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, 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 February 13, 2007, 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 December 31, 2006 (unaudited) and March 31, 2006 3 Condensed Consolidated Statements of Operations for the Three and Nine Months ended December 31, 2006 and 2005 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 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 9 - 11 Item 3. Controls and Procedures 12 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits 13 SIGNATURES 14 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. AMERICAN CLAIMS EVALUATIONS, INC. AND SUBSIDIARY Condensed Consolidated Balance Sheets Dec. 31, 2006 Mar. 31, 2006 --------------- -------------- (Unaudited) Assets ------ Current assets: Cash and cash equivalents $ 6,711,709 $ 6,939,798 Accounts receivable, net 81,214 90,716 Prepaid expenses 13,120 36,870 --------------- -------------- Total current assets 6,806,043 7,067,384 Property and equipment, net 87,844 16,224 --------------- -------------- Total assets $ 6,893,887 $ 7,083,608 =============== ============== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 17,639 $ 18,193 Accrued expenses 83,700 101,024 --------------- -------------- Total current liabilities 101,339 119,217 --------------- -------------- 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 4,624,849 4,586,849 Retained earnings 2,579,040 2,788,883 --------------- -------------- 7,254,389 7,426,232 Treasury stock, at cost (461,841) (461,841) --------------- -------------- Total stockholders' equity 6,792,548 6,964,391 --------------- -------------- Total liabilities and stockholders' equity $ 6,893,887 $ 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 Nine months ended ------------------------ ----------------------- Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2006 2005 2006 2005 ----------- ----------- ---------- ----------- Revenues $ 199,610 $ 278,149 $ 641,731 $ 867,060 Cost of services 93,164 143,296 311,590 442,591 ----------- ----------- ---------- ----------- Gross margin 106,446 134,853 330,141 424,469 Selling, general and administrative expenses 299,162 273,753 818,740 894,804 ----------- ----------- ---------- ----------- Operating loss (192,716) (138,900) (488,599) (470,335) Interest income 96,927 78,900 278,756 207,322 ----------- ----------- ---------- ----------- Loss before income tax expense (95,789) (60,000) (209,843) (263,013) Income tax expense - - - - ----------- ----------- ---------- ----------- Net loss $(95,789) $(60,000) $(209,843) $(263,013) =========== =========== ========== =========== Net loss per share - basic and diluted $ (0.02) $ (0.01) $ (0.04) $ (0.05) =========== =========== ========== =========== Weighted average shares - basic and diluted 4,761,800 4,768,967 4,761,800 4,805,078 =========== =========== ========== =========== See accompanying notes to condensed consolidated financial statements. 4 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended --------------------------- Dec. 31, Dec. 31, 2006 2005 ------------ ------------ Cash flows from operating activities: Net loss $(209,843) $(263,013) ------------ ------------ Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 8,362 19,900 Stock-based compensation 38,000 7,150 Changes in assets and liabilities: Accounts receivable 9,502 8,012 Prepaid expenses 23,750 12,488 Accounts payable (554) 1,298 Accrued expenses (17,324) (15,595) Income taxes payable - (1,228) ------------ ------------ 61,736 32,025 ------------ ------------ Net cash used in operating activities (148,107) (230,988) ------------ ------------ Cash flows from investing activities: Capital expenditures (79,982) (3,660) ------------ ------------ Net cash used in investing activities (79,982) (3,660) ------------ ------------ Cash flows from financing activities: Purchase of treasury shares - (144,700) ------------ ------------ Net cash used in financing activities - (144,700) ------------ ------------ Net decrease in cash and cash equivalents (228,089) (379,348) Cash and cash equivalents at beginning of period 6,939,798 7,371,185 ------------ ------------ Cash and cash equivalents at end of period $6,711,709 $6,991,837 ============ ============ 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 (the "SEC"). Net Loss Per Share - ------------------ The following table sets forth the computation of basic and diluted net loss per share for the three and nine months ended December 31, 2006 and 2005: Three months ended Nine months ended -------------------------- ------------------------ 12/31/06 12/31/05 12/31/06 12/31/05 ------------ ------------ ----------- ----------- Numerator: Net loss $ (95,789) $ (60,000) $ (209,843) $ (263,013) ============ ============ =========== =========== Denominator: Denominator for basic net loss per share - weighted average shares 4,761,800 4,768,967 4,761,800 4,805,078 Effect of dilutive securities: Stock options - - - - ------------ ------------ ----------- ----------- Denominator for diluted net loss per share 4,761,800 4,768,967 4,761,800 4,805,078 ============ ============ =========== =========== Basic net loss per share $ (0.02) $ (0.01) $ (0.04) $ (0.05) ============ ============ =========== =========== Diluted net loss per share $ (0.02) $ (0.01) $ (0.04) $ (0.05) ============ ============ =========== =========== Potentially dilutive securities consisting of employee stock options to purchase 1,236,000 shares as of December 31, 2006 and 2005 were not included in the diluted net loss per share calculations because their effect would have been anti-dilutive. 6 Stock-Based Compensation - ------------------------ 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 Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS 123R") which establishes the accounting for stock-based awards. Under the provisions of SFAS No. 123R, stock-based compensation 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 grant). 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. The Company recognized stock-based compensation totaling $38,000 for the three and nine months ended December 31, 2006 based on the fair value of stock options granted. This expense is included in selling, general and administrative expenses in the Condensed Consolidated Statement of Operations. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company's stock options granted during the three and nine months ended December 31, 2006. Estimates of the fair values are not intended to predict actual future events or the value ultimately realized by the recipients who receive equity awards. The per share weighted average fair value of stock options granted during the three and nine months ended December 31, 2006 was $0.95. In addition to the exercise price of the awards, certain weighted average assumptions were used to estimate the fair value of stock option grants as follows: expected volatility of 47.7%, expected dividend yield of 0%, risk-free interest rate of 4.71% and an expected option term of 5 years. The Company estimates expected volatility by considering the historical volatility of the Company's stock. The risk-free interest rate is based on the United States Treasury constant maturity interest rate whose term is consistent with the expected life of the award. The expected option term was calculated using the simplified method prescribed in SEC Staff Accounting Bulletin No. 107. Under this method, the expected option life is equal to the sum of the weighted average vesting term plus the original contract term divided by two. Under APB No. 25, there was no compensation cost recognized in the three and nine months ended December 31, 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 7 compensation cost had been determined consistent with the requirements of SFAS 123 for the three and nine months ended December 31, 2005: Three months Nine months ended ended 12/31/2005 12/31/2005 ------------ ------------ Numerator: Net loss $ (60,000) $ (263,013) Deduct: Total stock-based employee compensation expense determined under fair value method for options granted - (424,850) ------------ ------------ Pro forma net loss $ (60,000) $ (687,863) ============ ============ Net loss per share: Basic and diluted - as reported $ (0.01) $ (0.05) ============ ============ Basic and diluted - pro forma $ (0.01) $ (0.14) ============ ============ The per share weighted average fair value of stock options granted during the three and nine months ended December 31, 2005 was $1.16. These fair values were determined using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield 0%, risk-free interest rate of 4.27%, an expected option life of 7.5 years and an expected volatility of 52%. The following table summarizes the activity of the Company's stock options for the nine months ended December 31, 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 40,000 $ 2.00 9.8 years Expired (40,000) $ 2.25 ----------- Outstanding at Dec. 31, 2006 1,236,000 $ 1.96 4.6 years $ 330,000 =========== Exercisable at Dec. 31, 2006 1,236,000 $ 1.96 4.6 years $ 330,000 =========== The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the market price of the Company's common stock for the shares subject to options that were in-the-money at December 31, 2006. At December 31, 2006, there was no unrecognized compensation cost related to non-vested stock option awards. 8 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 "Annual Report"). The accounting policies used in preparing our interim condensed consolidated financial statements are the same as those described in the Annual Report. Results of Operations - Three and Nine Months ended December 31, 2006 and 2005 - ------------------------------------------------------------------------------ Revenues for the quarterly period ended December 31, 2006 were $199,610, a decrease of 28.2% from the $278,149 reported for the three month period ended December 31, 2005. Revenues for the nine months ended December 31, 2006 were $641,731, a decrease of 26.0% from the $867,060 reported for the nine months ended December 31, 2005. These significant decreases were principally the result of a decrease in vocational rehabilitation services performed for the Washington State Department of Labor & Industries ("L&I") during the three and nine months ended December 31, 2006 compared to the comparable periods last year. In addition, the Company has lost the services of its highest producing consultant due to medical reasons. 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 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 December 31, 2006 and 2005 were 46.7% and 51.5%, respectively. During the nine months ended December 31, 2006 and 2005, cost of services as a percentage of revenues were 48.6% and 51.0%, respectively. The variations in cost of services resulted from changes in the mix of vocational rehabilitation services rendered during the current fiscal year as compared to the corresponding periods in the prior fiscal year. Selling, general and administrative expenses for the quarter ended December 31, 2006 increased to $299,162 from $273,753 for the three months ended December 31, 2005. The increase in 9 selling, general and administrative expenses is primarily due to stock-based compensation of $38,000 recorded under the provisions of SFAS No. 123R. Selling, general and administrative expenses for the nine months ended December 31, 2006 decreased to $818,740 from $894,804 for the nine months ended December 31, 2005. This decrease represents a reduction in the Company's payroll and payroll related costs in addition to other cost saving initiatives necessitated by the decline in business volume. Interest income for the three and nine month periods ended December 31, 2006 was $96,927 and $278,756, respectively. Interest income for the three and nine months ended December 31, 2005 was $78,900 and $207,322, respectively. These increases were directly related to an increase in market interest rates during the current fiscal periods. 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. The Company may not be able to achieve positive cash flow from operations without an acquisition of a business or businesses. There can be no assurance that the Company can make an acquisition or achieve positive cash flow from operations. Liquidity and Capital Resources - ------------------------------- At December 31, 2006, the Company had working capital of $6,704,704 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 nine months ended December 31, 2006, net cash used in operations of $148,107 consisted principally of a net loss of $209,843, offset by a non-cash charge related to stock-based compensation of $38,000. The Company used $79,982 in investing activities during the nine months ended December 31, 2006 related to the acquisition of an automobile for use by the Chairman of the Board/Chief Executive Officer. During the nine months ended December 31, 2005, the Company used $144,700 in its financing activities to purchase shares of its common stock. 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 $20,000 2008 83,000 2009 51,000 2010 41,000 2011 42,000 Thereafter 29,000 ------------- $266,000 ============= 10 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. 11 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, 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 SEC 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 subsequent to the date of the Company's evaluation in connection with the preparation of this Report on 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. 12 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. (a) Annual Meeting of Shareholders, October 10, 2006 (b) Directors to serve one year terms: Gary Gelman Edward M. Elkin, M.D. Peter Gutmann Joseph Looney (c) Election of Directors. Management nominees for election to the Board of Directors were reelected as directors of the Company to serve until their respective successors are duly elected and qualified as follows: Gary Gelman 4,736,658 for 2,801 withheld Edward M. Elkin, M.D. 4,736,658 for 2,801 withheld Peter Gutmann 4,736,658 for 2,801 withheld Joseph Looney 4,736,658 for 2,801 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 13 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 13, 2007 By: /s/ Gary Gelman ----------------------------------- Gary Gelman Chairman of the Board, President and Chief Executive Officer Date: February 13, 2007 By: /s/ Gary J. Knauer ----------------------------------- Gary J. Knauer Chief Financial Officer, Treasurer and Secretary 14
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10QSB Filing
AMERICAN LEARNING Inactive 10QSB2007 Q3 Quarterly report (small business)
Filed: 14 Feb 07, 12:00am