administration of high-volume,
customized dispute resolution programs for large corporations, governmental
bodies and agencies and (ii) the licensing and/or sale of dispute resolution
management and operation system software.
We believe that the current economic slowdown is an
environment which should encourage the use of our services as more business
entities are focusing on cost saving measures given the tremendous expense
related to traditional litigation versus our quicker, more efficient dispute
resolution process.
We have and may continue to incur net losses in the future as
a result of (a) continuing development and other costs associated with our
web-based software initiatives for new products and (b) our advertising
campaign. Although we are actively promoting our services, there can be no
assurance that the revenues to be realized therefrom will exceed the expenses to
be incurred. Additionally, we currently expect that our advertising campaign
will continue into the first quarter of fiscal year 2004. In August 2000, we
signed an agreement with American Lawyer Media, Inc., the nation's leading legal
journalism and information company, to provide $1,000,000 of advertising and
promotional opportunities in their national and regional publications over a
two-year period in exchange for 61,474 shares of our common stock (as adjusted
for the 1-for-3 reverse stock split effectuated on August 20, 2001). 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.
9
Second Quarter Ended December 31, 2001 Compared to Second Quarter Ended
December 31, 2000
Revenues. Revenues increased 4.7% to $1,005,278 for the second
quarter ended December 31, 2001 from $959,688 for the comparable prior period.
The increase in revenues is primarily attributable to a rise in the average
dollars earned per in-person hearing and higher fees earned from commercial
cases. Offsetting these increases was a decline in the number of in-person
hearings conducted during the quarter ended December 31, 2001. As New York is
our primary market, the terrorist attacks on September 11, 2001 adversely
impacted our business as there was a decline in the number of in-person hearings
conducted in the New York metropolitan area as well as at our satellite offices
as a general malaise was experienced in the business community. The insurance
industry, which was particularly hard hit by the recent events, represents a
major portion of our clientele. However, as we have signed an exclusive pool of
former, top-tier hearing officers and have highlighted such in our present
advertising campaign, we believe this will enable us to attract more complex
cases that will continue to favorably contribute to the average dollars earned
per in-person hearing.
Cost of Services. Cost of services decreased 9.7% to $234,433
for the second quarter ended December 31, 2001 from $259,579 for the second
quarter ended December 31, 2000. Additionally, the cost of services as a
percentage of revenues decreased to approximately 23% in the second quarter of
fiscal year 2002 from 27% in the second quarter of fiscal year 2001. The
decrease is partially attributed to the increase in our average revenue per case
as this favorably impacted revenues without increasing the cost of sales. The
ratio of cost of services to revenues will fluctuate based on the number of
hours per case and our ability (or inability) to take advantage of volume
arrangements with hearing officers which usually lower the cost per case.
Sales and Marketing. Sales and marketing costs decreased 41.6%
to $401,639 for the second quarter ended December 31, 2001 from $687,239 for the
second quarter ended December 31, 2000. Sales and marketing costs as a
percentage of revenues decreased to 40% in the second quarter of fiscal year
2002 from 72% in the second quarter of fiscal year 2001. Most of the decrease
(approximately $156,400) relates to employee costs and related items (including
benefits and payroll taxes) and travel and entertainment expenses. As part of
our migration towards centralizing operations through the utilization of our web
platform, we began migrating our marketing efforts toward fewer but more
efficient primary customer service centers and national account arrangements, as
opposed to the continuation of running smaller and less efficient regional
office locations. We believe that building on the present platform is the
appropriate strategy to enhance operating results. As such, the consolidation of
our offerings into a one-stop, comprehensive suite of web-enabled dispute
resolution tools enabled us to streamline sales personnel and related costs
including travel and entertainment expenses. Additionally, advertising,
promotions and trade show costs declined by approximately $130,200 from the
second quarter of fiscal year 2001 to the second quarter of fiscal year 2002 as
we reduced our expenditures in these areas. Instead, we focused our advertising
campaign around our agreement with American Lawyer Media, Inc., which provides
us with $1,000,000 of advertising and promotional opportunities in their
national and regional publications over a two-year period through August 2002.
The related non-cash amount expensed for the quarters ended December 31, 2000
and 2001 approximated $117,600 and $106,500, respectively. Additional non-cash
charges for print advertising relating to this agreement will be incurred during
the remainder of fiscal year 2002 and into the first quarter of fiscal year 2003
and, in total, will approximate $254,000. Due to the economic slowdown, many
businesses are decreasing the level of advertising and therefore, as commercial
clutter lessens, we believe our targeted campaign should be more prominent and
receive more attention.
10
General and Administrative. General and administrative costs
decreased 20.4% to $608,644 for the second quarter ended December 31, 2001 from
$764,308 for the second quarter ended December 31, 2000. A portion of the
decrease (approximately $147,600) relates to professional fees for various
consulting services, a majority of which related to market research, systems
evaluations and investor-relations projects which were completed by the end of
the second quarter of fiscal year 2001. These initiatives were undertaken in
order to position us for future growth and to enhance operating efficiencies.
Secondly, as part of an effort to reduce overhead, we reduced expenditures for
administrative personnel, employee recruitment, postage, printing, supplies and
telephone that approximated $39,200. Offsetting these declines was an increase
in legal fees of approximately $39,500 primarily related to an investment made
to obtain patents for our "total solution" web-enabled dispute resolution
management and operation system on an international basis. General and
administrative costs as a percentage of revenues decreased to 61% for the second
quarter of fiscal year 2002 from 80% for the second quarter of fiscal year 2001.
Other Expenses. Other expenses decreased by $7,875 for the
second quarter ended December 31, 2001 from the second quarter ended December
31, 2000. Other expenses is composed primarily of investment income and realized
gains (losses) generated from investments. Realized losses (which includes
write-downs for other than temporary declines in the value of marketable
securities) approximated $120,100 in the second quarter of fiscal year 2001
versus $46,500 in the second quarter of fiscal year 2002. Additionally, interest
income generated from investments in money market funds declined by
approximately $66,100 from $78,000 in the prior year period due to lower
invested balances and a decline in the prevailing interest rates between the two
periods.
Income Taxes. Tax benefits resulting from net losses incurred
for the periods ended December 31, 2001 and 2000 were not recognized as we
recorded a full valuation allowance against the net operating loss carryforwards
during the periods.
Net Loss. For the three months ended December 31, 2001, we had
a net loss of $270,430 as compared to a net loss of $790,305 for the three
months ended December 31, 2000. The loss declined as we were able to reduce
sales and administrative costs by streamlining and centralizing operations
through the utilization of our web platform.
Six months Ended December 31, 2001 Compared to Six months Ended December 31,
2000
Revenues. Revenues decreased 6.1% to $1,827,897 for the six
months ended December 31, 2001 from $1,946,436 for the comparable prior period.
The decrease in revenues is primarily attributable to a significant decline in
the number of in-person hearings conducted in the New York metropolitan area
during the month of September. As New York is our primary market, the terrorist
attacks on September 11, 2001 adversely impacted our business as many of the
hearings scheduled for the remainder of September had to be adjourned. During
this same period, there was a decline in the number of in-person hearings
conducted at our satellite offices as a general malaise was experienced in the
business community. The insurance industry, which was particularly hard hit by
the recent events, represents a major portion of our clientele. Also, in the
prior year period, revenue of $60,000 was generated from a unique, non-recurring
video-conferencing contract that was fulfilled in the prior year. Offsetting the
revenue decline was a rise in the average dollars earned per in-person hearing
and higher fees earned from commercial cases. As we have signed an exclusive
pool of former, top-tier hearing officers and have highlighted such in our
present advertising campaign, we believe this will enable us to attract more
complex cases that will continue to favorably contribute to the average dollars
earned per in-person hearing.
11
Cost of Services. Cost of services decreased 7.7% to $439,295
for the six months ended December 31, 2001 from $475,860 for the six months
ended December 31, 2000. Additionally, the cost of services as a percentage of
revenues remained consistent between the periods at approximately 24% in the
first six months of fiscal years 2002 and 2001, respectively. The 2001 fiscal
year period ratio of cost of services as a percentage of revenues was favorably
impacted by the recognition of revenue during the six months ended December 31,
2000 from a videoconferencing contract in which the use of hearing officers was
not needed. The ratio of cost of services to revenues will fluctuate based on
the number of hours per case and our ability (or inability) to take advantage of
volume arrangements with hearing officers which usually lower the cost per case.
Sales and Marketing. Sales and marketing costs decreased 37.3%
to $814,338 for the six months ended December 31, 2001 from $1,299,317 for the
six months ended December 31, 2000. Sales and marketing costs as a percentage of
revenues decreased to 45% in the first six months of fiscal year 2002 from 67%
in the first six months of fiscal year 2001. Most of the decrease (approximately
$326,300) relates to employee costs and related items (including benefits and
payroll taxes) and travel and entertainment expenses. As part of our migration
towards centralizing operations through the utilization of our web platform, we
began migrating our marketing efforts toward fewer but more efficient primary
customer service centers and national account arrangements, as opposed to the
continuation of running smaller and less efficient regional office locations. We
believe that building on the present platform is the appropriate strategy to
enhance operating results. As such, the consolidation of our offerings into a
one-stop, comprehensive suite of web-enabled dispute resolution tools enabled us
to streamline sales personnel and related costs including travel and
entertainment expenses. Additionally, advertising, promotions and trade show
costs declined by approximately $159,600 from the first six months of fiscal
year 2001 to the first six months of fiscal year 2002 as we reduced our
expenditures in these areas. Instead, we focused our advertising campaign around
our agreement with American Lawyer Media, Inc., which provides us with
$1,000,000 of advertising and promotional opportunities in their national and
regional publications over a two-year period through August 2002. The related
non-cash amount expensed for the six months ended December 31, 2001 and 2000
approximated $225,700 and $124,800, respectively. Additional non-cash charges
for print advertising relating to this agreement will be incurred during the
remainder of fiscal year 2002 and into the first quarter of fiscal year 2003
and, in total, will approximate $254,000. Due to the economic slowdown, many
businesses are decreasing the level of advertising and therefore, as commercial
clutter lessens, we believe our targeted campaign should be more prominent and
receive more attention.
General and Administrative. General and administrative costs
decreased 16% to $1,291,677 for the six months ended December 31, 2001 from
$1,536,886 for the six months ended December 31, 2000. A portion of the decrease
(approximately $201,400) relates to professional fees for various consulting
services, a majority of which related to market research, systems evaluations
and investor-relations projects which were completed by December 31, 2000. These
initiatives were undertaken in order to position us for future growth and to
enhance operating efficiencies. Secondly, we incurred approximately $38,000 in
one-time costs to promote our company to overseas investors in the prior year
period. As part of an effort to reduce overhead, we reduced expenditures for
administrative personnel, employee recruitment, seminars, auto expenses,
postage, printing, supplies and telephone that approximated $116,000. Offsetting
these declines was an increase in legal fees of approximately $96,500 related to
mergers and acquisitions activity and an investment made to obtain patents for
our "total solution" web-enabled dispute resolution management and operation
system on an international basis. General and administrative costs as a
percentage of revenues decreased to 71% for the six months of fiscal year 2002
from 79% for the six months of fiscal year 2001.
12
Other (Expense) Income. Other income for the six months ended
December 31, 2000 changed from $48,735 to other expense of $24,267 for the six
months ended December 31, 2001. Other income (expense) is composed primarily of
investment income and realized gains (losses) generated from investments.
Realized losses (which includes write-downs for other than temporary declines in
the value of marketable securities) approximated $120,900 in the first six
months of fiscal year 2001 versus $65,300 in the first six months of fiscal year
2002, an improvement of $55,600. Additionally, interest income generated from
investments in money market funds declined by approximately $130,400 from
$163,400 in the prior year period due to lower invested balances and a decline
in the prevailing interest rates between the two periods.
Income Taxes. Tax benefits resulting from net losses incurred
for the six month periods ended December 31, 2001 and 2000 were not recognized
as we recorded a full valuation allowance against the net operating loss
carryforwards during the periods.
Net Loss. For the six months ended December 31, 2001, we had a
net loss of $741,680 as compared to a net loss of $1,316,892 for the six months
ended December 31, 2000. The loss declined as we were able to reduce sales and
administrative costs by streamlining and centralizing operations through the
utilization of our web platform, despite a lower level of revenue and interest
income.
Liquidity and Capital Resources
At December 31, 2001, the Company had a working capital
surplus of $2,293,098 compared to $3,003,997 at June 30, 2001. The decrease in
working capital occurred primarily as a result of the loss from operations.
Net cash used in operating activities was $447,033 for the six
months ended December 31, 2001 versus $1,108,796 in the prior comparable period.
Cash used in operating activities principally declined due to a reduction in the
loss from operations as well as an increase in non-cash charges such as
advertising and write-downs of securities and changes in operating assets and
liabilities.
Net cash provided by investing activities was $11,436 for the
six months ended December 31, 2001 versus net cash used in investing activities
of $74,710 in the comparable prior period. The change in cash from investing
activities was primarily due to a lower level of purchases of fixed assets
offset by a lower level of net sales of securities.
Net cash used in financing activities was $71,163 for the six
months ended December 31, 2001 versus cash provided by financing activities of
$97,994 in the prior comparable period. In the current six-month period, we
purchased 36,500 shares of our common stock for an aggregate cost of $71,163. In
the prior year six-month period, we received net proceeds from the issuance of
6,221 shares of our common stock at a price of $12.525 per share (as adjusted
for the 1-for-3 reverse stock split effectuated on August 20, 2001) and also
received proceeds of $21,000 from the exercise of stock options.
We anticipate that cash flows, together with funds received in
connection with the issuance of common stock in prior fiscal years, will be
sufficient to fund our operations for the next year. Additionally, under an
Equity Line of Credit Agreement, we have the right, until February 15, 2003, to
require that the investor purchase between $500,000 and $7,000,000 of our common
stock, assuming an effective registration statement is in place. The
availability to use this line is limited based on the closing bid price of our
common stock and the average trading volume of such stock in a thirty-day
period. If the closing bid price and average trading volume are below a defined
minimum, the maximum amount the investor can be required to purchase at that
point in time will be $250,000 of our common stock. There is also a minimum of
15 days between each request for investment.
13
Termination of Acquisition of E-Vue, Inc.
On July 9, 2001, we signed a letter of intent to acquire
E-Vue, Inc., a development stage company engaged in developing next-generation
end-to-end solutions for multimedia delivery over broadband and/or wireless
networks based on the MPEG-4 standard and associated compliant technologies. The
proposed purchase price under the letter of intent consisted of a combination of
common stock and convertible preferred stock to be issued by us depending on
certain financing conditions on the part of E-Vue, Inc. In the event either
party breached the agreement, the non-breaching party was to be reimbursed for
actual costs incurred up to a maximum of $100,000 and was entitled to a $100,000
break up fee. The acquisition, which would have required shareholder approval,
was initially expected to close in October 2001. However, the Nasdaq Listing
Qualifications Panel informed us that the proposed merger would have resulted in
a change of control for purposes of Nasdaq Marketplace rules, and therefore the
combined entities would have been required to evidence compliance with all
requirements for initial listing on The Nasdaq SmallCap Market immediately upon
consummation of the transaction. On January 8, 2002, we announced that
discussions had ended with respect to the proposed merger of the entities and
that the acquisition of E-Vue, Inc. would not be concluded.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
On August 20, 2001, the Company effected a 1-for-3 reverse stock
split. All references to number of shares and per share data in
the consolidated financial statements and accompanying notes have
been restated, except with respect to certain redeemable warrants
which were adjusted to reflect the reverse stock split. The par
value of the common stock remained unchanged at $.001 per share.
On November 13, 2001, the Company's redeemable warrants and
underwriter's warrants expired. Prior to such expiration, there
was 1,609,900 redeemable warrants and 40,833 underwriter's
warrants outstanding.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of matters to a Vote of Security Holders.
On December 14, 2001, we held our annual meeting of shareholders.
At the meeting, the shareholders voted on two proposals. The
following represents the results of the voting, both in person and
by proxy:
Election of Directors:
Roy Israel 1,254,372, votes for;
0 votes against; 94,871 votes withheld.
Anthony J. Mercorella 1,254,455 votes for;
0 votes against; 94,788 votes withheld.
Frank J. Coyne 1,254,455 votes for;
0 votes against; 94,788 votes withheld.
Robert M. Silverson, Jr. 1,254,455 votes for;
0 votes against; 94,788 votes withheld.
Willem F. Specht 1,254,455 votes for;
0 votes against; 94,788 votes withheld.
Corey J. Gottlieb 1,254,621 votes for;
0 votes against; 94,622 votes withheld.
Randy Gerstenblatt 1,254,621 votes for;
0 votes against; 94,622 votes withheld.
For ratification of appointment of Grant Thornton LLP as our
independent accountants for fiscal year 2002:
1,348,845 votes for;
332 votes against; 66 abstentions
Item 5. Other information.
Not applicable.
15
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description of Document
------ -----------------------
3.1 Certificate of Incorporation, as amended (1)
3.1 (b) Certificate of Designation of Series A Exchangeable Preferred Stock (6)
3.1 (c) Certificate of Correction of Certificate of Designation of Series A
Exchangeable Preferred Stock (7)
3.1 (d) Certificate of Amendment of Certificate of Incorporation (9)
3.1 (e) Certificate of Amendment of Certificate of Incorporation, as amended (12)
3.2 By-Laws of the Company, as amended (4)
4.1 Stock Purchase Agreement dated May 10, 2000 (8)
4.2 Stock Purchase Warrant dated May 10, 2000 (8)
10.1 1996 Stock Option Plan, amended and restated (4)
10.2 Employment Agreement between Company and Roy Israel (3)
10.2.1 Amendment to Employment Agreement between Company and Roy Israel (4)
10.5 Employment Agreement between Company and Patricia Giuliani-Rheaume (2)
10.7 Lease Agreement for Great Neck, New York facility (1)
10.7.1 Amendment to Lease Agreement for Great Neck, New York facility (5)
10.7.2 Second Amendment to Lease Agreement for Great Neck, New York facility (11)
10.8 Exchangeable Preferred Stock and Warrants Purchase Agreement (6)
10.9 Preferred Stock Registration Rights Agreement (6)
10.11 Private Equity Line of Credit Agreement between Moldbury Holdings and Company (6)
10.12 Private Equity Line of Credit Registration Rights Agreement (6)
10.13 Stock Purchase Warrant for Moldbury Holdings Limited (6)
10.14 Advertising Agreement dated August 11, 2000 (10)
---------------------------
(1) Incorporated herein in its entirety by reference to the
Company's Registration Statement on Form SB-2, Registration
No. 333-9493, as filed with the Securities and Exchange
Commission on August 2, 1996.
(2) Incorporated herein in its entirety by reference to the
Company's 1997 Annual Report on Form 10-KSB.
(3) Incorporated herein in its entirety by reference to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997.
(4) Incorporated herein in its entirety by reference to the
Company's 1998 Annual Report on Form 10-KSB.
(5) Incorporated herein in its entirety by reference to the
Company's 1999 Annual Report on Form 10-KSB.
(6) Incorporated herein in its entirety by reference to the
Company's SB-2 filed on March 28, 2000.
16
(7) Incorporated herein in its entirety by reference to the
Company's SB-2A filed on April 21, 2000.
(8) Incorporated herein in its entirety by reference to the
Company's Form 8-K filed on May 17, 2000.
(9) Incorporated herein in its entirety by reference to the
Company's Form 8-K filed on June 21, 2000.
(10) Incorporated herein in its entirety by reference to the
Company's Form 8-K filed on August 24, 2000.
(11) Incorporated herein in its entirety by reference to the
Company's 2000 Annual Report on Form 10-KSB.
(12) Incorporated herein in its entirety by reference to the
Company's 2001 Annual Report on Form 10-KSB.
(b) Reports on Form 8-K. None.
17
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CLICKNSETTLE.COM, INC.
Date: February 12, 2002 By: /s/ Roy Israel
--------------------------------------
Roy Israel, President and CEO
Date: February 12, 2002 By: /s/ Patricia A. Giuliani-Rheaume
--------------------------------------
Patricia A. Giuliani-Rheaume, Vice
President, Treasurer and CFO
18