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, 2002
[ ] 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)
The number of shares outstanding of the issuer's common stock, par value $.01,
was 4,259,800 as of February 7, 2003.
Transitional Small Business Disclosure Format (check one): Yes No X
---- ---
AMERICAN CLAIMS EVALUATION, INC.
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2002
(unaudited) and March 31, 2002 3
Consolidated Statements of Operations for the
Three Months and Nine Months ended
December 31, 2002 and 2001 (unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
ended December 31, 2002 and 2001 (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 - 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Balance Sheets
DEC.31, 2002 MAR.31, 2002
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $7,305,336 7,440,897
Accounts receivable, net 90,358 99,571
Prepaid expenses 19,194 33,329
Prepaid and recoverable income taxes 9,735 59,535
Deferred tax asset 2,527 2,527
---------- ---------
Total current assets 7,427,150 7,635,859
Property and equipment, net 95,799 121,724
Goodwill, net 371,536 371,536
---------- ---------
Total assets $7,894,485 8,129,119
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,482 34,811
Accrued expenses 97,164 89,579
---------- ---------
Total current liabilities 104,646 124,390
---------- ---------
Stockholders' equity:
Common stock, $.01 par value -
10,000,000 shares authorized; 4,450,000
shares issued; 4,259,800 and 4,273,500
shares outstanding at December 31, 2002
and March 31, 2002, respectively 44,500 44,500
Additional paid-in capital 3,515,699 3,515,699
Retained earnings 4,546,781 4,742,747
---------- ---------
8,106,980 8,302,946
Treasury shares, at cost, 190,200 shares and
176,500 shares at December 31, 2002
and March 31, 2002, respectively (317,141) (298,217)
---------- ---------
Total stockholders' equity 7,789,839 8,004,729
---------- ---------
Total liabilities and stockholders' equity $7,894,485 8,129,119
========== =========
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, 2002 Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2001
------------- ------------- ------------- -------------
Revenues $ 293,276 312,393 905,741 960,279
Cost of services 141,799 158,841 436,043 471,007
----------- --------- --------- ---------
Gross margin 151,477 153,552 469,698 489,272
Selling, general and administrative
expenses 268,531 283,401 814,237 860,660
----------- --------- --------- ---------
Operating loss (117,054) (129,849) (344,539) (371,388)
Interest income 34,562 52,138 113,573 222,333
----------- --------- --------- ---------
Loss before income tax
expense (benefit) (82,492) (77,711) (230,966) (149,055)
Income tax expense (benefit) 1,000 (27,000) (35,000) (34,000)
----------- --------- --------- ---------
Net loss $ (83,492) (50,711) (195,966) (115,055)
=========== ========= ========= =========
Net loss per share:
Basic $ (.02) (.01) (.05) (.03)
=========== ========= ========= =========
Diluted $ (.02) (.01) (.05) (.03)
=========== ========= ========= =========
Weighted average common shares outstanding:
Basic 4,259,800 4,273,500 4,259,800 4,273,500
=========== ========= ========= =========
Diluted 4,259,800 4,273,500 4,259,800 4,273,500
=========== ========= ========= =========
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, 2002 DEC. 31, 2001
------------- -------------
Cash flows from operating activities:
Net loss $ (195,966) (115,055)
---------- ---------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 25,925 50,721
Changes in assets and liabilities:
Accounts receivable 9,213 264
Prepaid expenses 14,135 9,955
Prepaid and recoverable income taxes 49,800 -
Accounts payable (27,329) (2,615)
Accrued expenses 7,585 14,206
Income taxes payable - (36,901)
--------- ---------
79,329 35,630
---------- ---------
Net cash used in operating activities (116,637) (79,425)
---------- ---------
Cash flows from investing activities:
Capital expenditures - (34,760)
---------- ---------
Net cash used in investing activities - (34,760)
---------- ---------
Cash flows from financing activities:
Purchase of treasury stock (18,924) -
---------- ---------
Net cash used in investing activities (18,924) -
---------- ---------
Net decrease in cash and cash equivalents (135,561) (114,185)
Cash and cash equivalents at beginning of period 7,440,897 6,890,390
--------- ---------
Cash and cash equivalents at end of period $7,305,336 6,776,205
========== =========
Supplemental disclosure of cash flow information:
Income taxes paid $ 1,058 2,901
========== =========
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 results 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, 2002 and the notes thereto contained in the Company's Annual
Report on Form 10-KSB, as filed with the Securities and Exchange Commission.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents. Cash equivalents are
comprised of short-term commercial paper of $6,993,061 and $6,595,381 as of
December 31, 2002 and March 31, 2002, respectively.
COMPREHENSIVE LOSS
Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME, required unrealized gains on the Company's available for
sale marketable securities to be included in other comprehensive income.
Comprehensive income for the nine months and three months ended December 31,
2001 was $401,093 and $159,349, respectively.
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, 2002 and 2001:
6
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ --------------------------
12/31/02 12/31/01 12/31/02 12/31/01
-------- -------- -------- --------
Numerator:
Net loss $ (83,492) (50,711) (195,966) (115,055)
========== ========= ========= =========
Denominator:
Denominator for basic loss
per share - weighted
average shares 4,259,800 4,273,500 4,259,800 4,273,500
Effect of dilutive securities:
Stock options - - - -
---------- --------- --------- ---------
Denominator for diluted
loss per share 4,259,800 4,273,500 4,259,800 4,273,500
========== ========= ========= =========
Basic net loss per share $ (.02) (.01) (.05) (.03)
========== ========= ========= =========
Diluted net loss per share $ (.02) (.01) (.05) (.03)
========== ========= ========= =========
Employee stock options to purchase 1,488,500 shares for the three and nine
months ended December 31, 2002 and 884,500 shares for the three and nine months
ended December 31, 2001, respectively, were not included in the net loss per
share calculations because their effect would have been anti- dilutive.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
DISCUSSION OF 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's most critical accounting policy is the valuation of goodwill. In
accordance with SFAS No. 142, goodwill must be tested annually for impairment at
the reporting unit level. If an indication of impairment exists, the Company is
required to determine if such reporting unit's implied fair value is less than
its carrying value in order to determine the amount, if any, of the impairment
loss required to be recorded.
RESULTS OF OPERATIONS - THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 2002 AND
2001
Revenues for the three months ended December 31, 2002 totaled $293,276 as
compared with the $312,393 reported for the corresponding period ended December
31, 2001. This represents a decrease of approximately 6.1%. Revenues for the
nine month period ended December 31, 2002 decreased $54,538, approximately 5.7%,
from the comparable period ended December 31, 2001. During the three and nine
month periods ended December 31, 2001, the Company had experienced increases in
revenues due to the addition of nurse case management services to its service
offerings. However, the nurse performing these services left the Company.
Although this individual has been replaced, the Company has not yet been able to
achieve revenues from nurse case management services at prior year's levels.
Cost of services as a percentage of revenues for the three and nine month
periods ended December 31, 2002 were 48.4% and 48.1%, respectively. These
percentages are marginally lower than the cost of services as a percentage of
revenues during the three and nine month periods ended December 31, 2001 which
were 50.8% and 49.0%, respectively. The cost of services as a percentage of
revenues has decreased as a result of the decrease in revenues generated from
case management services. These services incur higher fees than traditional
vocational rehabilitation services.
Selling, general and administrative expenses decreased by $14,870 and $46,423,
respectively, during the three and nine month periods ended December 31, 2002 as
compared to the comparable periods ended December 31, 2001.
Interest income for the three and nine months ended December 31, 2002 was
$34,562 and $113,573, respectively, which was considerably lower than the
$52,138 and $222,333 recognized during the three and nine months ended December
31, 2001, respectively. These decreases are a direct result of the large
decreases in prevailing market interest rates.
During the nine months ended December 31, 2002, the Company recognized an income
tax benefit of $35,000, net of state tax expenses, relating to the portion of
its operating loss which can be carried back for federal income tax purposes to
prior fiscal years. As of December 31, 2002, the Company also had federal and
state net operating loss carryforwards. Limitations on utilization will apply to
8
these amounts. Accordingly, valuation allowances have been provided to account
for potential limitations. Future recognition will be achieved when it is
determined that it is more likely than not that the benefit will be realized
through future earnings. As a result, the Company reported a state income tax
expense of $1,000 for the three months ended December 31, 2002, net of valuation
allowances.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, the Company had working capital of $7,322,504 as compared
to working capital of $7,511,469 at March 31, 2002. The Company believes that it
has sufficient cash resources and working capital to meet its present cash
requirements for the foreseeable future. The Company continues its review of
strategic alternatives for maximizing shareholder value. Potential acquisitions
will be evaluated based on their merits within its remaining line of business,
as well as other fields.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective April 1, 2002, the Company adopted SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, which had the effect of prospectively eliminating the
Company's amortization of goodwill beginning with the first quarter of fiscal
year 2003 and replacing such amortization with periodic tests of impairment. The
Company performed the required SFAS No. 142 impairment test of goodwill as of
April 1, 2002 and has determined that no adjustment to the asset value is
required. However, future impairment reviews may result in write-downs. The
Company does not have any intangible assets, other than goodwill, with
indefinite useful lives.
The following table represents a reconciliation of net loss and per share data
that would have been reported had the new rules been applied retroactively to
the three months and nine months ended December 31, 2001:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ----------------------
12/31/02 12/31/01 12/31/02 12/31/01
-------- -------- -------- --------
Reported net loss $ (83,492) (50,711) (195,966) (115,055)
Add back goodwill amortization - 8,106 - 24,318
---------- -------- -------- --------
Adjusted net loss $ (83,492) (42,605) (195,966) (90,737)
========== ======== ========= ========
Basic and diluted net loss per share $ (.02) (.01) (.05) (.03)
Goodwill amortization - - - .01
---------- -------- -------- --------
Basic and diluted net loss per share $ (.02) (.01) (.05) (.02)
========== ======== ======== ========
9
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION - TRANSITION AND DISCLOSURE. SFAS No. 148 amends the transition and
disclosure requirements of SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. Certain of the disclosure requirements are required for all
companies, regardless if the fair value method or intrinsic value method is used
to account for stock-based employee compensation arrangements. The Company
continues to account for its stock option plans under the intrinsic value method
in accordance with the recognition and measurement principles of APB Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The amendments to SFAS No. 123
will be effective for financial statements for fiscal years ended after December
15, 2002 and for interim periods beginning after December 15, 2002. The Company
anticipates that the adoption of SFAS No. 148 will not have an impact on the
Company's consolidated financial statements.
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,
vocational rehabilitation consultants 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. Within the
90 days prior to this filing of this report, 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-14. 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.
10
(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 these controls subsequent to the
date the Company carried out its evaluation.
11
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------
(a) Annual Meeting of Shareholders, October 8, 2002
(b) Directors to serve one year terms:
Gary Gelman
Edward M. Elkin, M.D.
Peter Gutmann
(c) Election of Directors
Gary Gelman 4,389,973 for 100 against 26,000 abstained
Edward M. Elkin, M.D. 4,389,973 for 100 against 26,000 abstained
Peter Gutmann 4,389,973 for 100 against 26,000 abstained
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350,
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350,
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 2002.
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: February 10, 2003 By: /s/ GARY GELMAN
-------------------------------------
Gary Gelman
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 10, 2003 By: /s/ GARY J. KNAUER
-------------------------------------
Gary J. Knauer
Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and Accounting
Officer)
13
CERTIFICATIONS
I, Gary Gelman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of American Claims
Evaluation, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 10, 2003
/s/ Gary Gelman
Gary Gelman
Chief Executive Officer
CERTIFICATIONS
I, Gary J. Knauer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of American Claims
Evaluation, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 10, 2003
/s/ Gary J. Knauer
Gary J. Knauer
Chief Financial Officer