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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, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number: 0-21419
clickNsettle.com, Inc.
(Name of small business issuer as specified in its charter)
Delaware 23-2753988
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
990 Stewart Avenue, First Floor
GARDEN CITY, NEW YORK 11530
(Address of Principal Executive Offices)
(516) 794-8950
(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
------------------- -----------------------------------------
Common Stock $.001 Par Value Over-the-Counter Bulletin Board
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 filers in response to Item 405 of
Regulation S-B 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.|X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |X| No |_|
State issuer's revenues for its most recent fiscal year. $1,808, 400 through
January 13, 2005 when the Company's sole operating business was sold
The aggregate market value of the voting stock held by non-affiliates per the
closing stock price of September 22, 2005 is $664,477.
As of September 22, 2005, 9,929,056 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. -- None
2
PART I
From time to time, including in this annual report on Form 10-KSB,
clickNsettle.com, Inc. (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.
ITEM 1. DESCRIPTION OF BUSINESS
The Company
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 primarily owned by our Chief Executive
Officer and President. NA&M began operations in March 1992 as a provider of ADR
(alternative dispute resolution) 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.
In July 2004, the Board of Directors decided to explore strategic
alternatives for the Company in an effort to protect shareholder value. As a
result of the numerous accounting scandals in recent years and the passing of
the Sarbanes-Oxley Act of 2002 to safeguard shareholders, micro-cap companies
such as the Company were faced with mounting legal and audit fees to meet the
new compliance requirements needed to remain as a publicly traded entity. In
addition to being expensive in terms of out-of-pocket expenditures, these
requirements were costly in that they were time-consuming and placed a strain on
the Company's limited personnel resources. While we remained optimistic about
the need for the Company's services, we believed that the unavoidability of
these escalating costs shortens the timeframe that the Company needed in order
to realize revenues from its sales and marketing initiatives. Further, we
believed our revenue had been adversely affected by the consolidation and
turmoil in the insurance industry, which represented a major portion of our
clientele. Additionally, insurance companies in general and some, in particular,
had changed their claims-settling philosophies. We perceived that many of the
larger insurance companies were taking a harder line with the plaintiff bar.
This resulted in a slow down in the number of cases being submitted to ADR, a
trend that continued into fiscal year 2005. This adversely affected the number
of cases referred to our forum. In a broader sense, we believed that lawsuits
continued to be commenced and that our services should prove to be vital to
insurers in their ability to address a growing caseload with reduced costs, but
the timing of such was delayed.
On October 18, 2004, the Company entered into a definitive asset purchase
agreement (the "Asset Purchase Agreement") with National Arbitration and
Mediation, Inc. (the "Buyer"), a company affiliated with the Company's Chief
Executive Officer, Roy Israel. Pursuant to the Asset Purchase Agreement, the
Buyer acquired the assets of the Company's dispute resolution business (the "ADR
business"). In consideration, the Buyer assumed all current and future
liabilities and commitments of the ADR business. Furthermore, Mr. Israel agreed
not to trigger his change-in-control provision under his employment contract as
a result of the Buyer acquiring the ADR business. If such provision was
triggered upon the sale or liquidation of the ADR business, the Company would
have owed Mr. Israel, in one lump sum, approximately $1,015,000, which
represented three times his then current base salary. Additionally, the Asset
Purchase Agreement provided that a minimum of $200,000 in cash was to remain
with the Company before giving affect to transaction costs. A portion of this
cash has been utilized by the Company to pay for
3
the costs associated with the sale of the ADR business and the balance will be
used for continued public reporting obligations and potentially to acquire a new
operating business or enter into a merger transaction.
The Board of Directors received an opinion, dated October 15, 2004, from
an unrelated party, Capitalink, L.C., that, as of that date, based upon and
subject to the assumptions made, matters considered and limitations on its
review as set forth in the opinion, the purchase consideration was fair, from a
financial point of view, to the Company's unaffiliated stockholders. Capitalink,
L.C. is an investment-banking firm that is regularly engaged in the evaluation
of businesses and their securities in connection with mergers, acquisitions,
corporate restructurings and private placements.
On January 13, 2005, at the annual meeting of shareholders, the Company's
shareholders approved the transaction. Immediately thereafter, the Company
completed the sale of the ADR business. In connection therewith, the Buyer
assumed the current and future commitments of the Company. Specifically, the
Company has been released from its lease agreements for office space in Great
Neck and Brooklyn, New York and from its employment agreements with its
President and Chief Financial Officer. Additionally, the Buyer has guaranteed
the payments due on the remainder of the Company's automobile lease (which
approximated $18,700 in total as of June 30, 2005). The Buyer has assumed the
remaining payments due on the lease of a postage meter (which approximated $900
in total as of June 30, 2005) until such time as the lessor issues a release of
liability to the Company. Also, as of June 30, 2005, the Company remained
contingently liable for additional payables and other items of approximately
$288,400 assumed by the Buyer but not paid as of that date. See Note 9.
Furthermore, in accordance with the Company's stock option plan, all outstanding
unvested employee stock options vested as of the date of the sale of the ADR
business. As the Company did not retain any employees subsequent to the sale,
the former employees had three months from January 13, 2005 to exercise such
options in accordance with the terms of the Company's stock option plan. A total
of 3,485,400 unexercised employee stock options expired at the close of business
on April 13, 2005.
The loss from discontinued operations, including the loss on disposal of
the discontinued operations, for the years ended June 30, 2005 and 2004 include
the following:
2005 2004
----------- ---------
Loss from operations of discontinued business ($181,261) ($513,825)
----------- ---------
Loss from disposal:
Loss on sale* (419,768) --
Transaction costs of sale (111,526) --
----------- ---------
Loss from disposal (531,294) --
----------- ---------
Loss from discontinued operations ($712,555) ($513,825)
=========== =========
*The loss on the sale was calculated as follows:
Book value of liabilities assumed $667,438
Book value of assets sold (1,087,206)
-----------
Loss on transaction $419,768
===========
The results from discontinued operations for the approximately six and
one-half months through January 13, 2005 and for the year ended June 30, 2004
follows:
4
From July 1, 2004 Year
through Ended
January 13, 2005 June 30, 2004
---------------- -------------
Net Revenues $ 1,808,400 $ 3,759,372
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Operating costs and expenses
Costs of services 395,754 860,325
Sales and marketing expenses 593,026 1,271,430
General and administrative expenses 1,037,600 2,058,503
Loss on impairment of furniture and equipment 15,885 85,721
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2,042,265 4,275,979
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Loss from operations (233,865) (516,607)
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Other Income
Investment income 45,701
Interest and dividends 5,777 100
Other income 1,126 2,682
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52,604 2,782
----------- -----------
Loss from operations of discontinued business $ (181,261) $ (513,825)
=========== ===========
Pursuant to the Asset Purchase Agreement, the cash that remained in the
Company was increased to the extent of 60% of the excess of the Remaining Net
Capital before Commitments (as defined) over $380,462 as of the closing date.
The Remaining Net Capital Before Commitments was calculated as the fair market
value of the assets purchased less the following: (a) recorded liabilities
assumed and (b) $96,371 (that is, $200,000 in cash to remain with the Company
less payments of $103,629 already made through January 13, 2005 for certain of
the transaction costs). As of January 13, 2005, the Remaining Net Capital before
Commitments was $643,728 based upon the Company's financial statements as of
that date without adjustment for any subsequent realization of assets,
incurrence of any additional liabilities or resolution of contingencies by the
Buyer. Therefore, $263,266 represents the amount in excess of $380,462; 60% of
which, or $157,960 is additional cash to remain in the Company. Therefore, as of
January 13, 2005, the total cash to be retained by the Company was $254,331
before unpaid transaction costs, taxes, other payables and accrued liabilities.
Although the liabilities and assets other than cash were transferred to the
Buyer as of January 13, 2005, the cash balances have yet to be transferred as of
June 30, 2005. As a result, the accompanying balance sheet shows cash and cash
equivalents of $870,684. However, as of June 30, 2005, the Company has a balance
due to the Buyer in the amount of $620,798. This amount includes interest due
from the Company to the Buyer on the unpaid balance. The interest rate charged
is equal to the interest rate earned on invested balances. The interest charge
for the year ended June 30, 2005 was $4,129 all of which is accrued and unpaid
at June 30, 2005. A portion of the total balance due to the Buyer, in the amount
of $430,595, was transferred to the Buyer in August 2005. The remaining balance
is expected to be transferred before October 31, 2005.
The costs of the transaction, which have been paid by the Company,
included legal, accounting, tax advice and the cost of the fairness opinion.
During the year ended June 30, 2005, the Company incurred $111,526 of such
costs, which are included in the loss on sale of discontinued operations on the
accompanying statement of operations. At June 30, 2005, all such amounts have
been paid.
Since the consummation of the sale, the Company has no operating business.
Currently, the Company is actively searching for a new operating business to
acquire or to enter into a merger transaction. There can be no assurances that
an operating entity will be acquired or that a merger transaction will be
consummated.
5
Selection of a Business
The Company is now considering business opportunities either through
merger or merger transactions that might create value for our stockholders. We
have no day-to-day operations at the present time. The officers and directors of
the Company devote limited time and attention to the affairs of the Company. The
Company may have to wait some time before consummating a suitable transaction.
The Company does not intend to restrict its consideration to any particular
business or industry segment.
However, due to the Company's limited financial resources, the scope and
number of suitable candidate business ventures available is limited. The
decision to participate in a specific business opportunity will be made upon
management's analysis of the quality of the other firm's management and
personnel, the anticipated acceptability of its products or marketing concepts,
the merits of its technology and numerous other factors. Since the Company may
participate in a business opportunity with a newly organized business or with a
business which is entering a new phase of growth, the Company may incur risk due
to the failure of the target's management to have proven its abilities of
effectiveness, or the failure to establish a market for the target's products or
services or the failure to realize profits.
Acquisition of a Business
With respect to any mergers or acquisitions, negotiations with target
company management will be expected to focus on the percentage of the Company
that target company stockholders would acquire in exchange for their
stockholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, the Company's stockholders will in all
likelihood hold a lesser percentage ownership interest in the Company following
any merger or acquisition. The percentage ownership may be subject to
significant reduction in the event that Company acquires a target company with
substantial assets. Typically, in these transactions, which are commonly called
reverse acquisitions, voting control of the merged company changes from the
stockholders of the pre-existing public company to those of the previous
privately owned company. Any merger or acquisition effected by the Company can
be expected to have a significant dilutive effect on the percentage of shares
held by the Company's stockholders immediately preceding the transaction.
Prior Business of the Company
Prior to the sale of its sole operating business on January 13, 2005, the
Company provided ADR services including arbitrations, mediations, mock jury
trials, specialized ADR video conferencing and electronic oversight
applications. Since the sale of the ADR business, the Company has had no
operations.
Employees
Since the sale of the ADR business, the Company has had no operations and
has no employees. Our executive officers devote as much time to the affairs of
the Company as they deem appropriate. The focus of the Company is to maintain
its status as a publicly traded entity while searching for a new operating
business to acquire or to enter into a merger transaction.
ITEM 2. DESCRIPTION OF PROPERTY
Subsequent to January 13, 2005, we do not maintain any leased facilities.
We maintain a mailing address at 990 Stewart Avenue, First Floor, Garden City,
New York 11530, which we believe is adequate to meet our needs at this time.
6
Prior to January 13, 2005, we maintained three leased facilities, which
were located in office buildings. The aggregate rental expense, net of sublease
income of $40,046, and $73,542 respectively, for all of our offices was $102,455
and $189,941 during the years ended June 30, 2005 and 2004, respectively.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. Our Common Stock is quoted on the NASD's Over-the-Counter Bulletin Board
under the trading symbol "CLIK." Prior to March 5, 2003, our Common Stock was
quoted on The Nasdaq SmallCap Market ever since we commenced public trading on
November 18, 1996. Before 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 SmallCap
Market and the NASD's Over-the-Counter Bulletin Board) for each fiscal quarter
during the periods indicated.
Common Stock
High Low
--------------------
Fiscal Year 2005
First quarter (07/1/04-9/30/04) $0.13 $0.09
Second quarter (10/01/04-12/31/04) 0.11 0.07
Third quarter (01/01/05-03/31/05) 0.10 0.06
Fourth quarter (04/01/05-06/30/05) 0.18 0.05
Fiscal Year 2004
First quarter (07/1/03-9/30/03) $0.23 $0.05
Second quarter (10/01/03-12/31/03) 0.38 0.25
Third quarter (01/01/04-03/31/04) 0.35 0.16
Fourth quarter (04/01/04-06/30/04) 0.20 0.06
On December 22, 2003, we effectuated a 6-for-1 forward stock split of our
common stock. All common stock prices above have been restated to reflect the
forward stock split. On September 22, 2005, the closing bid price for our common
stock, as reported by the Over-the-Counter Bulletin Board, was $0.139.
As of August 30, 2005, there were approximately 513 holders of our common
stock.
We have not paid any dividends upon our common stock. 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 capital
requirements and financial condition, as well as other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Through January 13, 2005, we provided alternative dispute resolution
services, or ADR services, to insurance companies, law firms, corporations and
municipalities. We focused 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.
8
Year Ended June 30, 2005 Compared to Year Ended June 30, 2004
Results of Operations
The Company sold its sole operating business, ADR services, on January 13,
2005. Since that time, the Company has not had an operating business. The
financial statements for the year ended June 30, 2004 have been reclassified to
show the revenues, income and expenses relating to the ADR business as
discontinued operations. The income and expenses relating to the Company's
operations of a public shell are shown as continuing operations for the fiscal
year ended June 30, 2004.The financial statements for the year ended June 30,
2005 have been presented to show all revenues, income and expenses comprising
the results of operations through January 13, 2005 as discontinued operations.
All income and expenses from January 14, 2005 through June 30, 2005 are shown as
continuing operations as they represent the results of operating the Company as
a public shell. Currently, the Company is actively searching for a new operating
business to acquire or to enter into a merger transaction. There can be no
assurances that an operating entity will be acquired or that a merger
transaction will be consummated.
Loss from continuing operations. The loss from continuing operations was
$99,786 for the year ended June 30, 2005 versus $208,879 for the year ended June
30, 2004. The Company sold its sole operating business on January 13, 2005. Loss
from continuing operations primarily reflects expenses incurred by the Company
to maintain its existence as a publicly traded entity including its public
reporting obligations. Such expenses include insurance, audit fees and legal
costs. The loss decreased from fiscal year 2004 to fiscal year 2005 as the
current year period includes such income and expense items for approximately 5.5
months from January 14, 2005 through June 30, 2005 while the prior year period
includes such income and expense items for the full year. In addition, legal and
auditing expenses applicable to the external reporting of a public company with
an operating business are greater then those associated with that applicable to
a public shell company. Continuing operations in fiscal year 2005 include
accounting services that were contributed by the Buyer pursuant to the Asset
Purchase Agreement. The value of such services, which were performed from
January 14, 2005 through June 30, 2005, was $12,750. Such value has been
recorded as an imputed charge on the statement of operations with an equivalent
offset to additional paid-in capital. Subsequent to June 30, 2005, additional
accounting services were provided by the Buyer to prepare the June 30, 2005
financial statements and related year-end SEC filings. Such amount approximates
$17,500.
Loss from discontinued operations. Loss from discontinued operations
increased from $513,825 for the year ended June 30, 2004 to $712,555 for the
year ended June 30, 2005. The loss for the year ended June 30, 2005 includes the
loss on the sale of the ADR business as well as the transaction costs incurred
to affect the sale, while the loss for the year ended June 30, 2004 does not.
The loss on the sale was $419,768 and the transaction costs incurred were
$111,526, totaling $531,294. The loss from operations of the discontinued
business for the year ended June 30, 2005 was $181,261 as compared to $513,825
for the year ended June 30, 2004. The decline in the loss was due to the fact
that the year ended June 30, 2005 includes net revenues and net expenses of
$1,808,400 and $2,042,265, respectively, for approximately 6.5 months through
January 13, 2005, the date of the sale, while the year ended June 30, 2004
includes net revenues and net expenses of $3,759,372 and $4,275,979,
respectively, for the full twelve-month period. Additionally, during the first
half of the 2005 fiscal year, the Company had been exploring strategic
alternatives to preserve shareholder value. In furthering that goal, the Company
had instituted cost cutting measures with respect to salaries and related costs
(including a 15% salary reduction for employees earning more than $100,000 per
annum), travel and entertainment, advertising, auto expenses and legal fees.
Furthermore, during the year ended June 30, 2005, the Company recorded no
depreciation expense as the Company had recorded a loss from impairment on its
furniture and fixtures at the end of the prior fiscal year. The loss on
impairment amounted to $85,721 and was equal to the net book value of furniture
and fixtures as of June 30, 2004.
Income Taxes. Tax benefits resulting from net losses incurred for the
years ended June 30, 2005 and 2004 were not recognized as we recorded a full
valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 2005, we had net operating carryforwards for Federal tax
purposes of approximately $8,296,300 and net capital loss carryforwards for
Federal tax purposes of approximately $815,600, both with full valuation
allowances.
9
Net Loss. For the year ended June 30, 2005, we had a net loss of $812,341
as compared to a net loss of $722,704 for the year ended June 30, 2004. The loss
increased primarily due to the loss incurred on the sale of the ADR business,
offset by lower losses from the discontinued operations as such operations
ceased on January 13, 2005 and as cost cutting measures had been instituted in
the current period while the Company was exploring strategic alternatives.
Liquidity and Capital Resources
At June 30, 2005, the Company had a working capital surplus of $176,729 as
compared to $913,854 at June 30, 2004. The decrease in working capital occurred
primarily as a result of the net loss, which includes the net loss on the sale
of the ADR business on January 13, 2005. Thereafter, the Company has had no
operating business.
Net cash used in operating activities was $455,817 for the fiscal year
ended June 30, 2005 versus $749,416 in the prior fiscal year. Cash used in
operating activities (including discontinued operations) principally decreased
due to a higher net loss offset by decreases in assets and liabilities of
discontinued operations and changes in operating assets and liabilities.
Net cash provided by investing activities was $531,470 for the year ended
June 30, 2005 versus net cash used in investing activities of $318,501 for the
year ended June 30, 2004. The change in cash from investing activities was
principally due to the fact that during fiscal year 2005, the Company sold its
marketable securities and its certificates of deposit matured, the proceeds of
which were invested primarily in money market funds.
Net cash provided by financing activities during the year ended June 30,
2005 was $64,162 versus $0 during the year ended June 30, 2004. The increase was
due to the fact that the President/CEO, Chief Financial Officer and Director of
Information Technology exercised stock options in January and April 2005.
On October 18, 2004, the Company entered into a definitive asset purchase
agreement (the "Asset Purchase Agreement") with National Arbitration and
Mediation, Inc. (the "Buyer"), a company affiliated with the Company's Chief
Executive Officer, Roy Israel. Pursuant to the Asset Purchase Agreement, the
Buyer acquired the assets of the Company's dispute resolution business (the "ADR
business"). In consideration, the Buyer assumed all current and future
liabilities and commitments of the ADR business. Furthermore, Mr. Israel agreed
not to trigger his change-in-control provision under his employment contract as
a result of the Buyer acquiring the ADR business. If such provision was
triggered upon the sale or liquidation of the ADR business, the Company would
have owed Mr. Israel, in one lump sum, approximately $1,015,000, which
represented three times his then current base salary. Additionally, the Asset
Purchase Agreement provided that a minimum of $200,000 in cash was to remain
with the Company before giving affect to transaction costs. A portion of this
cash has been utilized by the Company to pay for the costs associated with the
sale of the ADR business and the balance will be used for continued public
reporting obligations and potentially to acquire a new operating business or
enter into a merger transaction.
On January 13, 2005, at the annual meeting of shareholders, the Company's
shareholders approved the transaction. Immediately thereafter, the Company
completed the sale of the ADR business. In connection therewith, the Buyer
assumed the current and future commitments of the Company. Specifically, the
Company has been released from its lease agreements for office space in Great
Neck and Brooklyn, New York and from its employment agreements with its
President and Chief Financial Officer. Additionally, the Buyer has guaranteed
the payments due on the remainder of the Company's automobile lease (which
approximated $18,700 in total as of June 30, 2005). The Buyer has assumed the
remaining payments due on the lease of a postage meter (which approximated $900
in total as of June 30, 2005) until such time as the lessor issues a release of
liability to the Company. Also, as of June 30, 2005, the Company
10
remained contingently liable for additional payables and other items of
approximately $288,400 assumed by the Buyer but not paid as of that date. See
Note 9. Furthermore, in accordance with the Company's stock option plan, all
outstanding unvested employee stock options vested as of the date of the sale of
the ADR business. As the Company did not retain any employees subsequent to the
sale, the former employees had three months from January 13, 2005 to exercise
such options in accordance with the terms of the Company's stock option plan. A
total of 3,485,400 unexercised employee stock options expired at the close of
business on April 13, 2005.
Pursuant to the Asset Purchase Agreement, the cash that remained in the
Company was increased to the extent of 60% of the excess of the Remaining Net
Capital before Commitments (as defined) over $380,462 as of the closing date.
The Remaining Net Capital Before Commitments was calculated as the fair market
value of the assets purchased less the following: (a) recorded liabilities
assumed and (b) $96,371 (that is, $200,000 in cash to remain with the Company
less payments of $103,629 already made through January 13, 2005 for certain of
the transaction costs). As of January 13, 2005, the Remaining Net Capital before
Commitments was $643,728 based upon the Company's financial statements as of
that date without adjustment for any subsequent realization of assets,
incurrence of any additional liabilities or resolution of contingencies by the
Buyer. Therefore, $263,266 represents the amount in excess of $380,462; 60% of
which, or $157,960 is additional cash to remain in the Company. Therefore, as of
January 13, 2005, the total cash to be retained by the Company was $254,331
before unpaid transaction costs, taxes, other payables and accrued liabilities.
Although the liabilities and assets other than cash were transferred to the
Buyer as of January 13, 2005, the cash balances have yet to be transferred as of
June 30, 2005. As a result, the accompanying balance sheet shows cash and cash
equivalents of $870,684. However, as of June 30, 2005, the Company has a balance
due to the Buyer in the amount of $620,798. This amount includes interest due
from the Company to the Buyer on the unpaid balance. The interest rate charged
is equal to the interest rate earned on invested balances. The interest charge
for the year ended June 30, 2005 was $4,129 all of which is accrued and unpaid
at June 30, 2005. A portion of the total balance due to the Buyer, in the amount
of $430,595, was transferred to the Buyer in August 2005. The remaining balance
is expected to be transferred before October 31, 2005.
The costs of the transaction, which have been paid by the Company,
included legal, accounting, tax advice and the cost of the fairness opinion.
During the year ended June 30, 2005, the Company incurred $111,526 of such
costs, which are included in the loss on sale of discontinued operations on the
accompanying statement of operations. At June 30, 2005, all such amounts have
been paid.
Since the consummation of the sale, the Company has no operating business.
Currently, the Company is actively searching for a new operating business to
acquire or to enter into a merger transaction. There can be no assurances that
an operating entity will be acquired or that a merger transaction will be
consummated.
As a result of continued losses, the use of significant cash in operations
and the uncertainty as to the Company's ability to effect a merger or a similar
transaction with the intent to acquire a different operating business, there is
substantial doubt about the Company's ability to continue as a going concern.
The Company's independent auditors have included a going concern paragraph in
their report on the June 30, 2005 consolidated financial statements which have
been prepared assuming the Company will continue as a going concern.
Accordingly, the accompanying consolidated financial statements do not include
any adjustments that may result should the Company be unable to continue as a
going concern.
Critical Accounting Policies
The Securities and Exchange Commission released Financial Reporting
Release No. 60, which requires all companies to include a discussion of critical
accounting policies and methods used in the preparation of their financial
statements. The significant accounting policies and methods used in the
11
preparation of our consolidated financial statements are discussed in Note 3 of
the Notes to Consolidated Financial Statements. We currently have one critical
accounting policy since we no longer have any operations. Such policy follows:
Income taxes and valuation allowance - We are required to estimate our
actual current tax expense together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which would be
included within our consolidated balance sheet. We then assess the likelihood
that the deferred tax assets will be recovered from future taxable income and,
to the extent we believe recovery is not likely, a valuation allowance is
recognized. We have recorded a 100% valuation allowance as of June 30, 2005.
Effect of Recently Issued Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 123R, Share-based Payment
("SFAS No.123R"). SFAS No. 123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods and
services. This statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS No. 123R requires that the fair value of such equity instruments be
recognized as an expense in the historical financial statements as services are
performed. Prior to SFAS No. 123R, only certain pro forma disclosures of fair
value were required. SFAS No. 123R is effective for public entities that file as
small business issuers as of the beginning of the first annual reporting period
that begins after December 15, 2005 and, thus, will be effective for us
beginning with the first quarter of fiscal year 2007. The adoption of this
statement is not expected to have a material impact on the financial statements
of the Company.
In December 2004, the FASB issued Statement of Financial Accounting
Standard No. 153, Exchanges of Nonmonetary Assets ("SFAS No. 153"). This
statement eliminates the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. SFAS No. 153 will be
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. We do not believe the adoption of SFAS No. 153 will have a
material impact on our financial statements.
RISK FACTORS
We face risks. These risks include those described below and may
include additional risks of which we are not currently aware or which we
currently do not believe are material. If any of the events or circumstances
described in the following risks actually occurs, our financial condition or
results of operations could be adversely affected. These risks should be read in
conjunction with the other information set forth in this report.
We do Not have an Operating Business and if the Company Acquires a New Business,
the Shareholders may Suffer Significant Dilution
On January 13, 2005, the Company sold its ADR business. The Company is
searching for an operating entity to acquire or to enter into a merger
transaction. There can be no assurances that an operating entity will be
acquired or that a merger transaction will be consummated. Also, the cash
retained by the Company may not be sufficient to pay for the costs associated
with continued public reporting obligations and to acquire a new operating
business or to enter into a merger transaction. In addition, if the Company does
acquire a new operating business or enters into a merger transaction, it
12
is expected that such transaction will be accomplished by the issuance of stock
of the Company, resulting in significant dilution.
We have Recent, and Anticipate Continuing, Losses and have Going Concern
Considerations
We have incurred operating losses during the last nine years through June
30, 2005. Going forward, if we do not acquire another operating business, there
will be no future revenues being generated. However, the Company will continue
to incur costs for continued public reporting obligations. Also, it is likely
that in order to acquire a new operating business or to enter into a merger
transaction, costs will be incurred. Therefore, the results of our operations
and our financial condition may be materially and adversely affected.
The Company's independent auditors have included a going concern paragraph
in their report on the June 30, 2005 consolidated financial statements which
have been prepared assuming the Company will continue as a going concern. As a
result of continued losses, the use of significant cash in operations and the
uncertainty as to the Company's ability to effect a merger or a similar
transaction with the intent to acquire a different operating business, there is
substantial doubt about the Company's ability to continue as a going concern.
Our Current Stockholders Have the Ability to Exert Significant Control
Our executive officers, directors, and their affiliates beneficially own
5,148,646 shares or approximately 51.85% of the common stock outstanding based
on 9,929,056 shares of common stock outstanding as of September 22, 2005. Of
that number, Mr. Israel beneficially owns 3,525,788 shares or approximately
35.5% of the common stock. As a result, these stockholders acting in concert may
have significant influence on votes to elect or remove any or all of our
directors and to control substantially all corporate activities in which we are
involved, including tender offers, mergers, proxy contests or other purchases of
common stock.
Our Common Stock is Traded on the NASD OTC Electronic Bulletin Board and is
subject to the Penny Stock Rules
Trading in our securities has been conducted in the over-the-counter
market in the NASD's OTC Electronic Bulletin Board. As a result, an investor may
find it more difficult to purchase, dispose of and obtain accurate quotations as
to the value of our securities.
In addition, as the trading price of our common stock has been less
than $5.00 per share, trading in our common stock is also subject to the
requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under that
rule, broker/dealers who recommend such low-priced securities to persons other
than established customers and accredited investors must satisfy special sales
practice requirements, including (a) a requirement that they make an
individualized written suitability determination for the purchaser and (b)
receive the purchaser's written consent prior to the transaction.
The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock (generally, any equity security not traded on
an exchange or quoted on The NASDAQ SmallCap Market that has a market price of
less than $5.00 per share), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated
13
therewith. Such requirements could severely limit the market liquidity of our
securities and the ability of stockholders to sell their securities in the
secondary market.
On February 2, 2005, the Company was informed by the Boston Stock
Exchange ("BSE") that the Company's listing thereon would be suspended as of the
close of trading that day. The suspension is due to the fact that the Company,
after the sale of its sole operating business, was no longer in compliance with
the BSE's requirements of $1,000,000 in total assets and $500,000 in
shareholders' equity. The BSE agreed to provide a 90-day extension through May
2, 2005. As the Company was unable to regain compliance, the Company's stock was
delisted from the BSE on May 2, 2005.
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. On December 22, 2003, a
6-for-1 forward stock split of our outstanding common stock was effectuated. Our
shareholders previously approved this action in a meeting held on December 12,
2003.
All references to number of shares and per share data in the financial
statements and accompanying notes for all periods presented have been restated
to reflect the forward stock split.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 28, 2005, Grant Thornton LLP ("Grant Thornton") resigned as
the Company's independent registered public accounting firm as the Company no
longer had an operating business.
During the Company's two most recent fiscal years and through June
28, 2005, there were no disagreements with Grant Thornton on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Grant Thornton, would have caused it to make reference to the subject matter of
the disagreements in connection with this report. No reportable events of the
type described in Item 304(a)(1)(iv)(B) of Regulation S-B occurred during the
two most recent fiscal years.
Also effective June 28, 2005, BP Audit Group, PLLC was appointed by
the Board of Directors as the new independent registered public accounting firm
for the Company.
During its two most recent fiscal years and through June 28, 2005,
the Company has not consulted with BP Audit Group, PLLC on any matter that (i)
involved the application of accounting principles to a specific completed or
contemplated transaction, or the type of audit opinion that might be rendered on
the Company's financial statements, in each case where written or oral advice
was provided, that was an important factor considered by the Company in reaching
a decision as to the accounting, auditing or financial reporting issue or (ii)
was either the subject of a disagreement or event, as that term is described in
Item 304(a)(1)(iv)(A) of Regulation S-B.
Form 8K and Form 8K-A were filed by the Company on June 30, 2005 and
July 14, 2005, respectively, disclosing these changes in its auditors.
ITEM 8A. CONTROLS AND PROCEDURES
Our disclosure controls and procedures are designed to ensure that
material information relating to the Company are made known to our Chief
Executive Officer ("CEO"), Chief Financial
14
Officer ("CFO") and others in the Company involved in the preparation of this
annual report, by others within the Company. Our CEO and CFO have reviewed our
disclosure controls and procedures within 90 days prior to the filing of this
annual report and have concluded that they are effective. There were no
significant changes in our internal controls or other factors that could
significantly affect our internal controls subsequent to the last date they were
reviewed by our CEO and CFO.
15
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Reports of Independent Registered Public Accounting Firms F-2 - F-3
Consolidated Financial Statements
Consolidated Balance Sheet F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Changes in Stockholders' Equity
and Comprehensive Loss F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F- 22
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
clickNsettle.com, Inc.
We have audited the accompanying consolidated balance sheet of clickNsettle.com,
Inc. and Subsidiaries (the "Company") as of June 30, 2005, and the related
consolidated statements of operations, changes in stockholders' equity and
comprehensive loss, and cash flows for the year 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 audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated 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, 2005 and the consolidated
results of their operations and their consolidated cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 2 to the
consolidated financial statements, the Company has suffered losses from
operations that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are described in Note 2.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BP AUDIT GROUP, PLLC
Farmingdale, New York
August 30, 2005
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
clickNsettle.com, Inc.
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and comprehensive loss, and cash flows of
clickNsettle.com, Inc. and Subsidiaries (the "Company") for the year ended June
30, 2004. 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 audit.
We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
clickNsettle.com, Inc. and Subsidiaries for the year ended June 30, 2004, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Historically, the Company has
sustained significant losses and used substantial amounts of cash in operations.
The uncertainty as to the Company's ability to sustain profitable operations and
other factors described in Note 2 raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As described in Note 2 to the consolidated financial statements, the Company has
reclassified the 2004 consolidated statements of operations and cash flows to
reflect the discontinued operations.
/s/ GRANT THORNTON LLP
Melville, New York
August 30, 2004, except for the reclassification of discontinued operations
described in Note 2, as to which the date is October 3, 2005
F-3
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
June 30, 2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents including $620,798 to be used to pay
related party buyer $ 870,684
Prepaid insurance and other current assets 26,588
-----------
Total current assets $ 897,272
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 11,655
Due to related party buyer of discontinued operations 620,798
Accrued expenses and other liabilities 88,090
-----------
Total current liabilities 720,543
-----------
COMMITMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 5,000,000 shares authorized;
0 shares issued
Common stock - $.001 par value; 25,000,000 shares authorized;
10,181,554 shares issued 10,182
Additional paid-in capital 10,179,757
Accumulated deficit (9,929,292)
Common stock in treasury at cost, 252,498 shares (83,918)
-----------
Total stockholders' equity 176,729
-----------
$ 897,272
===========
The accompanying notes are an integral part of these statements.
F-4
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
2005 2004*
----------- ----------
Net revenues
General and administrative expenses $ 101,483 263,077
Interest and investment income 1,697 54,198
----------- ----------
Loss from continuing operations (99,786) (208,879)
Discontinued operations:
Loss from operations of discontinued business, including
loss on disposal of $531,294 in 2005 (712,555) $ (513,825)
----------- ----------
NET LOSS $ (812,341) $ (722,704)
=========== ==========
Net loss per common share- basic and diluted
From continuing operations $ (0.01) $ (0.00)
From discontinued operations (0.08) (0.09)
----------- ----------
NET LOSS $ (0.09) $ (0.09)
=========== ==========
Weighted-average shares outstanding - basic and diluted 8,914,919 8,449,056
=========== ==========
*Reclassified. See Note 2.
The accompanying notes are an integral part of these statements.
F-5
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
Years ended June 30, 2005 and 2004
Accumulated
other
Common stock Additional comprehensive
---------------------- paid-in Accumulated income
Shares Amount capital deficit (loss)
----------- ------- ------------ ----------- -------------
Balances at June 30, 2003 1,450,259 $ 1,450 $ 10,111,577 $(8,394,247) $43,960
Six-for-one forward stock split effectuated on
December 22, 2003 7,251,295 7,252 (7,252) -- --
----------- ------- ------------ ----------- -------
8,701,554 8,702 10,104,325 (8,394,247) 43,960
Net loss (722,704)
Change in unrealized gain on marketable securities -- -- -- -- 7,462
----------- ------- ------------ ----------- -------
Comprehensive loss
Balances at June 30, 2004 8,701,554 8,702 10,104,325 (9,116,951) 51,422
Exercise of stock options 1,480,000 1,480 62,682
Imputed contribution to capital for accounting services
provided by Buyer 12,750
Net loss (812,341)
Change in unrealized gain on marketable
securities -- -- -- -- (51,422)
----------- ------- ------------ ----------- -------
Comprehensive loss
Balances at June 30, 2005 10,181,554 $10,182 $ 10,179,757 $(9,929,292)
========== ======= ============ ===========
Common Total
stock in stockholders' Comprehensive
treasury equity loss
-------- ------------- -------------
Balances at June 30, 2003 $(83,918) $1,678,822
Six-for-one forward stock split effectuated on
December 22, 2003 -- --
-------- ----------
(83,918) 1,678,822
Net loss (722,704) $(722,704)
Change in unrealized gain on marketable securities -- 7,462 7,462
-------- ---------- ---------
Comprehensive loss $(715,242)
=========
Balances at June 30, 2004 (83,918) 963,580
Exercise of stock options 64,162
Imputed contribution to capital for accounting services
provided by Buyer 12,750
Net loss (812,341) $(812,341)
Change in unrealized gain on marketable
securities -- (51,422) (51,422)
-------- ---------- ---------
Comprehensive loss $(863,763)
=========
Balances at June 30, 2005 $(83,918) $ 176,729
======== ==========
The accompanying notes are an integral part of this statement.
F-6
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
2005 2004*
--------- -----------
Cash flows from operating activities
Net loss $(812,341) $ (722,704)
Adjustments to reconcile net loss to net cash used in
operating activities
Gains on sales of marketable securities -- (43,141)
Increase (decrease) in assets and liabilities of discontinued 270,617 16,429
operations, net
Imputed contribution to capital for accounting services provided 12,750
by Buyer
Changes in operating assets and liabilities
Increase in prepaid expenses and other current assets (26,588)
Increase in accounts payable, accrued liabilities and other 99,745
--------- -----------
liabilities
Net cash used in operating activities (455,817) (749,416)
--------- -----------
Cash flows from investing activities
Purchases of marketable securities -- (1,486,432)
Proceeds from sales of marketable securities and maturity of certificates of
deposit -- 1,180,757
Net cash provided by (used in) investing activities of discontinued operations 531,470 (12,826)
--------- -----------
Net cash provided by (used in) investing activities 531,470 (318,501)
--------- -----------
Cash flows from financing activities
Proceeds from exercise of stock options 64,162
---------
Net cash provided by financing activities 64,162
---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 139,815 (1,067,917)
Cash and cash equivalents at beginning of year 730,869 1,798,786
--------- -----------
Cash and cash equivalents at end of year $ 870,684 $ 730,869
========= ===========
Non-cash investing and financing activities
Loss on sale of discontinued operations (See Note 2 for supplemental
non-cash activities related to this transaction) $ 419,768
*Reclassified. See Note 2.
The accompanying notes are an integral part of these statements.
F-7
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005 and 2004
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
clickNsettle.com, Inc. ("CLIK") provided a broad range of Alternative
Dispute Resolution ("ADR") services, primarily 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 primarily owned
by CLIK's Chief Executive Officer, 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.
The accompanying consolidated financial statements of clickNsettle.com,
Inc. and Subsidiaries include the accounts of its wholly-owned
subsidiaries, Michael Marketing LLC and clickNsettle.com LLC (collectively
referred to herein as the "Company"). The Company had operated in one
business segment, ADR. All significant intercompany transactions and
balances were eliminated in consolidation.
There is substantial doubt about the Company's ability to continue as a
going concern. See Note 2.
NOTE 2 - DISCONTINUED OPERATIONS AND GOING CONCERN
In July 2004, the Board of Directors decided to explore strategic
alternatives for the Company in an effort to protect shareholder value. As
a result of the numerous accounting scandals in recent years and the
passing of the Sarbanes-Oxley Act of 2002 to safeguard shareholders,
micro-cap companies such as the Company were faced with mounting legal and
audit fees to meet the new compliance requirements needed to remain as a
publicly traded entity. In addition to being expensive in terms of
out-of-pocket expenditures, these requirements were costly in that they
are time-consuming and place a strain on the Company's limited personnel
resources.
On October 18, 2004, the Company entered into a definitive asset purchase
agreement (the "Asset Purchase Agreement") with National Arbitration and
Mediation, Inc. (the "Buyer"), a company affiliated with the Company's
Chief Executive Officer, Roy Israel. Pursuant to the Asset Purchase
Agreement, the Buyer acquired the assets of the Company's dispute
resolution business (the "ADR business"). In consideration, the Buyer
assumed all current and future liabilities and commitments of the ADR
business. Furthermore, Mr. Israel agreed not to trigger his
change-in-control provision under his employment contract as a result of
the Buyer acquiring the ADR business. If such provision was triggered upon
the sale or liquidation of the ADR business, the Company would have owed
Mr. Israel, in one lump sum, approximately $1,015,000, which represented
three times his then current base salary. Additionally, the Asset Purchase
Agreement provided that a minimum of $200,000 in cash was to
F-8
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 2 (continued)
remain with the Company before giving affect to transaction costs. A
portion of this cash has been utilized by the Company to pay for the costs
associated with the sale of the ADR business and the balance will be used
for continued public reporting obligations and potentially to acquire a
new operating business or enter into a merger transaction.
The Board of Directors received an opinion, dated October 15, 2004, from
an unrelated party, Capitalink, L.C., that, as of that date, based upon
and subject to the assumptions made, matters considered and limitations on
its review as set forth in the opinion, the purchase consideration was
fair, from a financial point of view, to the Company's unaffiliated
stockholders.
On January 13, 2005, at the annual meeting of shareholders, the Company's
shareholders approved the transaction. Immediately thereafter, the Company
completed the sale of the ADR business. In connection therewith, the Buyer
assumed the current and future commitments of the Company. Specifically,
the Company has been released from its lease agreements for office space
in Great Neck and Brooklyn, New York and from its employment agreements
with its President and Chief Financial Officer. Additionally, the Buyer
has guaranteed the payments due on the remainder of the Company's
automobile lease (which approximated $18,700 in total as of June 30,
2005). The Buyer has assumed the remaining payments due on the lease of a
postage meter (which approximated $900 in total as of June 30, 2005) until
such time as the lessor issues a release of liability to the Company.
Also, as of June 30, 2005, the Company remained contingently liable for
additional payables and other items of approximately $288,400 assumed by
the Buyer but not paid as of that date. See Note 9. Furthermore, in
accordance with the Company's stock option plan, all outstanding unvested
employee stock options vested as of the date of the sale of the ADR
business. As the Company did not retain any employees subsequent to the
sale, the former employees had three months from January 13, 2005 to
exercise such options in accordance with the terms of the Company's stock
option plan. A total of 3,485,400 unexercised employee stock options
expired at the close of business on April 13, 2005.
The financial statements for the year ended June 30, 2004 have been
reclassified to show the revenues, income and expenses relating to the ADR
business as discontinued operations. The income and expenses relating to
the Company's operations of a public shell are shown as continuing
operations for the fiscal year ended June 30, 2004.The financial
statements for the year ended June 30, 2005 have been presented to show
all revenues, income and expenses comprising the results of operations
through January 13, 2005 as discontinued operations. All income and
expenses from January 14, 2005 through June 30, 2005 are shown as
continuing operations as they represent the results of operating the
Company as a public shell.
The loss from discontinued operations, including the loss on disposal of
the discontinued operations, for the years ended June 30, 2005 and 2004
include the following:
2005 2004
--------- ---------
Loss from operations of discontinued business ($181,261) ($513,825)
--------- ---------
Loss from disposal:
Loss on sale* ($419,768) --
Transaction costs of sale (111,526) --
--------- ---------
Loss from disposal ($531,294) --
--------- ---------
Loss from discontinued operations ($712,555) ($513,825)
========= =========
F-9
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 2 (continued)
*The loss on the sale was calculated as follows:
Book value of liabilities assumed $ 667,438
Book value of assets sold (1,087,206)
-----------
Loss on transaction $ 419,768
===========
The results from discontinued operations for the approximately six and
one-half months through January 13, 2005 and for the year ended June 30,
2004 follows:
From July 1, 2004 Year
through Ended
January 13, 2005 June 30, 2004
----------------- -------------
Net revenues $ 1,808,400 $ 3,759,372
----------- -----------
Operating costs and expenses
Costs of services 395,754 860,325
Sales and marketing expenses 593,026 1,271,430
General and administrative expenses 1,037,600 2,058,503
Loss on impairment of furniture and equipment 15,885 85,721
----------- -----------
2,042,265 4,275,979
----------- -----------
Loss from operations (233,865) (516,607)
----------- -----------
Other Income
Realized gains on sales of marketable securities 45,701
Interest and dividends 5,777 100
Other income 1,126 2,682
----------- -----------
52,604 2,782
----------- -----------
Loss from operations of discontinued business $ (181,261) $ (513,825)
=========== ===========
Pursuant to the Asset Purchase Agreement, as of January 13, 2005, the
total cash retained by the Company was $254,331 before unpaid transaction
costs, taxes, other payables and accrued liabilities. This amount was
determined based upon the Company's financial statements as of that date
without adjustment for any subsequent realization of assets, incurrence of
any additional liabilities or resolution of contingencies by the Buyer.
Although the liabilities and assets other than cash were transferred to
the Buyer as of January 13, 2005, the cash balances have yet to be
transferred as of June 30, 2005. As a result, the accompanying balance
sheet shows cash and cash equivalents of $870,684. However, as of June 30,
2005, the Company has a balance due to the Buyer in the amount of
$620,798. This amount includes interest due from the Company to the Buyer
on the unpaid balance. The interest rate charged is equal to the interest
rate earned on invested balances. The interest charge for the year ended
June 30, 2005 was $4,129 all of which is accrued and unpaid at June 30,
2005. A portion of the total balance due to the Buyer, in the amount of
$430,595, was transferred to the Buyer in August 2005.
The costs of the transaction, which have been paid by the Company,
included legal, accounting, tax advice and the cost of the fairness
opinion. During the year ended June 30, 2005, the Company incurred
F-10
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 2 (continued)
$111,526 of such costs, which are included in the loss on sale of
discontinued operations on the accompanying statement of operations. At
June 30, 2005, all such amounts have been paid.
Since the consummation of the sale, the Company has no operating business.
Currently, the Company is actively searching for a new operating business
to acquire or to enter into a merger transaction.
There can be no assurances that an operating entity will be acquired or
that a merger transaction will be consummated. As a result of continued
losses, the use of significant cash in operations, limited cash and other
resources and the uncertainty as to the Company's ability to effect a
merger or a similar transaction with the intent to acquire a different
operating business, there is substantial doubt about the Company's ability
to continue as a going concern. No adjustments have been made with respect
to the consolidated financial statements to record the results of the
ultimate outcome of this uncertainty.
NOTE 3 - 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. 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.
b. Revenue Recognition
Since January 13, 2005, the Company has had no operating business
and did not generate revenues. Prior to January 13, 2005, the
Company operated an ADR business. With respect thereto, the Company
principally derived its revenues from fees charged for arbitrations
and mediations. Each party to a proceeding was charged an
administrative fee, which generally included the first hour of
hearing/conference time. Additional fees were billed based on the
total time spent by the hearing officer. Hearing officer time
included, but was not limited to, case review time, decision
preparation time, telephone or verbal conference time, as well as
actual hearing/conference time expended. The Company generally
recognized revenue when the arbitration or mediation occurred and
was completed. Fees received prior to such arbitration or mediation
had been reflected as deferred revenue.
In the event an arbitration or mediation was postponed, the
postponing party was billed an adjournment fee. The Company
recognized adjournment fee revenue when the adjournment occurred.
F-11
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 3 (continued)
In the event an arbitration or mediation was settled prior to the
hearing/conference date, each party was billed a settlement fee
which was recognized when the Company was informed of the
settlement.
In the event an arbitration or mediation was cancelled prior to the
hearing/conference date, the canceling party was billed a
cancellation fee which was recognized when the Company was informed
of the cancellation.
c. Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and money market
funds. The Company considers all unrestricted highly liquid
investments purchased with a maturity of less than three months to
be cash equivalents.
d. Certificates of Deposit
Certificates of deposit are recorded at cost.
e. Marketable Securities
Investments classified as marketable securities include equity
securities that 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
equity securities as available-for-sale.
Investment income consists of interest, dividends and gains and
losses on marketable securities. Interest and dividends are
recognized when earned. Realized gains and losses on sales,
maturities or liquidation of investments in marketable securities
are determined on a specific identification basis. Fair values of
investments are based on quoted market prices.
f. 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.
g. Advertising Costs
The cost of advertising is expensed when the advertising takes
place. The Company incurred $79,013 and $169,184 for advertising and
external public relations costs in fiscal 2005 and 2004,
respectively. Such amounts are charged to operations.
F-12
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 3 (continued)
h. Earnings (Loss) Per Common Share
Basic earnings (loss) per share are based on the weighted-average
number of common shares outstanding without consideration of
potential common stock. Diluted earnings (loss) 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, reduced by
the shares that may be repurchased with the funds received from the
exercise, based on the average price during the period. Diluted loss
per share is the same as basic loss per share, as potential common
shares of 921,490 and 6,255,288, at June 30, 2005 and 2004,
respectively, would be antidilutive as the Company incurred net
losses for the years ended June 30, 2005 and 2004.
i. Accounting for Stock Options
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and
Disclosure" ("SFAS No. 148"). SFAS No. 148 encourages, but does not
require, companies to record compensation cost for stock-based
compensation plans at fair value. In addition, SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee
compensation and amends the disclosure requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 148 requires disclosures in
the summary of significant accounting policies in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used
on reported results.
The Company elected to adopt, effective December 31, 2002, only the
disclosure provisions of SFAS No. 148 and to continue to account for
stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations (see Note 7(f)).
Accordingly, compensation expense is not recognized for options
granted to employees and to members of the board of directors when
such options are granted to board members in their capacity as
directors.
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 per share for the years ended June 30, 2005 and
2004 would be increased to the pro forma amounts indicated in the
table which follows. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes
option-pricing model. As of January 13, 2005, upon the sale of the
Company's operating business, in accordance with the Company's
Incentive and Nonqualified Stock Option Plan (the "Plan"), all
outstanding unvested employee stock options vested as of that date.
As a result, in the following table, the pro forma compensation
expense for the year ended June 30, 2005 reflects the effect of the
accelerated vesting. As the Company did not retain any employees
subsequent to the sale, the former employees had three months from
January 13, 2005 to exercise
F-13
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 3 (continued)
such options in accordance with the terms of the Company's stock
option plan. A total of 3,485,400 unexercised employee stock options
expired at the close of business on April 13, 2005.
2005 2004
--------- ---------
Net loss
As reported $(812,341) $(722,704)
Deduct: Total stock-based employee compensation
expense determined under fair value-based
method for all awards, net of related tax effects (63,448) (129,525)
--------- ---------
Pro forma net loss $(875,789) $(852,229)
========= =========
Net loss per common share
Basic and diluted - as reported $ (.09) $ (.09)
Basic and diluted - pro forma $ (.10) $ (.10)
No options were granted to consultants for the years ended June 30,
2005 and 2004.
j. Effect of Recently Issued Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 123R,
Share-based Payment ("SFAS No.123R"). SFAS No. 123R establishes
standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods and services. This
statement focuses primarily on accounting for transactions in which
an entity obtains employee services in share-based payment
transactions. SFAS No. 123R requires that the fair value of such
equity instruments be recognized as an expense in the historical
financial statements as services are performed. Prior to SFAS No.
123R, only certain pro forma disclosures of fair value were
required. SFAS No. 123R is effective for public entities that file
as small business issuers as of the beginning of the annual
reporting period that begins after December 15, 2005 and, thus, will
be effective for us beginning with the first quarter of fiscal year
2007. The adoption of this statement is not expected to have a
material impact on the financial statements of the Company. See
Accounting for Stock Options above for information related to the
pro forma effects on our reported net loss and net loss per share
when applying the fair value recognition provisions of the previous
SFAS No. 123 to stock-based employee compensation.
In December 2004, the FASB issued Statement of Financial Accounting
Standard No. 153, Exchanges of Nonmonetary Assets ("SFAS No. 153").
This statement eliminates the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception
for exchanges of nonmonetary assets that do not have commercial
substance. SFAS No. 153 will be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005.
We do not believe the adoption of SFAS No. 153 will have a material
impact on our financial statements.
F-14
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 4 - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive loss, net of tax effects, are as follows:
2005 2004
--------- ---------
Net loss $(812,341) $(722,704)
--------- ---------
Unrealized gain on marketable securities, net
of tax effects of $0 in 2005 and 2004, respectively
Unrealized gains arising in period 51,362
Reclassification adjustment - loss included in
net loss (51,422) (43,900)
--------- ---------
Net unrealized gain (51,422) 7,462
--------- ---------
Comprehensive loss $(863,763) $(715,242)
========= =========
Accumulated other comprehensive income represents the unrealized gain on
marketable equity securities, net of tax effects of $0 in fiscal 2004.
NOTE 5 - MARKETABLE SECURITIES
Proceeds on sales of marketable securities were $231,461 and $1,180,757
for the years ended June 30, 2005 and 2004, respectively. During fiscal
2005 and 2004, gross gains of $45,701 and $87,767, respectively, and gross
losses of $0 and $44,626, respectively, were realized on these sales. Net
unrealized gains on marketable securities were $51,422 at June 30, 2004.
During fiscal 2004, no income taxes were provided on the unrealized gains
due to the Company's net operating loss.
Activities related to marketable securities in the accompanying statements
of operations are reported in continuing operations for the year ended
June 30, 2004 and in discontinued operations for the year ended June 30,
2005. There were no such activities subsequent to January 13, 2005.
F-15
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 6 - INCOME TAXES
Temporary differences which give rise to deferred taxes are summarized as
follows:
2005 2004
----------- -----------
Deferred tax assets
Net operating, capital and other loss carryforwards $ 3,385,300 $ 3,029,000
Provision for bad debts and impairment of
furniture and equipment 108,000
Depreciation 40,000
Deferred compensation 300
Other 43,000 52,000
----------- -----------
Net deferred tax asset before
valuation allowance 3,428,300 3,229,300
Valuation allowance (3,428,300) (3,229,300)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
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:
2005 2004
--------- ---------
Benefit at statutory rate $(201,815) $(245,719)
State and local benefit, net of Federal tax (46,973) (39,729)
Nondeductible expenses and other - net 49,788 24,176
Increase in the valuation allowance 199,000 261,272
--------- ---------
$ -- $ --
========= =========
At June 30, 2005, the Company had a net operating loss carryforward for
Federal income tax reporting purposes amounting to approximately
$8,296,300, expiring from 2012 through 2025. Additionally, the Company has
a net capital loss carryforward for Federal income tax reporting purposes
at June 30, 2005 of approximately $815,600 which expires from 2006 through
2009. No income taxes were paid in the years ended June 30, 2005 and 2004.
Under current tax law, the utilization of net operating losses will be
restricted if significant changes in the Company's ownership were to
occur. In addition, their use is limited to future earnings of the
Company.
F-16
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 7 - STOCKHOLDERS' EQUITY
a. Capitalization
On December 22, 2003, the Company effected a 6-for-1 forward 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.
b. Preferred Stock
The Company's board of directors has authorized 5,000,000 shares of
$.001 par value preferred stock.
c. 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. On April 5, 2001, pursuant to approval by the board of
directors, the Company redeemed all of its Series A Exchangeable
Preferred Stock at par value. There were 1,800 shares outstanding
before the redemption and the Company paid $1,800,000 to redeem
these shares.
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 112,500 shares of common stock at a price
per share of $5.26. The warrants expired on August 15, 2005.
d. Private Placements
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 1,285,140 common shares, par
value $.001 per share, to ISO at a price of $3.1125 per share or
$4,000,000. In connection therewith, the Company issued a warrant to
ISO to purchase 360,000 common shares at an exercise price of $4.045
per share, exercisable on or after May 10, 2000 and expiring on
August 15, 2005. The exercise price and number of warrant shares
were 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.
Pursuant to the Stock Purchase Agreement, ISO has one demand
registration right commencing May 10, 2002 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
F-17
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 7 (continued)
statement unless the anticipated aggregate gross offering price is
at least $2,000,000. The registration rights granted under the Stock
Purchase Agreement terminated on May 10, 2004.
e. Treasury Stock
On March 12, 2004, the Company extended its March 1998 purchase plan
(the "Purchase Plan"), pursuant to which the number of shares of
common stock of the Company eligible for purchase under the Purchase
Plan remained at an aggregate of 1,600,002 shares. The Purchase Plan
expired on March 12, 2005. There were no purchases during the years
ended June 30, 2005 and 2004. As of June 30, 2005, the Company had
purchased an aggregate of 252,498 shares under the Purchase Plan for
a total cost of $83,918.
f. 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 6,000,000 shares of the Company's common stock. On
December 12, 2003, the Plan was amended to increase the number of
shares of common stock available for grant to 7,500,000 shares. The
Plan is administered by the board of directors, which has the
authority to designate the number of shares to be covered by each
award and the vesting schedule of such award, among other terms. The
option period during which an option may be exercised shall not
exceed ten years from the date of grant and will be subject to such
other terms and conditions of the Plan. Unless the board of
directors provides otherwise, option awards terminate when a
participant's employment or services end, except that a participant
may exercise an option to the extent that it was exercisable on the
date of termination for a period of time thereafter. The Plan will
terminate automatically on April 1, 2006.
Through June 30, 2004, directors who were not officers of the
Company received annually, on the last trading day of June, stock
options for 5,000 shares at an exercise price equal to the fair
market value of the stock on the date of grant. In December 2002,
the Plan was amended to increase the number of options granted to
each non-employee director from options to purchase 5,000 shares to
options to purchase 15,000 shares. No such options were granted on
June 30, 2005.
In accordance with the Plan, all unvested employee stock options
vested as of the date of the sale of the ADR business on January 13,
2005. As the Company did not retain any employees subsequent to the
sale, all employee options expired at the close of business on April
13, 2005 unless they were exercised prior thereto.
The Company's stock option awards granted to employees, directors
and consultants as of and for the years ended June 30, 2005 and 2004
are summarized as follows:
F-18
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 7 (continued)
2005 2004
----------------------- -----------------------
Weighted- Weighted-
Average average
exercise exercise
Shares price Shares price
---------- --------- ---------- ---------
Outstanding at beginning of year 5,762,776 $0.49 5,309,106 $0.56
Awards granted -- -- 745,000 $0.11
Awards exercised (1,480,000) $0.04 -- --
Awards canceled/forfeited (3,833,802) $0.55 (291,330) $0.91
---------- ----------
Outstanding at end of year 448,974 $1.42 5,762,776 $0.49
========== ==========
Options exercisable at year-end 448,974 $1.42 4,042,776 $0.66
========== ==========
Weighted-average fair value of options granted
during the year -- $0.08
The following information applies to options outstanding and exercisable
at June 30, 2005:
Outstanding Exercisable
--------------------------------- ------------------------
Weighted-
average Weighted- Weighted-
remaining average average
Number life in exercise Number exercise
Range of exercise prices outstanding years price exercisable price
------------------------ ----------- --------- --------- ----------- ---------
$0.05 - $0.11 150,000 8.50 $0.08 150,000 $0.08
$0.15 - $0.20 39,990 6.62 $0.18 39,990 $0.18
$0.68 - $0.79 29,994 1.78 $0.70 29,994 $0.70
$0.84 - $1.50 91,998 1.86 $1.03 91,998 $1.03
$2.46 - $5.00 136,992 2.33 $3.66 136,992 $3.66
------- -------
448,974 448,974
======= =======
Stock option awards are granted at prices equal to or above the closing
bid price on the date of grant. No options were granted during the year
ended June 30, 2005. For the year ended June 30, 2004, 230,000 options
were granted at 10% above the closing bid price of $0.14 on the date of
grant. During the year ended June 30, 2005, a total of 1,480,000 options
were exercised by the Company's President, Chief Financial Officer and
Director of Information Technology at exercise prices ranging from $0.042
to $0.046 per share. No options were exercised during the year ended June
30, 2004. As of June 30, 2005, 5,499,026 shares were available for
granting of options under the Plan.
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 2004: a dividend yield of zero; a
risk-free interest rate of 2.82%; an expected term of 2.90 years; an
expected stock price volatility of 150.06%; and a forfeiture rate of 15%.
F-19
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 7 (continued)
g. Stock Warrants
In April 2000, the Company entered into an agreement with a
financial public relations firm whereby the Company granted warrants
to purchase 20,000 shares of the Company's common stock. The
warrants vested the earlier of six months from date of grant or upon
termination of the agreement and were issued at a 25% premium to the
market price of the common stock as of the date of grant. Once
vested, the warrants were immediately exercisable. The warrants
expired April 11, 2005. In August 2000, the Company terminated the
agreement and no additional warrants in excess of the 20,000
warrants were granted.
h. Common Stock Reserved
At June 30, 2005, the Company has reserved for issuance 6,420,500
shares of its common stock issuable pursuant to the Company's stock
option plan and the exercise of warrants issued to consultants and
investors. The warrants, which comprise 472,500 of such total,
expired on August 15, 2005 without being exercised.
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES
On January 13, 2005, the Company sold its ADR business to National
Arbitration & Mediation, Inc., a company affiliated with the Company's
chief executive officer, Roy Israel. See Note 2.
Pursuant to the Asset Purchase Agreement, the Buyer agreed to contribute
accounting services to the Company after the sale of the ADR business. The
value of services performed from January 14, 2005 through June 30, 2005
was $12,750 and a charge in that amount has been imputed to general and
administrative expenses in the accompanying statement of operations with
an equivalent offset to additional paid-in capital. Subsequent to June 30,
2005, additional accounting services were provided by the Buyer to prepare
the June 30, 2005 financial statements and related year-end SEC filings.
Such amount approximates $17,500.
Certain members of the board of directors performed services as hearing
officers for the benefit of the Company. The related expenditures for
these services for the years ended June 30, 2005 and 2004 were $25,176 and
$38,050, respectively. Such amounts are included in the loss from
operations of the discontinued business.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
In connection with the sale of the ADR business, the Buyer assumed the
current and future commitments of the Company. Specifically, the Company
was released from its lease agreements for office space in Great Neck and
Brooklyn, New York and from its employment agreements with its President
and Chief Financial Officer. To the extent that the Company was not
released from its commitments, the Buyer has guaranteed any and all
payments arising therefrom. As of June 30,
F-20
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 9 (continued)
2005, the Company remained contingently liable for approximately
$308,000 of payables and liabilities assumed by the Buyer but not
paid as of that date.
Rent expense amounted to $112,716 and $211,429 for the years ended
June 30, 2005 and 2004, respectively, net of sublease income of
$40,046 and $73,542 for the years ended June 30, 2005 and 2004,
respectively. Such amounts are included in the loss from operations
of the discontinued business.
NOTE 10 - EMPLOYEE RETIREMENT PLAN
The Company had a 401(k) savings and retirement plan, whereby eligible
employees may contribute up to 98% of their salaries subject to the
maximum allowed under the Internal Revenue Code. Commencing in March 2004,
the Company contributed 25% of each employee's contribution up to a
maximum contribution by the employee of 12%, not to exceed 3% of the
employee's compensation. Such amounts, which are included in the loss from
operations of the discontinued business, were $12,739 and $9,885 in fiscal
years 2005 and 2004, respectively. This 401(k) savings and retirement plan
was transferred to the Buyer as of January 13, 2005.
NOTE 11 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 2005, the Company's financial instruments included cash and
cash equivalents, accounts payable, accrued expenses and amount due to
related party buyer. The fair values of these cash and cash equivalents,
accounts payable, accrued expenses and amount due to related party buyer
approximated carrying values because of the short-term nature of these
instruments.
NOTE 12 - CREDIT CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents.
The Company's cash and cash equivalents at North Fork Bank consist
primarily of demand deposits and a money market fund. As of June 30, 2005,
such amounts on deposit were within the Federally insured limits.
Additionally, the Company maintains other money market accounts at Merrill
Lynch, Pierce, Fenner & Smith Inc. and Ameritrade Inc. Such institutions
insure these balances against their financial failure. Additionally, SIPC
(The Securities Investor Protection Corporation) protects securities in
the account up to $500,000. As of June 30, 2005, the Company's cash and
cash equivalents were within these insured limits.
Through January 13, 2005, the Company sold its services principally to
insurance companies and law firms. In fiscal years 2005 and 2004, no
customer exceeded 10% of net revenues. The Company monitored exposure to
credit losses and maintained allowances for anticipated losses considered
necessary under the circumstances.
F-21
clickNsettle.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2005 and 2004
NOTE 13 - BOSTON STOCK EXCHANGE LISTING
On February 2, 2005, the Company was informed by the Boston Stock Exchange
("BSE") that the Company's listing thereon would be suspended as of the
close of trading that day. The suspension was due to the fact that the
Company, after the sale of its sole operating business, was no longer in
compliance with the BSE's requirements of $1,000,000 in total assets and
$500,000 in shareholders' equity. The BSE agreed to provide a 90-day
extension through May 2, 2005. As the Company was not able to regain
compliance, the Company's stock was delisted from the BSE on May 2, 2005.
The Company's common stock continues to be quoted on the OTC Bulletin
Board under the stock symbol CLIK.
F-22
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names, ages and positions of all
directors and executive officers. A summary of the background and experience of
each of these individuals is set forth after the table.
Name Age Position
---- --- --------
Roy Israel 45 Chief Executive Officer, President and
Chairman of the Board of Directors
Kenneth G. Geraghty 54 Director
Randy Gerstenblatt 46 Director
Corey J. Gottlieb 42 Director
Willem F. Specht 44 Director
Patricia Giuliani-Rheaume 47 Vice President, Chief Financial Officer
and Treasurer
ROY ISRAEL has been our Chairman of the Board of Directors, Chief
Executive Officer, and President since February 1994. Immediately prior to
holding such positions, Mr. Israel was President, Director, and founder of
National Arbitration & Mediation, Inc. ("NA&M"), a wholly-owned subsidiary of
the Company until it merged with the Company in June 1999.
PATRICIA GIULIANI-RHEAUME has been our Vice President, Chief
Financial Officer, and Treasurer since February 1997. Immediately prior to
holding such positions, Ms. Giuliani-Rheaume was the Vice President and
Corporate Controller of The Robert Plan Corporation, an insurance services
company, since April 1991. Prior thereto, Ms. Giuliani-Rheaume was an audit
senior manager with KPMG Peat Marwick LLP. Ms. Giuliani-Rheaume is a certified
public accountant and a member of the AICPA and the New York State Society of
CPAs.
WILLEM F. SPECHT was our Director of Information Technology since
May 1998 and previously held the position of Systems Analyst with us since April
1995. Upon sale of the Company's sole operating business on January 13, 2005,
Mr. Specht resigned his position as Director of Information Technology from the
Company as the Company no longer retained any employees. Mr. Specht continues to
serve as a member of the Board of Directors of the Company.
KENNETH G. GERAGHTY has been the Executive Vice President and Chief
Financial Officer of Insurance Services Office, Inc. since February 2000. From
March 1999 through January 2000, Mr. Geraghty was the Executive Vice President
and Chief Administrative Officer of Dycom Industries, Inc., a company which
provides engineering, construction and maintenance services to
telecommunications providers. Prior to holding this position, Mr. Geraghty was
the Senior Vice President, Strategic Finance of Massachusetts Mutual Life
Insurance Company from December 1997 through March 1999. From October 1995
through May 1997, Mr. Geraghty was the Vice President, Change Management for
American Express Company. Mr. Geraghty holds BS and MS degrees in Chemical
Engineering and a MBA degree in Finance.
16
RANDY GERSTENBLATT is currently the Senior Vice President of
ESPN/ABC Sports Customer Marketing and Sales. Prior to holding this position,
Mr. Gerstenblatt was Vice President of ESPN Customer Marketing and Sales from
January 2000 through October 2000. From November 1997 through January 2000, Mr.
Gerstenblatt was the Director of Integrated Sales and Marketing at ESPN. From
1991 through November 1997, he was the Director of Group Station Sales at ABC
National Television Sales.
COREY J. GOTTLIEB is the President/CEO of Targeted Media Partners
LTD, a sales, marketing and consulting company for established and start-up
ventures in the commercial advertising sector. From January 1998 through August
2001, Mr. Gottlieb was the Senior Vice President & National Sales Manager for
Transportation Displays Incorporated (TDI). Prior to holding this position, Mr.
Gottlieb was Senior Vice President & National Sales Manager for Paramount
Pictures Domestic Television Group for seven years and the first Senior Vice
President of Sales for the UPN television network. Mr. Gottlieb holds a BS
degree in Finance and a minor in Computer Science.
Audit Committee
Prior to January 13, 2005, the Company maintained a separate Audit
Committee. Since January 13, 2005, when the Company sold its sole operating
business, the entire Board is responsible for this function. As such, under the
definition of "independence" as set forth in NASDAQ Marketplace Rule 4350, we do
not have a fully independent audit committee. As our common stock is traded via
the Over-the-Counter Bulletin Board and is not listed on or with a national
securities exchange or national securities association, we are not required to
have a fully independent audit committee. In addition, Kenneth G. Geraghty has
been designated as our audit committee financial expert. Mr. Geraghty is an
executive officer of a company that is an affiliate of a holder of 13% of our
stock and, as such, Mr. Geraghty may be considered an affiliate of our company
and thereby deemed not to be independent. Mr. Geraghty disclaims beneficial
ownership of such stock and the Board of Directors concluded that they believe
Mr. Geraghty to be independent.
Compliance with Section 16(a) of the Exchange Act
Based solely on our review of copies of Forms 3 and 4 received by us and
representations from certain reporting persons, we believe that during the
fiscal year ended June 30, 2005, there was compliance with Section 16 (a) filing
requirements applicable to our officers and directors.
Code of Ethics
We have adopted a Code of Ethics for our Senior Financial Officers. Also,
prior to January 14, 2005, a Code of Business Conduct and Ethics was in effect
for our employees. We shall, without charge, provide to any person, upon
request, a copy of our Code of Ethics for our Senior Financial Officers. All
such requests should be mailed to: clickNsettle.com, Inc., 990 Stewart Avenue,
First Floor, Garden City, NY 11530, attention: Patricia Giuliani-Rheaume, VP &
CFO.
As required by SEC rules, we will report within five business days the
nature of any change or waiver of our Code of Ethics for our Senior Financial
Officers.
Nominating Committee
As we are not required by federal securities laws to have a separate
Nominating Committee, the entire Board is responsible for this function.
Compensation Committee
We previously established a Compensation Committee, the members of which
met the criteria for "independence" according to the standard set by NASDAQ for
such committee members. However, since January 13, 2005 when the Company sold
its sole operating business, there are no employees of the Company. Therefore,
there is no longer a need for a Compensation Committee and it has been
disbanded.
17
ITEM 10. EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following summarizes the aggregate compensation paid during
fiscal year 2005 to our Chief Executive Officer and any officer who earned more
than $100,000 in salary and bonus (the "Named Persons"). Such compensation,
which represents the aggregate compensation paid for fiscal year 2005, reflects
amounts for the period from July 1, 2004 through January 13, 2005, the date of
the sale of the Company's sole operating business. No executive compensation was
paid by the Company for periods subsequent to January 13, 2005. The value of
services contributed by Mr. Israel subsequent to January 13, 2005 and through
June 30, 2005 has neither been quantified nor imputed as it was deemed to be
immaterial. See Note 8 to the consolidated financial statements.
Summary Compensation Table
Annual Long Term
Compensation Compensation
------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options (1) Compensation
------------------ ---- -------- ------- ------------ ----------- ------------
Roy Israel,
President, Chief 2005 $157,530 -- $16,480(2) -- $14,110(3)
Executive Officer
and Chairman of the 2004 $321,631 -- $22,907(2) 230,000 $14,110(3)
Board
2003 $302,288 $90,330 $22,196(2) 1,200,000 $14,110(3)
(1) Such option amounts have been restated to reflect the 1-for-3 reverse
stock split of our common stock effectuated on August 20, 2001 and the
6-for-1 forward stock split of our common stock effectuated on December
22, 2003.
(2) Such amount represents tax gross ups for Mr. Israel for medical, life and
disability payments.
(3) Such amount represents premium payments on life insurance policies for the
named executive officer.
Options Granted in Last Fiscal Year
There were no options granted to officers of the Company during the year
ended June 30, 2005.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name On Exercise (#) ($) Unexercisable Unexercisable
-------------------------------------------------------------------------------------------------------
Roy Israel,
President, Chief Executive Officer 1,200,000 43,504(1) 0/0 0/0
and Chairman of the Board
(1) Mr. Israel exercised 600,000 options on January 12, 2005 at an
exercise price of $0.0417 when the market price was $0.06. Mr.
Israel also exercised 600,000 options on April 13, 2005 at an
exercise price of $0.0458 when the market price was $0.10.
Employment Contracts and Termination of Employment
and Change In Control Arrangements
Roy Israel. In March 2002, we entered into an employment agreement with
Mr. Israel effective as of July 1, 2002. Such employment agreement was assumed
by the Buyer as part of the purchase of the ADR business from the Company.
Furthermore, Mr. Israel agreed not to trigger his change-in-control provision
under his employment contract as a result of the Buyer acquiring the ADR
business. If such provision was triggered upon the sale or liquidation of the
ADR business, the Company would have owed Mr. Israel, in one lump sum,
approximately
18
$1,015,000, which represented three times his then current base salary. Although
Mr. Israel remains as CEO and Chairman of the Board, he is not receiving any
compensation from the Company for these services from January 14, 2005 forward.
Moreover, as of January 14, 2005, the Company has no liability for current or
future payments to Mr. Israel with respect to this contract.
Prior to the sale of the ADR business, Mr. Israel's employment
agreement provided for a current annual base salary of $338,316. Previously,
however, in an effort to reduce expenses, as of July 14, 2004, Mr. Israel
voluntarily reduced his salary by 15% to $287,569. Accordingly, for the period
from July 1, 2004 through January 13, 2005, Mr. Israel's salary was $157,530.
Pursuant to the agreement, he was entitled to an annual base salary increase
equal to the greater of 6% or an amount which reflects the increase in the Urban
Consumer Price Index, and an annual bonus based on the achievement of specified
criteria with respect to revenues, cash flow and/or pretax income (loss). For
the fiscal year ended June 30, 2005, Mr. Israel did not receive a bonus. In
addition, the agreement provided, among other things, that we shall pay up to an
aggregate of $15,000 per policy year for a key man life insurance policy in
favor of us for $1,000,000 and life insurance in favor of the estate of Mr.
Israel, a disability policy for coverage of 60% of his base salary (before the
voluntary reduction), and an allowance for leasing an automobile (up to a
monthly lease payment of $1,000.) If this agreement was terminated other than
for cause or as a result of a change in duties, Mr. Israel was to be entitled to
the greater of (i) his then current base salary (before the voluntary reduction)
and severance bonus for the remainder of the employment term or (ii) three times
his then current base salary (before the voluntary reduction) and severance
bonus, to be paid over a one-year period. The severance bonus is 115% of the
bonus paid for the full fiscal year immediately prior to termination. In
addition, all unvested options shall immediately vest. If this agreement was
terminated due to a change in control, Mr. Israel was to be entitled to the same
severance package as previously described but to be paid in one lump sum. Mr.
Israel's employment agreement with us was to expire June 30, 2007 and then
automatically renew for one-year terms unless terminated at least 90 days prior
to the end of an employment term by either party. If we were to give notice of
non-renewal of the agreement or we did not enter into a new employment agreement
with Mr. Israel, he was entitled to receive one year of his base salary (before
the voluntary reduction) plus the severance bonus amount which was to be paid to
Mr. Israel during the one-year period following the end of the employment term.
The agreement also contained a one-year non-competition clause if the agreement
was terminated or upon expiration. In the event of a breach of the agreement by
us, the non-competition clause was to be null and void.
Patricia Giuliani-Rheaume. Ms. Giuliani-Rheaume's employment agreement was
assumed by the Buyer as part of the purchase of the ADR business from the
Company. Although Ms. Giuliani-Rheaume remains as CFO, she is not receiving any
compensation from the Company for these services from January 14, 2005 forward.
The value of her accounting and reporting services, $10,500, for the period from
January 14, 2005 through June 30, 2005, has been imputed as a charge to the
statement of operations, with an equivalent offset to additional paid-in
capital. Moreover, as of January 14, 2005, the Company has no liability for
current or future payments to Ms. Giuliani-Rheaume with respect to this
contract.
Prior to the sale of the ADR business, pursuant to this agreement,
her annual base salary was $155,000 and she was eligible for an annual bonus at
the discretion of the Company's Chief Executive Officer, subject to the approval
of the Compensation Committee of the Board of Directors. Previously, however, as
of July 14, 2004, in an effort to reduce expenses, Ms. Giuliani-Rheaume
voluntarily reduced her salary by 15% to $131,750. Accordingly, her salary for
the period from July 1, 2004 through January 13, 2005 approximated $72,257. In
addition, the agreement provided, among other things, that we were to pay for a
life insurance policy of $250,000, full family health insurance, and a $400 a
month allowance for leasing an automobile. The agreement also contained a
one-year non-competition clause if the agreement was terminated for any reason
or upon expiration. If the agreement was terminated without cause, Ms.
Giuliani-Rheaume was to receive a payment of severance of an amount equal to six
months of the base salary in effect at such time.
Willem Specht. Upon the sale of the ADR business, Mr. Specht resigned his
position as Director of Information Technology from the Company as the Company
no longer retained any employees and accepted a position with the Buyer. Mr.
Specht continues to serve as a member of the Board of Directors of the Company.
Prior to the sale of the ADR business, pursuant to his employment
agreement, Mr. Specht's salary and bonus were set at the discretion of the Chief
Executive Officer, subject to the approval of the Compensation
19
Committee of the Board of Directors. Mr. Specht's annual base salary had been
$131,250. Previously, however, as of July 14, 2004, in an effort to reduce
expenses, Mr. Specht voluntarily reduced his salary by 15% to $111,563.
Accordingly, his salary for the period from July 1, 2004 through January 13,
2005 approximated $61,183. Mr. Specht's employment was terminable at will.
20
ITEM 11: Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of September 12, 2005, certain
information with respect to the beneficial ownership of each class of our voting
equity securities by each director and director nominee, beneficial owners of 5%
or more of our common stock, the Named Persons and all our directors and
executive officers as a group:(1)
Amount and Nature of
Name of Beneficial Owner(2) Beneficial Ownership(3) Percent of Total
----------------------------------------------- ---------------------- ----------------
Roy Israel(4) 3,525,788 35.5%
President, Chief Executive Officer and Chairman
of the Board
Willem F. Specht 140,000 1.4%
Director
Corey J. Gottlieb (5) 54,998 *
Director
Randy Gerstenblatt (6) 35,396 *
Director
Kenneth G. Geraghty (7) 1,352,464 13.6%
Director
Patricia A. Giuliani-Rheaume 140,000 1.4%
Vice President, Chief Financial Officer and
Treasurer
ISO Investment Holdings, Inc. 1,322,464 13.3%
M. D. Sabbah (8) 585,000 5.9%
All Officers and Directors as a Group
(6 persons) (4)(5)(6)(7) 5,248,646 52.3%
----------
*Less than one percent (1%).
(1) Applicable percentage of ownership is based on 9,929,056 shares of our
common stock, which were outstanding on September 12, 2005, plus, for each
person or group, any securities that person or group has the right to
acquire within sixty (60) days pursuant to options and warrants.
(2) The address for each beneficial owner is c/o clickNsettle.com, Inc., 990
Stewart Avenue, First Floor, Garden City, New York 11530.
(3) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended, and unless
otherwise indicated, represents shares for which the beneficial owner has
sole voting and investment power. The percentage of class is calculated in
accordance with Rule 13d-3.
(4) Includes123,806 shares owned by Mr. Israel's wife, Carla Israel, the
Secretary of our company. Mr. Israel disclaims beneficial ownership as to
such securities.
(5) Includes options to purchase 35,000 shares of our common stock, which are
vested and exercisable.
(6) Includes options to purchase 35,000 shares of our common stock, which are
vested and exercisable.
(7) Includes options to purchase 30,000 shares of our common stock, which are
vested and exercisable. The common shares are owned by ISO Investment
Holdings, Inc. Mr. Geraghty disclaims beneficial ownership of these
securities.
(8) This information was taken from an Amendment to Form 13D filed by M.D.
Sabbah on June 2, 2000. We are not aware of any subsequent filings with
the SEC after this date.
21
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since our inception, there have not been any material transactions between
us and any of our officers and directors, except as set forth herein. On January
13, 2005, the Company sold its ADR business to National Arbitration & Mediation,
Inc., a company affiliated with the Company's CEO, Roy Israel. See Note 2 to the
Financial Statements for additional details. Furthermore, pursuant to the Asset
Purchase Agreement, the Buyer agreed to provide accounting services to the
Company after the sale of the ADR business. The value of the services performed
from January 14, 2005 through June 30, 2005 was $12,750 and is included in
general and administrative expenses in the accompanying statement of operations.
Subsequent to June 30, 2005, additional accounting services were contributed by
the Buyer to prepare the June 30, 2005 financial statements and related year-end
SEC filings. Such amount approximates $17,500. Additionally, certain former
members of the board of directors performed services as hearing officers through
their respective law firms for the benefit of the Company through January 13,
2005. The related expenditures for these services for the years ended June 30,
2005 and 2004 were $25,176 and $38,050, respectively. Carla Israel, who was our
Sales Supervisor through January 13, 2005 and still remains the Secretary of the
Company, is the wife of Roy Israel, our CEO. Her compensation from July 1, 2004
through January 13, 2005 was $37,869. She also received a car allowance
(including insurance) of $4,282 from July 1, 2004 through January 13, 2005. Upon
the sale of the ADR business, Ms. Israel no longer received any compensation
from the Company.
22
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit
Number Description of Document
------- -----------------------
3.1(a) Certificate of Incorporation, as amended (1)
3.1(d) Certificate of Amendment of Certificate of Incorporation (5)
3.1(e) Certificate of Amendment of Certificate of Incorporation, as amended
(6)
3.1(f) Certificate of Amendment of Certificate of Incorporation, second
amendment (7)
3.2 By-Laws of the Company, as amended (2)
4.1 Stock Purchase Agreement dated May 10, 2000 (4)
4.2 Stock Purchase Warrant dated May 10, 2000 (4)
4.3 Exchangeable Preferred Stock and Warrants Purchase Agreement (3)
10.1 1996 Stock Option Plan, amended and restated (2)
10.16 Asset Purchase Agreement dated October 18, 2004(8)
23.1 Consent of BP Audit Group, PLLC**
23.2 Consent of Grant Thornton LLC**
31.1 Rule 13a-14(a)/15d-14(a) Certification (CEO)**
31.2 Rule 13a-14(a)/15d-14(a) Certification (CFO)**
32.1 Section 1350 Certification (CEO)**
32.2 Section 1350 Certification (CFO)**
----------
(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
1998 Annual Report on Form 10-KSB.
(3) Incorporated herein in its entirety by reference to the Company's
SB-2 filed on March 28, 2000.
(4) Incorporated herein in its entirety by reference to the Company's
Form 8-K filed on May 17, 2000.
(5) Incorporated herein in its entirety by reference to the Company's
Form 8-K filed on June 21, 2000.
(6) Incorporated herein in its entirety by reference to the Company's
2001 Annual Report on Form 10-KSB.
(7) Incorporated herein in its entirety by reference to the Company's
2004 Annual Report on Form 10-KSB.
(8) Incorporated herein in its entirety by reference to the Company's
Form 8-K filed on October 20, 2004.
** Filed herewith.
23
B. Reports on Form 8-K:
Form 8K and Form 8K-A were filed by the Company on June 30, 2005 and July 14,
2005, respectively, disclosing a change in the Company's auditors. See Item 8.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees billed or to be billed by our
independent auditors, BP Audit Group, PLLC and Grant Thornton LLP, respectively,
for the fiscal years ended June 30, 2005 and 2004:
FY 2005 FY 2004
------- -------
Audit fees and quarterly reviews $38,000 $73,860
Financial information systems design and implementation fees
All other fees:
Tax return preparation 10,000 19,640
Audit related services
Non-audit related services
-----------------
Total Fees $48,000 $93,500
-----------------
The Board of Directors considered and determined that the services
performed for "financial information systems design and implementation fees" and
"all other fees" are compatible with maintaining the independence of the
independent auditors.
Policy on Audit Committee Pre-Approval of Audit and Permissable Non-Audit
Services of Independent Auditor
Prior to the sale of the ADR business on January 13, 2005, the Audit
Committee was responsible for pre-approving all audit and permitted non-audit
services to be performed for us by our independent auditor as outlined in its
Audit Committee charter. Prior to engagement of the independent auditor for each
year's audit, management or the independent auditor submits to the Audit
Committee for approval an aggregate request of services expected to be rendered
during the year, which the Audit Committee pre-approves. During the year,
circumstances may arise when it may become necessary to engage the independent
auditor for additional services not contemplated in the original pre-approval.
In those circumstances, the Audit Committee requires specific pre-approval
before engaging the independent auditor. The Audit Committee does not delegate
to management its responsibility to pre-approve services performed by the
independent auditor. Subsequent to the sale of the Company's sole operating
business on January 13, 2005, the entire Board of Directors has been responsible
for the Audit Committee functions.
24
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.
clickNsettle.com, Inc.
Date: October 3, 2005 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: October 3, 2005 By: /s/ Roy Israel
-----------------------------
Roy Israel, Chairman of the
Board, CEO and President
Date: October 3, 2005 By: /s/ Patricia Giuliani-Rheaume
-----------------------------
Patricia Giuliani-Rheaume, Vice
President, Chief Financial Officer
and Treasurer
Date: October 3, 2005 By: /s/ Kenneth G. Geraghty
-----------------------------
Kenneth G. Geraghty, Director
Date: October 3, 2005 By: /s/ Randy Gerstenblatt
-----------------------------
Randy Gerstenblatt, Director
Date: October 3, 2005 By: /s/ Corey J. Gottlieb
-----------------------------
Corey J. Gottlieb, Director
Date: October 3, 2005 By: /s/ Willem F. Specht
-----------------------------
Willem F. Specht, Director
25