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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2006
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number: 0-21419
clickNsettle.com, Inc.
----------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 23-2753988
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 |_|
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 the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of May 9, 2006, 9,929,056 shares
of common stock of the issuer were outstanding.
Transitional Small Business Disclosure Format Yes |_| No |X|
1
CLICKNSETTLE.COM, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
---
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at
March 31, 2006 (unaudited)
and June 30, 2005 3
Consolidated Statements of Operations
for the three and nine month periods ended
March 31, 2006 and 2005 (unaudited) 4
Consolidated Statements of Changes in
Stockholders' Equity and Comprehensive
Loss for the nine month periods ended
March 31, 2006 and 2005 (unaudited) 5
Consolidated Statements of Cash Flows
for the nine month periods ended
March 31, 2006 and 2005 (unaudited) 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12
ITEM 3. CONTROLS AND PROCEDURES 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
2
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
2006 2005
------------ ------------
(derived from
audited financial
statements)
ASSETS
CURRENT ASSETS
Cash and cash equivalents including amount to pay related party
buyer of $0 and $620,798, respectively $ 133,048 $ 870,684
Due from related party buyer of discontinued operations 1,285 --
Prepaid expenses and other current assets 17,466 26,588
------------ ------------
$ 151,799 $ 897,272
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 352 $ 11,655
Due to related party buyer of discontinued operations -- 620,798
Accrued expenses and other liabilities 28,584 88,090
------------ ------------
Total current liabilities 28,936 720,543
------------ ------------
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 10,182
Additional paid-in capital 10,208,757 10,179,757
Accumulated deficit (10,012,158) (9,929,292)
Common stock in treasury at cost, 252,498 shares (83,918) (83,918)
------------ ------------
Total stockholders' equity 122,863 176,729
------------ ------------
$ 151,799 $ 897,272
============ ============
The accompanying notes are an integral part of these statements.
3
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended March 31, Nine months ended March 31,
2006 2005* 2006 2005*
----------- ----------- ----------- -----------
Net revenues -- -- -- --
General and administrative expenses $ 24,034 50,533 $ 86,811 $ 50,533
Interest income, net 1,348 611 3,945 611
----------- ----------- ----------- -----------
Loss from continuing operations $ (22,686) (49,922) $ (82,866) (49,922)
Discontinued operations
Loss from operations of discontinued business, including
loss on disposal of $424,923 and $531,294, respectively -- $ (473,614) $ (713,186)
----------- ----------- ----------- -----------
NET LOSS $ (22,686) $ (523,536) $ (82,866) $ (763,108)
=========== =========== =========== ===========
Net loss per common share - basic and diluted
From continuing operations $ (0.00) $ (0.01) $ (0.01) $ (0.01)
From discontinued operations -- (0.05) -- (0.08)
----------- ----------- ----------- -----------
NET LOSS $ (0.00) $ (0.06) $ (0.01) $ (0.09)
=========== =========== =========== ===========
Weighted-average shares outstanding - basic and diluted 9,929,056 8,969,056 9,929,056 8,619,859
=========== =========== =========== ===========
*Reclassified. See Note 2.
The accompanying notes are an integral part of these statements.
4
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
Nine Months Ended March 31, 2006 and 2005 (unaudited)
Accumulated
Common stock Additional other
------------ paid-in Accumulated comprehensive
Shares Amount capital deficit income (loss)
------------- ------------- ------------- ------------- -------------
Balances at July 1, 2004 8,701,554 $ 8,702 $ 10,104,325 $ (9,116,951) $ 51,422
Exercise of stock options 600,000 600 24,396
Net loss (763,108)
Change in unrealized gain on
marketable securities (51,422)
Comprehensive loss
------------- ------------- ------------- ------------- -------------
Balances at March 31, 2005 9,301,554 9,302 10,128,721 (9,880,059) --
============= ============= ============= ============= =============
Balances at July 1, 2005 10,181,554 10,182 10,179,757 (9,929,292)
Imputed contribution to
capital for accounting
services provided by Buyer 29,000
Net loss (82,866)
Comprehensive loss
------------- ------------- ------------- ------------- -------------
Balances at March 31, 2006 10,181,554 $ 10,182 $ 10,208,757 $ (10,012,158) $ --
============= ============= ============= ============= =============
Common Total Compre-
stock in stockholders' hensive
treasury equity loss
------------- ------------- -------------
Balances at July 1, 2004 $ (83,918) $ 963,580
Exercise of stock options 24,996
Net loss (763,108) $ (763,108)
Change in unrealized gain on
marketable securities (51,422) (51,422)
-------------
Comprehensive loss $ (814,530)
=============
------------- -------------
Balances at March 31, 2005 (83,918) 174,046
============= =============
Balances at July 1, 2005 (83,918) 176,729
Imputed contribution to
capital for accounting
services provided by Buyer 29,000
Net loss (82,866) $ (82,866)
-------------
Comprehensive loss $ (82,866)
=============
------------- -------------
Balances at March 31, 2006 $ (83,918) $ 122,863
============= =============
The accompanying notes are an integral part of these statements.
5
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended March 31,
2006 2005*
----------- -----------
Cash flows from operating activities
Net loss $ (82,866) $ (763,108)
Loss from discontinued operations -- 713,186
----------- -----------
Loss from continuing operations (82,866 (49,922)
Adjustments to reconcile net loss from continuing operations to net cash used in
operating activities
Imputed contribution to capital for accounting services provided by Buyer 29,000
Changes in operating assets and liabilities
Decrease (increase) in prepaid expenses and other current assets 9,122 (42,038)
(Decrease) in amount due to related party buyer of discontinued operations (622,083)
(Decrease) increase in accounts payable, accrued expenses and other liabilities (70,809) 90,209
----------- -----------
Net cash used in continuing operations (737,636) (1,751)
Net cash used in discontinued operations -- (445,413)
----------- -----------
Net cash used in operating activities (737,636) (447,164)
----------- -----------
Cash flows from investing activities
Net cash provided by investing activities of discontinued operations -- 531,470
----------- -----------
Net cash provided by investing activities -- 531,470
----------- -----------
Cash flows from financing activities
Procceds from exercise of stock options 24,996
----------- -----------
Net cash provided by financing activities -- 24,996
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (737,636) 109,302
Cash and cash equivalents at beginning of period 870,684 730,869
----------- -----------
Cash and cash equivalents at end of period $ 133,048 $ 840,171
=========== ===========
Non-cash investing and financing activities
Loss on sale of discontinued operations (See Note 2) $ -- $ 419,768
*Revised. See Note 2.
The accompanying notes are an integral part of these statements.
6
CLICKNSETTLE.COM, INC. and Subsidiaries
Notes to Consolidated Financial Statements
Nine months ended March 31, 2006
(Unaudited)
1. The consolidated balance sheet as of March 31, 2006 and the related
consolidated statements of operations for the three and nine month periods ended
March 31, 2006 and 2005 have been prepared by clickNsettle.com, Inc. In the
opinion of management, all adjustments necessary to present fairly the financial
statements as of March 31, 2006 and for all periods presented, consisting of
normal recurring adjustments, have been made. Results of operations for the
three and nine month periods ended March 31, 2006 are not necessarily indicative
of the operating results expected for the full year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended June 30,
2005 included in the Company's Annual Report on Form 10-KSB. The accounting
policies used in preparing these consolidated financial statements are the same
as those described in the June 30, 2005 consolidated financial statements.
As of January 1, 2006, the Company transferred ownership of its remaining
wholly-owned subsidiary, Michael Marketing LLC, to National Arbitration and
Mediation, Inc. (see Note 2 below). Such subsidiary was inactive and had no
operations or net assets. Previously, the Company dissolved its other
wholly-owned subsidiary, clickNsettle.com LLC, as it also was inactive and had
no operations or net assets. As such, the Company no longer owns any
subsidiaries.
As a result of continued losses, the use of cash to operate as a publicly-held
shell company 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 (see Note 2), 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. The accompanying consolidated financial statements do not
include any adjustments that may result should the Company be unable to continue
as a going concern.
2. On January 13, 2005, at the annual meeting of shareholders, the Company's
shareholders approved the sale of the assets of the Company's dispute resolution
business (the "ADR business") and the assumption of all current and future
liabilities and commitments of the ADR business to National Arbitration and
Mediation, Inc. (the "Buyer"), a company owned by the Company's Chief Executive
Officer, Roy Israel. 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 $8,800 in total as of March 31,
2006). Also, as of March 31, 2006, the Company remained contingently liable for
additional payables and other items of approximately $249,400 assumed by the
Buyer but not paid as of that date.
The loss from discontinued operations, including the loss on disposal of the
discontinued operations, for the three and nine months ended March 31, 2005
includes the following:
7
Three months Nine months
Ended 3/31/05 Ended 3/31/05
--------- ---------
Loss from operations of discontinued business ($ 48,691) ($181,892)
Loss from disposal:
Loss on sale* ($419,768) ($419,768)
Transaction costs of sale (5,155) (111,526)
--------- ---------
Loss from disposal ($424,923) ($531,294)
--------- ---------
Loss from discontinued operations ($473,614) ($713,186)
========= =========
*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 three and nine months ended
March 31, 2005 follow:
Three months ended Nine months ended
March 31, 2005 March 31, 2005
----------- -----------
Net Revenues $ 58,649 $ 1,807,570
----------- -----------
Operating costs and expenses
Costs of services 12,693 395,554
Sales and marketing expenses 30,951 593,027
General and administrative expenses 64,163 1,037,600
Loss on impairment of furniture and equipment 0 15,885
----------- -----------
107,807 2,042,066
----------- -----------
Loss from operations (49,158) (234,496)
----------- -----------
Other Income
Investment income 45,701
Interest and dividends 376 5,777
Other income 91 1,126
----------- -----------
467 52,604
----------- -----------
Loss from operations of discontinued business $ (48,691) $ (181,892)
=========== ===========
Pursuant to the asset purchase agreement, 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. 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. The liabilities and assets other
than cash were transferred to the Buyer as of January 13, 2005, while the cash
balances were transferred thereafter. As such, the Company incurred interest
expense on the unpaid balance. The interest rate charged was equal to the
interest rate earned on invested balances. The interest charge for the three
months ended March 31, 2006 and 2005 was $0 and $1,892, respectively. The
interest charge for the nine months ended March 31, 2006 and 2005 was $3,250 and
$1,892, respectively. Interest expense is netted against interest income in
continuing operations on the accompanying statement of operations. The cash
balances were fully transferred from the Company to the Buyer during the period
from August 2005 through February 2006.
8
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
three and nine months ended March 31, 2005, the Company incurred $5,155 and
$111,526, respectively, of such costs, which are included in the loss on sale of
discontinued operations on the accompanying statement of operations.
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.
The prior period financial statements have been reclassified to show the assets,
liabilities and results of operations as discontinued operations. Additionally,
the Company has revised the statement of cash flows to separately disclose the
operating, investing and financing portions of the cash flows attributable to
the discontinued operations, which in prior periods were reported on a combined
basis.
3. Basic earnings per share are based on the weighted average number of common
shares outstanding without consideration of potential common stock. Diluted
earnings per share are based on the weighted-average number of common and
potential common shares outstanding. The calculation takes into account the
shares that may be issued upon exercise of stock options and warrants, reduced
by the shares that may be repurchased with the funds received from the exercise,
based on the average price during the period. Diluted earnings per share is the
same as basic earnings per share as potential common shares of 448,990 and
5,322,888, at March 31, 2006 and 2005, respectively, would be antidilutive, as
the Company incurred net losses for the three and nine month periods ended March
31, 2006 and 2005.
4. 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, an amendment of FASB Statement No.
123" ("SFAS No. 148"). SFAS No. 148 encourages, but does not require, companies
to record compensation costs 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.
9
Three months ended March 31,
2006 2005
---------- ---------
Net loss, as reported $ (22,686) $(523,536)
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards,
net of related tax effects -- (37,462)
---------- ---------
Proforma net loss $ (22,686) $(560,998)
========== =========
Net loss per common share:
Basic and diluted - as reported $ (0.00) $ (0.06)
Basic and diluted - pro forma $ (0.00) $ (0.06)
========== =========
Nine months ended March 31,
2006 2005
---------- ---------
Net loss, as reported $ (82,866) $(763,108)
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards,
net of related tax effects -- (63,448)
---------- ---------
Proforma net loss $ (82,866) $(826,556)
========== =========
Net loss per common share:
Basic and diluted - as reported $ (0.01) $ (0.09)
Basic and diluted - pro forma $ (0.01) $ (0.10)
========== =========
The Company adopted, effective December 31, 2002, the disclosure provisions of
SFAS No. 148 and continues 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.
Accordingly, compensation expense cost 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. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model. The above table illustrates the effect on net loss and loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation. 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 "Stock Plan"), all outstanding unvested
employee stock options vested as of that date. 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.
During the three and nine month periods ended March 31, 2006 and 2005, the
Company did not grant any options. During those same periods, 600,000 options
were exercised during the three and nine month periods ended March 31, 2005.
Additionally, as of April 1, 2006, the Stock Plan automatically terminated in
accordance with its original plan document. The outstanding stock options as of
April 1, 2006 are exercisable through the termination date of each option
agreement.
10
In December 2004, the FASB issued Statement of Financial Accounting Standard No.
123 (R), "Share-based Payment" ("SFAS No. 123R"). SFAS No. 123 (R) establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services. This statement focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123 (R) 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. 123 (R), only
certain pro forma disclosures of fair value were required. SFAS No. 123 (R) 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.
5. The components of comprehensive loss are as follows:
Three months ended March 31,
2006 2005
--------- ---------
Net loss $ (22,686) $(523,536)
Change in unrealized gain (loss)
on marketable securities
--------- ---------
Comprehensive loss $ (22,686) $(523,536)
========= =========
Nine months ended March 31,
2006 2005
--------- ---------
Net loss $ (82,866) $(763,108)
Change in unrealized gain (loss)
on marketable securities
Reclassification adjustment - loss
included in net loss (51,422)
--------- ---------
Comprehensive loss $ (82,866) $(814,530)
========= =========
11
\
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
From time to time, including in this quarterly report on Form 10-QSB,
clickNsettle.com, Inc. (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.
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 Shall Suffer Significant Dilution
On January 13, 2005, the Company sold its dispute resolution business (the
"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 is expected that such transaction will be accomplished by the
issuance of stock of the Company, resulting in significant dilution to the
current stockholders.
We have Recent, and Anticipate Continuing, Losses and have Going Concern
Considerations
We have incurred operating losses during the last nine years and through
March 31, 2006. 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. There can be no assurances that the
cash on hand will be sufficient to cover such costs. 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 cash to operate as a publicly-held shell
company and the uncertainty as to the Company's ability to effect a merger or a
similar transaction with the intent to acquire a new operating business, there
is substantial doubt about the Company's ability to continue as a going concern.
12
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 May 9, 2006. Of that
number, Mr. Israel, our CEO, 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 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.
RESULTS OF OPERATIONS
Overview
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.
Selection of a Business
The Company is now considering business opportunities to combine with 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
13
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 be effective 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 transaction, 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
substantially lesser percentage ownership interest in the Company following any
transaction. Typically, in these transactions, which are commonly called reverse
merger acquisitions, voting control of the merged company changes from the
stockholders of the pre-existing public company to those of the target company.
Any transaction 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.
Third Quarter Ended March 31, 2006 Compared to Third Quarter Ended March 31,
2005
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 quarter ended March 31, 2005 have been reclassified
to show the results of operations as discontinued operations. Currently, the
Company is actively searching for a new operating business to combine with.
There can be no assurances that any such transaction will be consummated.
Loss from continuing operations. The loss from continuing operations was
$22,686 for the three months ended March 31, 2006 versus $49,922 for the three
months ended March 31, 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 subsequent to the sale of its
operating business. Such expenses include insurance, audit and legal fees.
Continuing operations in fiscal year 2006 also reflects the cost of accounting
services that were contributed by National Arbitration and Mediation, Inc. ("the
Buyer") pursuant to the asset purchase agreement. Such services, valued at
$4,000, were performed from January 1, 2006 through March 31, 2006 and included
the preparation of the December 31, 2005 quarterly financial statements and
related Securities and Exchange Commission (the "SEC") filings. Such value has
been recorded as an imputed charge on the statement of operations with an
equivalent offset to additional paid-in capital. The loss from continuing
operations in the prior period reflects similar expenses incurred after January
13, 2005 (the date of the sale of the operating business) through March 31,
2005. Such expenses declined in the current year period as compared to the prior
year period as the Company was able to secure reduced fees for professional
services, etc., as there is no operating business in the current fiscal year.
Loss from discontinued operations. Loss from discontinued operations was
$0 for the three months ended March 31, 2006 versus $473,614 for the three
months ended March 31, 2005. The loss for the three months ended March 31, 2005
includes the loss on the sale of the ADR business as well as the transaction
costs incurred to affect the sale. The loss on the sale was $419,768 and the
14
transaction costs incurred were $5,155, totaling $424,923. The loss from
operations of the discontinued business for the three months ended March 31,
2005 was $48,691 and includes net revenues and net expenses of $58,649 and
$107,807, respectively. Offsetting this loss was interest, dividends and other
income of $467.
Income Taxes. Tax benefits resulting from net losses incurred for the
three months ended March 31, 2006 and 2005 were not recognized as the Company's
annual effective tax rate for each of these interim periods was estimated to be
0%.
Net Loss. For the three months ended March 31, 2006, we had a net loss of
$22,686 as compared to a net loss of $523,536 for the three months ended March
31, 2005. The loss decreased as the Company is no longer operating the ADR
business which had not been profitable in the prior quarterly period.
Additionally, the loss in the three months ended March 31, 2005 included the
loss on the sale of the ADR business and related transaction costs of $424,923.
Nine months Ended March 31, 2006 Compared to Nine months Ended March 31, 2005
Loss from continuing operations. The loss from continuing operations was
$82,866 for the nine months ended March 31, 2006 versus $49,922 for the nine
months ended March 31, 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 subsequent to the sale of its
operating business. Such expenses include insurance, audit and legal fees and
the cost of an advertisement to publicize the availability of the Company's
publicly traded shell. Continuing operations in fiscal year 2006 also reflects
the cost of accounting services that were contributed by the Buyer pursuant to
the asset purchase agreement. Such services, valued at $29,000, were performed
from July 1, 2005 through March 31, 2006 and included the preparation of the
June 30, 2005 annual financial statements and the September 30 and December 31,
2005 quarterly financial statements and related SEC filings. Such value has been
recorded as an imputed charge on the statement of operations with an equivalent
offset to additional paid-in capital. The loss from continuing operations in the
prior period reflects similar expenses incurred after January 13, 2005 (the date
of the sale of the operating business) through March 31, 2005, a period of
approximately two and one-half months. Such expenses were lower in the prior
year period as compared to the current year period, as the current year period
reflects nine months of such activity versus two and one-half months in the
prior year period.
Loss from discontinued operations. Loss from discontinued operations was
$0 for the nine months ended March 31, 2006 versus $713,186 for the nine months
ended March 31, 2005. The loss for the nine months ended March 31, 2005 includes
the loss on the sale of the ADR business as well as the transaction costs
incurred to affect the sale. The loss on the sale was $419,768 and the
transaction costs incurred were $111,526, totaling $531,294. The transaction
costs incurred during the nine months ended March 31, 2005 included professional
fees to an investment-banking firm and accounting, tax advice and legal fees
related to services rendered in connection with the sale of the Company's ADR
business. The loss from operations of the discontinued business for the nine
months ended March 31, 2005 was $181,892 and includes net revenues and net
expenses of $1,807,570 and $2,042,066, respectively. Offsetting this loss was
gains on sales of investments of $45,701, as the Company sold its entire
portfolio of marketable securities during the first quarter of fiscal year 2005
and interest, dividends and other income of $6,903.
Income Taxes. Tax benefits resulting from net losses incurred for the nine
months ended March 31, 2006 and 2005 were not recognized as the Company's
effective tax rate for each of these interim periods was estimated to be 0%.
15
Net Loss. For the nine months ended March 31, 2006, we had a net loss of
$82,866 as compared to a net loss of $763,108 for the nine months ended March
31, 2005. The loss decreased, as the Company is no longer operating the ADR
business which had not been profitable in the prior nine-month period.
Additionally, the loss in the nine months ended March 31, 2005 included the loss
on the sale of the ADR business and related transaction costs of $531,294.
Liquidity and Capital Resources
At March 31, 2006, the Company had a working capital surplus of $122,863
as compared to $176,729 at June 30, 2005. The decrease in working capital
occurred primarily as a result of the net loss. The Company has no operating
business.
Net cash used in operating activities was $737,636 for the nine months
ended March 31, 2006 versus $447,164 for the nine months ended March 31, 2005.
Cash used in continuing operations increased by $735,885 principally because the
Company paid all of the amount due the Buyer of the ADR operations during the
period from August 2005 through February 2006. Offsetting this increase was a
decline of $445,413 as such amount was used by discontinued operations in the
prior year period.
Net cash provided by investing activities was $0 for the nine months ended
March 31, 2006 versus $531,470 for the nine months ended March 31, 2005. There
was no cash provided from investing activities from continuing operations in
both periods. The change in cash from investing activities of discontinued
operations was principally due to the fact that during the first half of 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 nine months ended
March 31, 2006 was $0 versus $24,996 during the nine months ended March 31,
2005. In the prior year period, the President of the Company exercised stock
options in January 2005.
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 cash to operate as a
publicly-held shell company and the uncertainty as to the Company's ability to
effect a merger or a similar transaction with the intent to acquire a new
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. The accompanying consolidated financial statements do not
include any adjustments that may result should the Company be unable to continue
as a going concern.
Item 3. 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 Officer ("CFO") and others in the
16
Company involved in the preparation of this quarterly 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 quarterly 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.
17
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
None.
Item 6. 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 (3)
3.1 (e) Certificate of Amendment of Certificate of Incorporation,
as amended (4)
3.1 (f) Certificate of Amendment of Certificate of Incorporation, second
amendment (5)
3.2 By-Laws of the Company, as amended (2)
10.1 1996 Stock Option Plan, amended and restated (2)
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)**
18
----------
(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
Form 8-K filed on June 21, 2000.
(4) Incorporated herein in its entirety by reference to the Company's
2001 Annual Report on Form 10-KSB.
(5) Incorporated herein in its entirety by reference to the Company's
2004 Annual Report on Form 10-KSB.
** Filed herewith.
B. Reports on Form 8-K:
None.
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SIGNATURES
In accordance with the requirements 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: May 11, 2006 By: /s/ Roy Israel
Roy Israel, Chairman of the
Board, CEO and President
Date: May 11, 2006 By: /s/ Patricia Giuliani-Rheaume
------------------------------------------
Patricia Giuliani-Rheaume, Vice President,
Chief Financial Officer and Treasurer
20