U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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)
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 November 10, 2005, 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
September 30, 2005 (unaudited)
and June 30, 2005 3
Consolidated Statements of Operations
for the three month periods ended
September 30, 2005 and 2004 (unaudited) 4
Consolidated Statements of Changes in
Stockholders' Equity and Comprehensive
Loss for the three month periods ended
September 30, 2005 and 2004 (unaudited) 5
Consolidated Statements of Cash Flows
for the three month periods ended
September 30, 2005 and 2004 (unaudited) 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 11
ITEM 3. CONTROLS AND PROCEDURES 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 19
2
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2005 2005
----------------- -----------------
(derived from
audited financial
statements)
ASSETS
CURRENT ASSETS
Cash and cash equivalents including $191,698 to be used
to pay related party buyer $ 388,495 $ 870,684
Prepaid expenses and other current assets 9,592 26,588
----------------- -----------------
$ 398,087 $ 897,272
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,633 $ 11,655
Due to related party buyer of discontinued operations 191,698 620,798
Accrued expenses and other liabilities 47,482 88,090
----------------- -----------------
Total current liabilities 240,813 720,543
----------------- -----------------
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 10,199,757 10,179,757
Accumulated deficit (9,968,747) (9,929,292)
Common stock in treasury at cost, 252,498 shares (83,918) (83,918)
----------------- -----------------
Total stockholders' equity 157,274 176,729
----------------- -----------------
$ 398,087 $ 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 September 30,
2005 2004*
----------------- -----------------
Net revenues -- --
General and administrative expenses $ 40,853 --
Interest income, net 1,398 --
----------------- -----------------
Loss from continuing operations $ (39,455) --
Discontinued operations
Loss from operations of discontinued business,
including loss on disposal of $69,657 -- $ (180,477)
----------------- -----------------
NET LOSS $ (39,455) $ (180,477)
================= =================
Net loss per common share - basic and diluted
From continuing operations $ (0.00) $ --
From discontinued operations -- (0.02)
----------------- -----------------
NET LOSS $ (0.00) $ (0.02)
================= =================
Weighted-average shares outstanding - basic and diluted 9,929,056 8,449,056
================= =================
*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
Three Months Ended September 30, 2005 and 2004 (unaudited)
Accumulated
Common stock Additional other Common Total Compre-
-------------------- paid-in Accumulated comprehensive stock in stockholders' hensive
Shares Amount capital deficit income (loss) treasury equity loss
-----------------------------------------------------------------------------------------------------------
Balances at
July 1, 2004 8,701,554 $ 8,702 $10,104,325 ($9,116,951) $ 51,422 ($83,918) $ 963,580
Net loss (180,477) (180,477) $(180,477)
Change in unrealized
gain on marketable
securities (51,422) (51,422) (51,422)
---------
Comprehensive loss $(231,899)
=========
----------------------------------------------------------------------------------------------
Balances at
September 30, 2004 8,701,554 $ 8,702 $10,104,325 $(9,297,428) $ -- $(83,918) $ 731,681
==============================================================================================
Balances at
July 1, 2005 10,181,554 10,182 10,179,757 (9,929,292) (83,918) 176,729
Imputed contribution
to capital for
accounting services
provided by Buyer 20,000 20,000
Net loss (39,455) (39,455) $ (39,455)
---------
Comprehensive loss $ (39,455)
=========
----------------------------------------------------------------------------------------------
Balances at
September 30, 2005 10,181,554 10,182 10,199,757 (9,968,747) -- (83,918) 157,274
==============================================================================================
The accompanying notes are an integral part of these statements.
5
clickNsettle.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three months ended September 30,
2005 2004*
----------------- -----------------
Cash flows from operating activities
Net loss $ (39,455) $ (180,477)
Adjustments to reconcile net loss to net cash used in
operating activities
Imputed contribution to capital for accounting services
provided by Buyer 20,000
Increase in assets and liabilities of discontinued
operations, net 84,956
Changes in operating assets and liabilities
Decrease in prepaid expenses and other current assets 16,996
Decrease in amount due to related party buyer of
discontinued operations (429,100)
Decrease in accounts payable, accrued expenses
and other liabilities (50,630)
----------------- -----------------
Net cash used in operating activities (482,189) (95,521)
----------------- -----------------
Cash flows from investing activities
Net cash provided by investing activities of
discontinued operations -- 331,470
----------------- -----------------
Net cash provided by investing activities -- 331,470
----------------- -----------------
Cash flows from financing activities
----------------- -----------------
Net cash used in financing activities -- --
----------------- -----------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (482,189) 235,949
Cash and cash equivalents at beginning of period 870,684 730,869
----------------- -----------------
Cash and cash equivalents at end of period $ 388,495 $ 966,818
================= =================
*Reclassifed. See Note 2.
The accompanying notes are an integral part of these statements.
6
CLICKNSETTLE.COM, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended September 30, 2005
(Unaudited)
1. The consolidated balance sheet as of September 30, 2005 and the related
consolidated statements of operations for the three month periods ended
September 30, 2005 and 2004 have been prepared by clickNsettle.com, Inc.,
including the accounts of its wholly-owned subsidiaries. In the opinion of
management, all adjustments necessary to present fairly the financial position
as of September 30, 2005 and for all periods presented, consisting of normal
recurring adjustments, have been made. Results of operations for the three-month
period ended September 30, 2005 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 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. 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.
2. In July 2004, the Board of Directors decided to explore strategic
alternatives for the Company in an effort to protect shareholder value.
On October 18, 2004, the Company entered into a definitive asset purchase
agreement with National Arbitration and Mediation, Inc. (the "Buyer"), a company
affiliated with the Company's Chief Executive Officer, Roy Israel. The agreement
provided that the Buyer would acquire the assets of the Company's dispute
resolution business (the "ADR business") and assume all current and future
liabilities and commitments of the ADR business. The agreement also 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 has been and 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 had 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
7
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 $15,400 in total as of September
30, 2005). The Buyer has assumed the remaining payments due on the lease of a
postage meter (which approximated $350 in total as of September 30, 2005) until
such time as the lessor issues a release of liability to the Company or the
lease expires. Also, as of September 30, 2005, the Company remained contingently
liable for additional payables and other items of approximately $272,600 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 months ended September 30, 2004 include
the following:
Three months ended September 30,
2004
--------------------------------
Loss from operations of discontinued business ($110,820)
Loss from disposal: Transaction costs of sale (69,657)
---------
Loss from discontinued operations ($180,477)
=========
As the sale was not completed until January 13, 2005, the loss from disposal
through September 30, 2004 included professional fees to an investment banking
firm and legal fees related to services rendered in connection with the sale of
the Company's ADR business.
The results from discontinued operations for the three months ended September
30, 2004 follow:
Three months ended
September 30, 2004
------------------
Net Revenues $ 770,394
---------
Operating costs and expenses
Costs of services 166,736
Sales and marketing expenses 253,597
General and administrative expenses 508,964
Loss on impairment of furniture and equipment 1,066
---------
930,363
---------
Loss from operations (159,969)
---------
Other Income
Investment income 45,701
Interest and dividends 2,935
Other income 513
---------
49,149
---------
Loss from operations of discontinued business $(110,820)
=========
8
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. Although the liabilities and assets
other than cash were transferred to the Buyer as of January 13, 2005, all of the
cash balances have yet to be transferred as of September 30, 2005. As a result,
the accompanying balance sheet shows cash and cash equivalents of $388,495.
However, as of September 30, 2005, the Company has a balance due to the Buyer in
the amount of $191,698. 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 three
months ended September 30, 2005 and 2004 was $2,155 and $0, respectively. As of
September 30, 2005, the total accrued interest charges were $6,284, all of which
was accrued and unpaid. A portion of the total balance due to the Buyer, in the
amount of $50,000, was transferred to the Buyer in November 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
three months ended September 30, 2004, the Company incurred $69,657 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.
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
6,090,290, at September 30, 2005 and 2004, respectively, would be antidilutive
as the Company incurred net losses for the three month periods ended September
30, 2005 and 2004.
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 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.
9
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 following 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.
Three months ended September 30,
2005 2004
----------------- -----------------
Net loss, as reported $ (39,455) $ (180,477)
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards,
net of related tax effects -- (12,993)
----------------- -----------------
Proforma net loss $ (39,455) $ (193,470)
----------------- -----------------
Net loss per common share:
Basic and diluted - as reported $ (0.00) $ (0.02)
Basic and diluted - pro forma $ (0.00) $ (0.02)
During the three-month periods ended September 30, 2005 and 2004, the Company
did not grant any options and no options were exercised during such three-month
periods, respectively.
5. 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 31,
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
10
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 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.
We have Recent, and Anticipate Continuing, Losses and have Going Concern
Considerations
We have incurred operating losses during the last nine years and through
September 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. 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.
11
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.
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 November 10, 2005. 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
12
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 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 substantially lesser percentage ownership interest in the
Company following any merger or acquisition. 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 target 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.
First Quarter Ended September 30, 2005 Compared to First Quarter Ended September
30, 2004
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 September 30, 2004 have been
reclassified to show the results of operations as discontinued operations.
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
$39,455 for the three months ended September 30, 2005 versus $0 for the three
months ended September 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 subsequent to the sale of its
13
operating business. Such expenses include insurance, audit fees and legal costs.
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 $20,000, were performed from July 1, 2005
through September 30, 2005 and included the preparation of the June 30, 2005
financial statements and related year-end 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. There was no loss from continuing
operations in the three months ended September 30, 2004 as the results of
operations for that period have been reclassified as discontinued operations.
Loss from discontinued operations. Loss from discontinued operations was
$0 for the three months ended September 30, 2005 versus $180,477 for the three
months ended September 30, 2004. The loss for the three months ended September
30, 2004 includes transaction costs incurred to affect the sale. The transaction
costs incurred through September 30, 2004 were $69,657 and included professional
fees to an investment banking firm 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 three months ended September 30,
2004 was $110,820 and includes net revenues and net expenses of $770,394 and
$930,363 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. 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 three months ended September 30, 2004, 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.
Income Taxes. Tax benefits resulting from net losses incurred for the
three months ended September 30, 2005 and 2004 were not recognized as we
recorded a full valuation allowance against the net operating loss carryforwards
during the periods.
Net Loss. For the three months ended September 30, 2005, we had a net loss
of $39,455 as compared to a net loss of $180,477 for the three months ended
September 30, 2004. 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 September 30, 2004 included
$69,657 of transaction costs incurred in connection with the sale of the ADR
business.
Liquidity and Capital Resources
At September 30, 2005, the Company had a working capital surplus of
$157,274 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 $482,189 for the three months
ended September 30, 2005 versus $95,521 for the three months ended September 30,
2004. Cash used in operating activities (including discontinued operations)
principally increased as the Company paid down a large portion of the amount due
to the Buyer of the ADR operations during August 2005.
14
Net cash provided by investing activities was $0 for the three months
ended September 30, 2005 versus $331,470 for the three months ended September
30, 2004. The change in cash from investing activities was principally due to
the fact that during the first quarter 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.
On January 13, 2005, at the annual meeting of shareholders, the Company's
shareholders approved the sale of the ADR business and such sale was immediately
consummated thereafter. 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 $15,400 in
total as of September 30, 2005). The Buyer has assumed the remaining payments
due on the lease of a postage meter (which approximated $350 in total as of
September 30, 2005) until such time as the lessor issues a release of liability
to the Company or the lease expires. Also, as of September 30, 2005, the Company
remained contingently liable for additional payables and other items of
approximately $272,600 assumed by the Buyer but not paid as of that date.
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. 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 has been and will be used for continued
public reporting obligations and potentially to acquire a new operating business
or enter into a merger transaction. Although the liabilities and assets other
than cash were transferred to the Buyer as of January 13, 2005, all of the cash
balances have yet to be transferred as of September 30, 2005. As a result, the
accompanying balance sheet shows cash and cash equivalents of $388,495. However,
as of September 30, 2005, the Company has a balance due to the Buyer in the
amount of $191,698. 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 three months ended
September 30, 2005 and 2004 was $2,155 and $0, respectively. As of September 30,
2005, the total accrued interest charges were $6,284, all of which was accrued
and unpaid. A portion of the total balance due to the Buyer, in the amount of
$50,000, was transferred to the Buyer in November 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 three months ended September 30, 2004, the Company incurred $69,657
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.
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
15
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.
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
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.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of matters to a Vote of Security Holders
Not applicable.
Item 5. Other information.
Not applicable.
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)**
______________
(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.
17
(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.
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
clickNsettle.com, Inc.
Date: November 10, 2005 By: /s/ Roy Israel
--------------
Roy Israel, Chairman of the
Board, CEO and President
Date: November 10, 2005 By: /s/ Patricia Giuliani-Rheaume
-----------------------------
Patricia Giuliani-Rheaume, Vice President,
Chief Financial Officer and Treasurer
19