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 June 30, 2005 ------------- { } 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 August 12, 2005, there were 4,804,800 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 Condensed Consolidated Balance Sheets as of June 30, 2005 (unaudited) and March 31, 2005 3 Condensed Consolidated Statements of Operations for the Three Months ended June 30, 2005 and 2004 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the Three Months ended June 30, 2005 and 2004 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 - 7 Item 2. Management's Discussion and Analysis or Plan of Operation 8 - 9 Item 3. Controls and Procedures 10 PART II - OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11 Item 6. Exhibits 11 SIGNATURES 12 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Condensed Consolidated Balance Sheets <TABLE> June 30, 2005 Mar. 31, 2005 ------------- ------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 7,208,948 $ 7,371,185 Accounts receivable, net 85,616 109,721 Prepaid expenses 37,414 35,301 ----------- ----------- Total current assets 7,331,978 7,516,207 Property and equipment, net 26,493 33,045 ----------- ----------- Total assets $ 7,358,471 $ 7,549,252 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 18,473 $ 10,354 Accrued expenses 103,644 108,517 Income taxes payable -- 1,228 ----------- ----------- Total current liabilities 122,117 120,099 ----------- ----------- Commitments Stockholders' equity: Common stock, $.01 par value. Authorized 10,000,000 shares; issued 5,050,000 shares, outstanding 4,804,800 and 4,859,800 shares at June 30, 2005 and March 31, 2005, respectively 50,500 50,500 Additional paid-in capital 4,579,699 4,579,699 Retained earnings 3,007,677 3,116,095 ----------- ----------- 7,637,876 7,746,294 Treasury stock, at cost (401,522) (317,141) ----------- ----------- Total stockholders' equity 7,236,354 7,429,153 ----------- ----------- Total liabilities and stockholders' equity $ 7,358,471 $ 7,549,252 =========== =========== </TABLE> See accompanying notes to condensed consolidated financial statements. 3 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Condensed Consolidated Statements of Operations (Unaudited) <TABLE> Three months ended ---------------------- June 30, June 30, 2005 2004 --------- --------- Revenues $ 287,221 $ 287,190 Cost of services 151,209 144,358 --------- --------- Gross margin 136,012 142,832 Selling, general, and administrative expenses 303,775 290,559 --------- --------- Operating loss (167,763) (147,727) Interest income 59,345 15,384 --------- --------- Loss before income tax expense (108,418) (132,343) Income tax expense -- 1,000 --------- --------- Net loss $(108,418) $(133,343) ========= ========= Net loss per share - basic $ (0.02) $ (0.03) ========= ========= Net loss per share - diluted $ (0.02) $ (0.03) ========= ========= Weighted average shares - basic 4,841,467 4,459,800 ========= ========= Weighted average shares - diluted 4,841,467 4,459,800 ========= ========= </TABLE> See accompanying notes to condensed consolidated financial statements. 4 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Condensed Consolidated Statements of Cash Flows (Unaudited) <TABLE> Three months ended -------------------------- June 30, June 30, 2005 2004 ----------- ----------- Cash flows from operating activities: Net loss $ (108,418) $ (133,343) ----------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 8,341 8,441 Changes in assets and liabilities: Accounts receivable 24,105 13,814 Prepaid expenses (2,113) 1,001 Prepaid and recoverable income taxes -- (770) Accounts payable 8,119 747 Accrued expenses (4,873) 23,386 Income taxes payable (1,228) -- ----------- ----------- 32,351 46,619 ----------- ----------- Net cash used in operating activities (76,067) (86,724) ----------- ----------- Cash flows from investing activities: Capital expenditures (1,789) (9,466) ----------- ----------- Net cash used in investing activities (1,789) (9,466) ----------- ----------- Cash flows from financing activities: Purchase of treasury shares (84,381) -- Proceeds from exercise of stock options -- 1,070,000 ----------- ----------- Net cash provided by (used in) financing activities (84,381) 1,070,000 ----------- ----------- Net increase (decrease) in cash and cash equivalents (162,237) 973,810 Cash and cash equivalents at beginning of period 7,371,185 6,763,920 ----------- ----------- Cash and cash equivalents at end of period $ 7,208,948 $ 7,737,730 =========== =========== Supplemental disclosure of cash flow information: Income taxes paid $ -- $ 1,770 =========== =========== </TABLE> See accompanying notes to condensed consolidated financial statements. 5 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Notes to Condensed 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 make the consolidated financial position, results of operations and cash flows for the interim periods not misleading. Interim periods are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended March 31, 2005 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 ended June 30, 2005 and 2004: Three months ended -------------------------- 06/30/05 06/30/04 ----------- ----------- Numerator: Net loss $ (108,418) $ (133,343) Denominator: Denominator for basic loss per share - weighted average shares 4,841,467 4,459,800 Effect of dilutive securities: Stock options -- -- ----------- ----------- Denominator for diluted loss per share 4,841,467 4,459,800 =========== =========== Basic loss per share $ (0.02) $ (0.03) =========== =========== Diluted loss per share $ (0.02) $ (0.03) =========== =========== Potentially dilutive securities consisting of employee stock options to purchase 938,500 and 908,500 shares as of June 30, 2005 and 2004, 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 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 months ended June 30, 2005 and 2004 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 ---------------------- 06/30/05 06/30/04 --------- --------- Numerator: Net loss $(108,418) $(133,343) Deduct: Total stock-based employee compensation expense determined under fair value method for options granted (9,263) (5,106) --------- --------- Pro forma net loss $(117,681) $(138,449) ========= ========= Net loss per share: Basic and diluted - as reported $ (0.02) $ (0.03) ========= ========= Basic and diluted - pro forma $ (0.02) $ (0.03) ========= ========= In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004) Share-Based Payment ("SFAS 123R"), which is a revision of SFAS 123. Generally, the approach to accounting in SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. SFAS 123R offers several alternatives for implementation including prospective and retroactive adoption options. The Company is required to adopt SFAS 123R beginning April 1, 2006 and is currently evaluating the requirements of SFAS 123R and the expected effect on the Company. 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 on Form 10-KSB for the fiscal year ended March 31, 2005. 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 ended June 30, 2005 and 2004 Revenues for the quarterly period ended June 30, 2005 were $287,221, which was consistent with the $287,190 reported for the three month period ended June 30, 2004. Cost of services as a percentage of revenues for the three month periods ended June 30, 2005 and 2004 were 52.6% and 50.3%, respectively. The increase in cost of services resulted from a change in the mix of vocational rehabilitation services being performed by the Company. Selling, general and administrative expenses for the quarter ended June 30, 2005 increased to $303,775 from $290,559 for the three months ended June 30, 2004. During the three months ended June 30, 2005, the Company's expenditures increased as a result of the hiring of an individual to market vocational rehabilitation and related services in the State of Washington. This increase was offset by a decrease in the Company's rent expense in the current three month period under its new sublease. Interest income for the three months ended June 30, 2005 increased to $59,345 from the $15,384 recorded during the three months ended June 30, 2004. This increase is directly related to an increase in cash available for investment as well as incrementally higher interest rates during the current fiscal year. Liquidity and Capital Resources At June 30, 2005, the Company had working capital of $7,209,861 as compared to working capital of $7,396,108 at March 31, 2005. The Company believes that it has sufficient cash resources and working capital to meet its present cash requirements. During the three months ended June 30, 2005, net cash used in operations of $76,067 consisted principally of a net loss of $108,418, offset by a decrease in accounts receivable of $24,105. The Company used $84,381 in its financing activities to purchase shares of its common stock during the quarter ended June 30, 2005. 8 Cash provided by financing activities during the three months ended June 30, 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. 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 $ 59,000 2006 80,000 2007 83,000 2008 41,000 2009 41,000 Thereafter 71,000 -------- $375,000 ======== 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. 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. 9 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 June 30, 2005, 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 under the Securities and Exchange Act of 1934, as amended. 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 significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of the Company's evaluation in connection with the preparation of this Form 10-QSB. 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 2. Unregistered Sales of Equity Securities and Use of Proceeds. (c) Small Business Issuer Purchases of Equity Securities <TABLE> - -------------------------------------------------------------------------------------------------------------------- (c) Total Number of (d) Maximum Number (b) Average Shares (or Units) (or Approximate Dollar Period (a) Total Number of Price Paid Purchased as part of Value) of Shares (or Units) Shares (or Units) Per Share Publicly Announced that May Yet Be Purchased Purchased (or Unit) Plans or Programs Under the Plans or Programs - -------------------------------------------------------------------------------------------------------------------- Month #1 April 1 through - - n/a n/a April 30, 2005 - -------------------------------------------------------------------------------------------------------------------- Month #2 May 1 through 55,000* $1.53 n/a n/a May 31, 2005 - -------------------------------------------------------------------------------------------------------------------- Month #3 June 1 through - - n/a n/a June 30, 2005 - -------------------------------------------------------------------------------------------------------------------- Total 55,000* $1.53 n/a n/a - -------------------------------------------------------------------------------------------------------------------- </TABLE> * - All such shares were purchased other than through a publicly announced plan or program and in open-market transactions. 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: August 15, 2005 By: /s/ Gary Gelman ---------------------------- Gary Gelman Chairman of the Board, President and Chief Executive Officer Date: August 15, 2005 By: /s/ Gary J. Knauer ----------------------------------- Gary J. Knauer Chief Financial Officer, Treasurer and Secretary 12
AMERICAN LEARNING Inactive
Filed: 15 Aug 05, 12:00am