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, 2006 { } 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) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of August 14, 2006, there were 4,761,800 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. AND SUBSIDIARY INDEX Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2006 (unaudited) and March 31, 2006 3 Condensed Consolidated Statements of Operations for the Three Months ended June 30, 2006 and 2005 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the Three Months ended June 30, 2006 and 2005 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 - 8 Item 2. Management's Discussion and Analysis or Plan of Operation 8 - 10 Item 3. Controls and Procedures 10 - 11 PART II - OTHER INFORMATION Item 6. Exhibits 12 SIGNATURES 13 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Condensed Consolidated Balance Sheets June 30, 2006 Mar. 31, 2006 ------------------- ------------------ (Unaudited) Assets Current assets: Cash and cash equivalents $ 6,885,295 $ 6,939,798 Accounts receivable, net 95,479 90,716 Prepaid expenses 46,838 36,870 ------------------- ------------------ Total current assets 7,027,612 7,067,384 Property and equipment, net 13,317 16,224 ------------------- ------------------ Total assets $ 7,040,929 $ 7,083,608 =================== ================== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 24,448 $ 18,193 Accrued expenses 106,678 101,024 ------------------- ------------------ Total current liabilities 131,126 119,217 ------------------- ------------------ Commitments Stockholders' equity: Common stock, $.01 par value. Authorized 10,000,000 shares; issued 5,050,000 shares; outstanding 4,761,800 shares 50,500 50,500 Additional paid-in capital 4,586,849 4,586,849 Retained earnings 2,734,295 2,788,883 ------------------- ------------------ 7,371,644 7,426,232 Treasury stock, at cost (461,841) (461,841) ------------------- ------------------ Total stockholders' equity 6,909,803 6,964,391 ------------------- ------------------ Total liabilities and stockholders' equity $ 7,040,929 $ 7,083,608 =================== ================== See accompanying notes to condensed consolidated financial statements. 3 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Condensed Consolidated Statements of Operations (Unaudited) Three months ended -------------------------------------- June 30, June 30, 2006 2005 ------------------ ------------------ Revenues $ 247,534 $ 287,221 Cost of services 120,386 151,209 ------------------ ------------------ Gross margin 127,148 136,012 Selling, general, and administrative expenses 270,964 303,775 ------------------ ------------------ Operating loss (143,816) (167,763) Interest income 89,228 59,345 ------------------ ------------------ Loss before income tax expense (54,588) (108,418) Income tax expense - - ------------------ ------------------ Net loss $ (54,588) $ (108,418) ================== ================== Net loss per share - basic and diluted $ (0.01) $ (0.02) ================== ================== Weighted average shares - basic and diluted 4,761,800 4,841,467 ================== ================== See accompanying notes to condensed consolidated financial statements. 4 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended ----------------------------------------- June 30, June 30, 2006 2005 ------------------ ------------------- Cash flows from operating activities: Net loss $ (54,588) $ (108,418) ------------------ ------------------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 2,907 8,341 Changes in assets and liabilities: Accounts receivable (4,763) 24,105 Prepaid expenses (9,968) (2,113) Accounts payable 6,255 8,119 Accrued expenses 5,654 (4,873) Income taxes payable - (1,228) ------------------ ------------------- 85 32,351 ------------------ ------------------- Net cash used in operating activities (54,503) (76,067) ------------------ ------------------- Cash flows from investing activities: Capital expenditures - (1,789) ------------------ ------------------- Net cash used in investing activities - (1,789) ------------------ ------------------- Cash flows from financing activities: Purchase of treasury shares - (84,381) ------------------ ------------------- Net cash used in financing activities - (84,381) ------------------ ------------------- Net decrease in cash and cash equivalents (54,503) (162,237) Cash and cash equivalents - beginning of period 6,939,798 7,371,185 ------------------ ------------------- Cash and cash equivalents - end of period $ 6,885,295 $7,208,948 ================== =================== Supplemental disclosure of cash flow information: Income taxes paid $ - $ - ================== =================== 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, 2006 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, 2006 and 2005: Three months ended --------------------------- 06/30/06 06/30/05 ----------- ----------- Numerator: Net loss $ (54,588) $ (108,418) =========== =========== Denominator: Denominator for basic loss per share - weighted average shares 4,761,800 4,841,467 Effect of dilutive securities - Stock options -- -- ----------- ----------- Denominator for diluted loss per share 4,761,800 4,841,467 =========== =========== Basic loss per share $ (0.01) $ (0.02) =========== =========== Diluted loss per share $ (0.01) $ (0.02) =========== =========== Potentially dilutive securities consisting of employee stock options to purchase 1,236,000 and 938,500 shares as of June 30, 2006 and 2005, respectively, were not included in the diluted net loss per share calculations because their effect would have been anti-dilutive. 6 Stock Option Plans - ------------------ Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004) Share-Based Payment ("SFAS 123R") requiring that compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the recipient's requisite service period (generally the vesting period of the equity award). Prior to January 1, 2006, the Company accounted for share-based compensation in accordance with Accounting Principles Board Opinion No. 25 ("APB No. 25"), Accounting for Stock Issued to Employees, and related provisions. The Company also followed the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. The Company adopted SFAS No. 123R using the modified prospective method and, accordingly, financial statement amounts for prior periods presented in this Form 10-QSB have not been restated to reflect the fair value method of recognizing compensation cost relating to stock options. Under APB No. 25, there was no compensation cost recognized in the three months ended June 30, 2005 as these options had exercise prices equal to the market value of the underlying stock at the grant date. The following table sets forth pro forma information as if compensation cost had been determined consistent with the requirements of SFAS 123 for the three months ended June 30, 2005: Three months ended 06/30/05 ----------- Numerator: Net loss $ (108,418) Deduct: Total stock-based employee compensation expense determined under fair value method for options granted (9,263) ----------- Pro forma net loss $ (117,681) =========== Net loss per share: Basic and diluted - as reported $ (0.02) =========== Basic and diluted - pro forma $ (0.02) =========== 7 The following table summarizes information about stock option activity for the three months ended June 30, 2006: Weighted Weighted- Average Average Remaining Aggregate Exercise Contractual Intrinsic Shares Price Term Value ------------ ------------ ------------ ------------ Outstanding at March 31, 2006 1,236,000 $ 1.96 6 years Granted - Expired - --------- Outstanding at June 30, 2006 1,236,000 $ 1.96 5 years $ 216,000 ========= Exercisable at June 30, 2006 1,236,000 $ 1.96 5 years $ 216,000 ========= At June 30, 2006, there was no unrecognized compensation cost related to non-vested stock option awards. 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, 2006. 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, 2006 and 2005 - ----------------------------------------------------------------- Revenues for the quarterly period ended June 30, 2006 were $247,534, a decrease of 13.8% from the $287,221 reported for the three month period ended June 30, 2005. This shortfall was principally the result of a decrease in vocational rehabilitation services performed for the Washington State Department of Labor & Industries ("L&I") during the three months ended June 30, 2006 compared to the comparable period last year. L&I uses a statistical formula to measure vocational rehabilitation provider performance. Based on this formula, each provider's performance is compared to his/her peers statewide and individual counselors and provider firms are assigned either a conditional or eligible rating. Through July 11, 2006, these ratings were made available to L&I's claims managers to assist them in choosing a provider when making a vocational referral. RPM Rehabilitation & Associates, Inc. ("RPM"), the Company's wholly owned subsidiary, had a conditional rating 8 which negatively impacted its ability to acquire referrals from L&I. Although RPM continued to receive cases from L&I, the rate at which they were received had lessened. However, effective July 11, 2006, a Washington court entered a ruling restricting L&I's use of this performance measurement formula and eliminated the distinction between eligible and conditional providers. Although claims managers must now consider all providers when assigning cases, RPM's ability to achieve increases in the number of future referrals from L&I is not assured. Cost of services as a percentage of revenues for the three month periods ended June 30, 2006 and 2005 were 48.6% and 52.6%, respectively. The decrease 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, 2006 decreased to $270,964 from $303,775 for the three months ended June 30, 2005. This decrease was accounted for by a reduction in the Company's payroll and payroll related costs. During the three months ended June 30, 2005, the Company had increased its payroll expenditures as a result of the hiring of an individual to market vocational rehabilitation and related services. Interest income for the three months ended June 30, 2006 increased to $89,228 from the $59,345 recorded during the three months ended June 30, 2005. This increase is directly related to incrementally higher interest rates during the current fiscal year. Liquidity and Capital Resources - ------------------------------- At June 30, 2006, the Company had working capital of $6,896,486 as compared to working capital of $6,948,167 at March 31, 2006. 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, 2006, net cash used in operations of $54,503 consisted principally of a net loss of $54,588. The Company used $84,381 in its financing activities to purchase shares of its common stock during the quarter ended June 30, 2005. Minimum lease payments under non-cancelable leases and subleases, exclusive of future escalation charges, for the remainder of fiscal 2007 and fiscal years ending thereafter are as follows: 2007 $ 61,000 2008 83,000 2009 51,000 2010 41,000 2011 42,000 Thereafter 29,000 --------------- $ 307,000 =============== 9 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 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 June 30, 2006, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the 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 Rule 13a-15 under the Securities 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 changes in the Company's internal controls over financial reporting or in other factors that could significantly affect the internal controls over financial reporting 10 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. 11 PART II - OTHER INFORMATION 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 12 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 14, 2006 By: /s/ Gary Gelman ------------------------------------- Gary Gelman Chairman of the Board, President and Chief Executive Officer Date: August 14, 2006 By: /s/ Gary J. Knauer ------------------------------------- Gary J. Knauer Chief Financial Officer, Treasurer and Secretary 13
AMERICAN LEARNING Inactive
Filed: 14 Aug 06, 12:00am