10QSB 1 file001.txt FORM 10-QSB 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, 2003 { } 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) Check whether the issuer (1) filed all reports required to be filed by Section $13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of February 6, 2004, there were 4,259,800 shares of the issuer's common stock, $.01 par value, outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] 1 AMERICAN CLAIMS EVALUATION, INC. INDEX Page No. --------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 2003 (unaudited) and March 31, 2003 3 Consolidated Statements of Operations for the three months and nine months ended December 31, 2003 and 2002 (unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended December 31, 2003 and 2002 (unaudited) 5 Notes to 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 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Consolidated Balance Sheets
Dec. 31, 2003 Mar. 31, 2003 ----------- ----------- (Unaudited) Assets ------ Current assets: Cash and cash equivalents $ 6,889,591 7,179,340 Accounts receivable, net 102,730 101,597 Prepaid expenses 21,382 35,526 Prepaid and recoverable income taxes 1,272 8,736 Deferred income taxes - 2,527 ----------- --------- Total current assets 7,014,975 7,327,726 Property and equipment, net 64,079 87,297 ----------- --------- Total assets $ 7,079,054 7,415,023 =========== ========= Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 14,278 14,852 Accrued expenses 73,686 85,200 ----------- --------- Total current liabilities 87,964 100,052 ----------- --------- Stockholders' equity: Common stock, $.01 par value. Authorized 10,000,000 shares; issued 4,450,000 shares; outstanding 4,259,800 shares 44,500 44,500 Additional paid-in capital 3,515,699 3,515,699 Retained earnings 3,748,032 4,071,913 ----------- --------- 7,308,231 7,632,112 Treasury stock, at cost (317,141) (317,141) ----------- --------- Total stockholders' equity 6,991,090 7,314,971 ----------- --------- Total liabilities and stockholders' equity $ 7,079,054 7,415,023 =========== =========
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, 2003 2002 2003 2002 --------- --------- --------- --------- Revenues $ 285,708 293,276 900,072 905,741 Cost of services 137,753 141,799 428,225 436,043 --------- --------- --------- --------- Gross margin 147,955 151,477 471,847 469,698 Selling, general, and administrative expenses 293,616 268,531 863,218 814,237 --------- --------- --------- --------- Operating loss (145,661) (117,054) (391,371) (344,539) Interest income 23,525 34,562 72,490 113,573 --------- --------- --------- --------- Loss before income tax expense (benefit) (122,136) (82,492) (318,881) (230,966) Income tax expense (benefit) 1,000 1,000 5,000 (35,000) --------- --------- --------- --------- Net loss $(123,136) (83,492) (323,881) (195,966) ========= ========= ========= ========= Loss per share - basic $ (0.03) (0.02) (0.08) (0.05) ========= ========= ========= ========= Loss per share - diluted $ (0.03) (0.02) (0.08) (0.05) ========= ========= ========= ========= Weighted average shares - basic 4,259,800 4,259,800 4,259,800 4,259,800 ========= ========= ========= ========= Weighted average shares - diluted 4,259,800 4,259,800 4,259,800 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, 2003 2002 ---------- --------- Cash flows from operating activities: Net loss $ (323,881) (195,966) ---------- --------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 25,010 25,925 Deferred income taxes 2,527 - Changes in assets and liabilities: Accounts receivable (1,133) 9,213 Prepaid expenses 14,144 14,135 Prepaid and recoverable income taxes 7,464 49,800 Accounts payable (574) (27,329) Accrued expenses (11,514) 7,585 ---------- --------- 35,924 79,329 ---------- --------- Net cash used in operating activities (287,957) (116,637) ---------- --------- Cash flows from investing activities: Capital expenditures (1,792) - ---------- --------- Net cash used in investing activities (1,792) - ---------- --------- Cash flows from financing activities: Purchase of treasury stock - (18,924) ---------- --------- Net cash used in financing activities - (18,924) ---------- --------- Net decrease in cash and cash equivalents (289,749) (135,561) Cash and cash equivalents at beginning of period 7,179,340 7,440,897 ---------- --------- Cash and cash equivalents at end of period $6,889,591 7,305,336 ========== ========= Supplemental disclosure of cash flow information: Income taxes paid $ 3,877 1,058 ========== =========
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, 2003 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, 2003 and 2002:
Three months ended Nine months ended -------------------------- ------------------------- 12/31/03 12/31/02 12/31/03 12/31/02 ---------- ---------- ---------- ---------- Numerator: Net loss $(123,136) (83,492) (323,881) (195,966) Denominator: Denominator for basic loss per share - weighted average shares 4,259,800 4,259,800 4,259,800 4,259,800 Effect of dilutive securities: Stock options - - - - ---------- ---------- ---------- ---------- Denominator for diluted loss per share 4,259,800 4,259,800 4,259,800 4,259,800 ========== ========== ========== ========== Basic loss per share $ (0.03) (0.02) (0.08) (0.05) ========== ========== ========== ========== Diluted loss per share $ (0.03) (0.02) (0.08) (0.05) ========== ========== ========== ==========
Potentially dilutive common stock equivalents consisting of employee stock options to purchase 1,508,500 and 1,488,500 shares for the three months ended December 31, 2003 and 2002, respectively, and 1,455,167 and 1,489,833 shares for the nine months ended December 31, 2003 and 2002, respectively, were not included in the diluted 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 and nine months ended December 31, 2003 and 2002 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 loss per share would have been increased to the pro forma amounts indicated below:
Three months ended Nine months ended ------------------------ ------------------------- 12/31/03 12/31/02 12/31/03 12/31/02 ---------- -------- ---------- ---------- Numerator: Net loss $(123,136) (83,492) (323,881) (195,966) Deduct: Total stock-based employee compensation expense determined under fair value method for options granted (32,492) (152,707) (97,477) (458,121) --------- --------- --------- -------- Pro forma net loss $(155,628) (236,199) (421,358) (654,087) ========= ========= ========= ========= Net loss per share: Basic and diluted - as reported $ (0.03) (0.02) (0.08) (0.05) ========= ========= ========= ========= Basic and diluted - pro forma $ (0.04) (0.06) (0.10) (0.15) ========= ========= ========= =========
The Financial Accounting Standards Board ("FASB") recently indicated that it will eventually require stock-based employee compensation to be recorded as a charge to earnings. We will monitor the FASB's progress on the issuance of a new standard and its impact on our consolidated financial statements. 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, 2003. 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, 2003 and 2002 Revenues for the quarterly period ended December 31, 2003 were $285,708 as compared with the $293,276 reported for the three month period ended December 31, 2002. This represents a decrease of approximately 2.6%. Revenues for the nine month period ended December 31, 2003 were approximately 1% lower than revenues during the corresponding period in the prior year. Cost of services as a percentage of revenues for the three and nine month periods ended December 31, 2003 were 48.2% and 47.6%, respectively. These percentages were marginally lower than the 48.4% and 48.1% of revenues during the comparable periods ended December 31, 2002, respectively. Selling, general and administrative expenses increased to $293,616 and $863,218 for the three and nine months ended December 31, 2003, respectively, from $268,531 and $814,237 for the three months and nine months ended December 31, 2002, respectively. The increase in selling, general and administrative expenses was caused by an increase in professional fees and increased expenditures relating to the Company's search for a suitable acquisition. Interest income for the three and nine months ended December 31, 2003 was $23,525 and $72,490, respectively, which was considerably lower than the $34,562 and $113,573 recognized during the three and nine month periods ended December 31, 2002, respectively. These decreases were the result of the continued decreases in prevailing market interest rates. Management evaluates the realizability of the deferred tax assets and the need for additional valuation allowances quarterly. Income tax expense for the nine months ended December 31, 2003 of $5,000 differs from the income tax benefit derived from applying the statutory rate principally due to an increase in the valuation allowance against deferred tax assets. The Company believes it is more likely than not that the deferred tax assets will not be realized. 8 Liquidity and Capital Resources At December 31, 2003, the Company had working capital of $6,927,011 as compared to working capital of $7,227,674 at March 31, 2003. 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, 2003, net cash used in operations of $287,957 consisted principally of a net loss of $323,881. At December 31, 2003, the Company had minimum lease payments due under noncancelable operating leases, exclusive of future escalation charges, of $24,250 for the remainder of fiscal 2004 and $53,000 and $13,000 for the fiscal years ending 2005 and 2006, respectively. 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. 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 in commercial paper at variable rates of interest. If there were an adverse change in interest rates of 10%, the expected effect on net income related to our consolidated financial instruments would be immaterial. However, there can be no assurances that interest rates will not significantly affect its results of operations. 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. Within the 90 days prior to the 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. (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. 10 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) Annual Meeting of Shareholders, October 7, 2003 (b) Directors to serve one year terms: Gary Gelman Edward M. Elkin, M.D. Peter Gutmann (c) Election of Directors Gary Gelman 4,448,392 for 15,480 withheld Edward M. Elkin, M.D. 4,448,392 for 15,480 withheld Peter Gutmann 4,448,392 for 15,480 withheld ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification Exhibit 32.1 Section 1350 Certification Exhibit 32.2 Section 1350 Certification (b) The following report on Form 8-K was filed during the quarter ended December 31, 2003: On November 12, 2003, a Form 8-K was filed by the Company under "Item 9. Regulation FD Disclosure." 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 9, 2004 By: /s/ Gary Gelman --------------- Gary Gelman Chairman of the Board, President and Chief Executive Officer Date: February 9, 2004 By: /s/ Gary J. Knauer ----------------------------------- Gary J. Knauer Chief Financial Officer, Treasurer 12