UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) {X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2004 { } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to ----- ----- Commission file number: 0-14807 AMERICAN CLAIMS EVALUATION, INC. (Exact name of small business issuer as specified in its charter) New York 11-2601199 ---------------------------- --------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Jericho Plaza, Jericho, New York 11753 ------------------------------------------ (Address of principal executive offices) (516) 938-8000 -------------- (Issuer's telephone number) As of February 4, 2005, there were 4,859,800 shares of the issuer's common stock, $.01 par value, outstanding. Transitional Small Business Disclosure Format (Check one): Yes No X ----- ----- AMERICAN CLAIMS EVALUATION, INC. INDEX Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 2004 (unaudited) and March 31, 2004 3 Consolidated Statements of Operations for the Three Months and Nine Months ended December 31, 2004 and 2003 (unaudited) 4 Consolidated Statements of Cash Flows for the Nine Months ended December 31, 2004 and 2003 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 - 7 Item 2. Management's Discussion and Analysis or Plan of Operation 8 - 10 Item 3. Controls and Procedures 10 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits 11 SIGNATURES 12 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Consolidated Balance Sheets Dec. 31, 2004 Mar. 31, 2004 ------------------- ------------------ (Unaudited) Assets ------ Current assets: Cash and cash equivalents $ 7,471,244 $ 6,763,920 Accounts receivable, net 109,146 125,697 Prepaid expenses 14,553 35,930 Prepaid and recoverable income taxes - 272 ------------------- ------------------ Total current assets 7,594,943 6,925,819 Property and equipment, net 41,116 55,917 ------------------- ------------------ Total assets $ 7,636,059 $ 6,981,736 =================== ================== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 14,081 $ 44,357 Accrued expenses 89,205 96,994 Income taxes payable 278 - ------------------- ------------------ Total current liabilities 103,564 141,351 ------------------- ------------------ Stockholders' equity: Common stock, $.01 par value. Authorized 10,000,000 shares; issued 5,050,000 and 4,450,000 shares at Dec. 31, 2004 and March 31, 2004, respectively; outstanding 4,859,800 and 4,259,800 shares at Dec. 31, 2004 and March 31, 2004, respectively 50,500 44,500 Additional paid-in capital 4,579,699 3,515,699 Retained earnings 3,219,437 3,597,327 ------------------- ------------------ 7,849,636 7,157,526 Treasury stock, at cost (317,141) (317,141) ------------------- ------------------ Total stockholders' equity 7,532,495 6,840,385 ------------------- ------------------ Total liabilities and stockholders' equity $ 7,636,059 $ 6,981,736 =================== ================== See accompanying notes to consolidated financial statements. 3 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Consolidated Statements of Operations (Unaudited) Three months ended Nine months ended ----------------------------------- ----------------------------------- Dec.31, Dec.31, Dec.31, Dec.31, 2004 2003 2004 2003 ----------------- ---------------- ---------------- ----------------- Revenues $ 284,534 $ 285,708 $ 858,651 $ 900,072 Cost of services 143,384 137,753 428,495 428,225 ----------------- ---------------- ---------------- ----------------- Gross margin 141,150 147,955 430,156 471,847 Selling, general and administrative expenses 286,667 293,616 885,405 863,218 ----------------- ---------------- ---------------- ----------------- Operating loss (145,517) (145,661) (455,249) (391,371) Interest income 39,741 23,525 80,359 72,490 ----------------- ---------------- ---------------- ----------------- Loss before income tax expense (105,776) (122,136) (374,890) (318,881) Income tax expense 1,000 1,000 3,000 5,000 ----------------- ---------------- ---------------- ----------------- Net loss $(106,776) $(123,136) $(377,890) $(323,881) ================= ================ ================ ================= Net loss per share - basic $ (0.02) $ (0.03) $ (0.08) $ (0.08) ================= ================ ================ ================= Net loss per share - diluted $ (0.02) $ (0.03) $ (0.08) $ (0.08) ================= ================ ================ ================= Weighted average shares - basic 4,859,800 4,259,800 4,726,467 4,259,800 ================= ================ ================ ================= Weighted average shares - diluted 4,859,800 4,259,800 4,726,467 4,259,800 ================= ================ ================ ================= See accompanying notes to consolidated financial statements. 4 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited) Nine months ended --------------------------------------- Dec. 31, Dec. 31, 2004 2003 ------------------ ------------------ Cash flows from operating activities: Net loss $(377,890) $(323,881) ------------------ ------------------ Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 25,412 25,010 Deferred income taxes - 2,527 Changes in operating assets and liabilities: Accounts receivable 16,551 (1,133) Prepaid expenses 21,377 14,144 Prepaid and recoverable income taxes 272 7,464 Accounts payable (30,276) (574) Accrued expenses (7,789) (11,514) Income taxes payable 278 - ------------------ ------------------ 25,825 35,924 ------------------ ------------------ Net cash used in operating activities (352,065) (287,957) ------------------ ------------------ Cash flows from investing activities: Capital expenditures (10,611) (1,792) ------------------ ------------------ Net cash used in investing activities (10,611) (1,792) ------------------ ------------------ Cash flows from financing activities: Proceeds from exercise of stock options 1,070,000 - ------------------ ------------------ Net cash provided by financing activities 1,070,000 - ------------------ ------------------ Net increase (decrease) in cash and cash equivalents 707,324 (289,749) Cash and cash equivalents at beginning of period 6,763,920 7,179,340 ------------------ ------------------ Cash and cash equivalents at end of period $7,471,244 $6,889,591 ================== ================== Supplemental disclosure of cash flow information: Income taxes paid $ 2,450 $ 3,877 ================== ================== See accompanying notes to consolidated financial statements. 5 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) General - ------- The accompanying unaudited consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the information furnished reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows for the interim periods. Interim periods are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended March 31, 2004 and the notes thereto contained in the Company's Annual Report on Form 10-KSB, as filed with the Securities and Exchange Commission. Net Loss Per Share - ------------------ The following table sets forth the computation of basic and diluted net loss per share for the three months and nine months ended December 31, 2004 and 2003: Three months ended Nine months ended ------------------------------ ------------------------------ 12/31/04 12/31/03 12/31/04 12/31/03 -------------- -------------- -------------- -------------- Numerator: Net loss $ (106,776) $ (123,136) $ (377,890) $(323,881) ============== ============== ============== ============== Denominator: Denominator for basic net loss per share - weighted average shares 4,859,800 4,259,800 4,726,467 4,259,800 Effect of dilutive securities: Stock options - - - - -------------- -------------- -------------- -------------- Denominator for diluted net loss per share 4,859,800 4,259,800 4,726,467 4,259,800 ============== ============== ============== ============== Basic net loss per share $ (0.02) $ (0.03) $ (0.08) $ (0.08) ============== ============== ============== ============== Diluted net loss per share $ (0.02) $ (0.03) $ (0.08) $ (0.08) ============== ============== ============== ============== Potentially dilutive common stock equivalents consisting of employee stock options to purchase 908,500 and 1,508,500 shares as of December 31, 2004 and 2003, respectively, were not included in the diluted net loss per share calculations because their effect would have been anti-dilutive. 6 Stock Option Plans - ------------------ The Company has adopted the "disclosure only" provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, and will continue to use the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation expense has been recognized for the Company's stock option plans as the exercise price of the Company's stock option grants equaled or exceeded the fair value of the Company's common stock at the date of grant. Had compensation expense for the Company's stock option plans been determined based on the fair value at the grant date for awards during the three and nine months ended December 31, 2004 and 2003 consistent with the provisions of SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, and SFAS No. 123, the Company's net loss and net loss per share would have been increased to the pro forma amounts indicated below: Three months ended Nine months ended ------------------------------ ------------------------------ 12/31/04 12/31/03 12/31/04 12/31/03 -------------- -------------- -------------- -------------- Numerator: Net loss $ (106,776) $ (123,136) $ (377,890) $ (323,881) Deduct: Total stock-based employee compensation expense determined under fair value method for options granted (5,106) (32,492) (15,318) (97,477) -------------- -------------- -------------- -------------- Pro forma net loss $ (111,882) $ (155,628) $ (393,208) $ (421,358) ============== ============== ============== ============== Net loss per share: Basic and diluted - as reported $ (0.02) $ (0.03) $ (0.08) $ (0.08) ============== ============== ============== ============== Basic and diluted - pro forma $ (0.02) $ (0.04) $ (0.08) $ (0.10) ============== ============== ============== ============== In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004) Share-Based Payment, which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB No. 25 and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach to accounting in SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements as based on their fair values. SFAS No. 123(R) is effective beginning December 15, 2005. The Statement offers several alternatives for implementation. At this time, management has not made a decision as to the alternative it may select. 7 Item 2. Management's Discussion and Analysis or Plan of Operation. Critical Accounting Policies - ---------------------------- The Company makes estimates and assumptions in the preparation of its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company does not consider any of its accounting policies to be critical. Our significant accounting policies are described in Note 1 to the audited consolidated financial statements included in our annual report for the year ended March 31, 2004. The accounting policies used in preparing our interim condensed consolidated financial statements are the same as those described in our annual report. Results of Operations - Three Months and Nine Months ended December 31, 2004 and - -------------------------------------------------------------------------------- 2003 - ---- Revenues for the quarterly period ended December 31, 2004 were $284,534, which was consistent with the $285,708 reported for the three month period ended December 31, 2003. Revenues for the nine month period ended December 31, 2004 were approximately 4.6% less than the corresponding period ended December 31, 2003. This decrease was caused by a decline in referrals from the Washington State Department of Labor & Industries, the Company's largest client, and a reduction in cases referred from various self-insured clients during the first six months of the current fiscal year compared to the first six months of the prior fiscal year. Cost of services as a percentage of revenues for the three and nine month periods ended December 31, 2004 were 50.4% and 49.9%, respectively. These percentages represented increases over the 48.2% and 47.6% of revenues during the comparable periods ended December 31, 2003, respectively. The increase in cost of services resulted from a larger percentage of vocational rehabilitation services being performed by the Company's more experienced and higher paid consultants. Selling, general and administrative expenses for the quarter ended December 31, 2004 decreased slightly to $286,667 from $293,616 for the three months ended December 31, 2003. Selling, general and administrative expense for the nine months ended December 31, 2004 increased to $885,405 from $863,218 for the nine months ended December 31, 2003. During the nine months ended December 31, 2004, the Company's expenditures have increased as a result of increased travel costs and legal fees related to its acquisition search efforts. Interest income for the three and nine months ended December 31, 2004 increased to $39,741 and $80,539, respectively, from the $23,525 and $72,490 recorded during the three and nine months, respectively, ended December 31, 2003. These increases are directly related to the increase in cash available for investment as well as incrementally higher interest rates during the current fiscal year. 8 Liquidity and Capital Resources - ------------------------------- At December 31, 2004, the Company had working capital of $7,491,379 as compared to working capital of $6,784,468 at March 31, 2004. The Company believes that it has sufficient cash resources and working capital to meet its present cash requirements. During the nine months ended December 31, 2004, net cash used in operations of $352,065 consisted principally of a net loss of $377,890, offset by an increase in accounts payable of $30,276. Cash provided by financing activities during the nine months ended December 31, 2004 reflects $1,070,000 of proceeds related to the issuance of common stock pursuant to the exercise of options to purchase 600,000 shares of common stock. On August 20, 2004, the Company entered into a seven-year non-cancelable operating sublease commencing December 1, 2004, for office space with American Para Professional Systems, Inc. ("APPS"), an entity under the control of the Company's Chairman of the Board. Basic rent under the sublease has been established as a pass-through with the Company's cost being fixed at a cost equal to the pro-rated rent payable for the subleased space by APPS to the building's landlord. Minimum lease payments under non-cancelable leases and subleases, exclusive of future escalation charges, for the remainder of fiscal 2005 and fiscal years ending thereafter are as follows: 2005 $ 22,000 2006 50,000 2007 38,000 2008 39,000 2009 40,000 Thereafter 112,000 ------------- $ 301,000 ============= The Company continues its review of strategic alternatives for maximizing shareholder value. Potential acquisitions will be evaluated based on their merits within the Company's current line of business, as well as other fields. Off-Balance Sheet Arrangements - ------------------------------ The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to the Company. 9 Market Risk - ----------- The Company is exposed to market risk related to changes in interest rates. Most of the Company's cash and cash equivalents are invested at variable rates of interest and further decreases in market interest rates would cause a related reduction in interest income. Forward Looking Statements - -------------------------- Except for the historical information contained herein, the matters discussed in this report on Form 10-QSB may contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, general economic and market conditions, the potential loss or termination of existing clients and contracts and the ability of the Company to successfully identify and thereafter consummate one or more acquisitions. Item 3. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures ------------------------------------------------ Disclosure controls and procedures are designed to ensure the reliability of the financial statements and other disclosures included in this report. As of the end of the fiscal quarter ended December 31, 2004, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company's periodic Securities and Exchange Commission filings. (b) Changes in Internal Controls ---------------------------- There have been no changes in the Company's internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial matters. However, management has decided that considering the employees involved and the control procedures in place, risks associated with such lack of segregation are insignificant and the potential benefits of adding employees to clearly segregate duties do not justify the expenses associated with such increases. 10 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. (a) Annual Meeting of Shareholders, October 6, 2004 (b) Directors to serve one year terms: Gary Gelman Edward M. Elkin, M.D. Peter Gutmann (c) Election of Directors Gary Gelman 4,967,159 for 4,450 withheld Edward M. Elkin, M.D. 4,967,159 for 4,450 withheld Peter Gutmann 4,967,159 for 4,450 withheld Item 6. Exhibits. Exhibit 31.1 Section 302 Principal Executive Officer Certification Exhibit 31.2 Section 302 Principal Financial Officer Certification Exhibit 32.1 Section 1350 Certification Exhibit 32.2 Section 1350 Certification 11 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. AMERICAN CLAIMS EVALUATION, INC. Date: February 10, 2005 By: /s/ Gary Gelman -------------------------------------- Gary Gelman Chairman of the Board, President and Chief Executive Officer Date: February 10, 2005 By: /s/ Gary J. Knauer ---------------------------------------- Gary J. Knauer Chief Financial Officer, Treasurer 12
AMERICAN LEARNING Inactive
Filed: 11 Feb 05, 12:00am