<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to __________
Commission File Number 0-14807
AMERICAN CLAIMS EVALUATION, INC.
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(Exact name of registrant as specified in its charter)
New York 11-2601199
- - ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Jericho Plaza, Jericho, NY 11753
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 938-8000
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.01 par value ("the Shares")
--------------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days: Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
[Cover page 1 of 2 pages]
<PAGE>
As of June 14, 1996, the aggregate market value of the Registrant's voting stock
held by non-affiliates was $3,965,151. For purposes of this calculation, shares
of Common Stock held by directors, officers and stockholders whose ownership
exceeds five percent of the Common Stock outstanding at June 14, 1996 were
excluded. Exclusion of shares held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to direct or
cause the direction of management or policies of the Registrant, or that such
person is controlled by or under common control of the Registrant.
As of June 14, 1996, there were 4,250,000 shares of the Registrant's $.01 par
value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The exhibits to the Company's Annual Report to its shareholders on Form 10-K for
the year ended March 31, 1989 and the exhibits to the Company's Registration
Statement on Form S-18 (File No. 2-99625-NY) and exhibits to the Company's
Report on Form 8-K dated September 14, 1993 are hereby incorporated by
reference.
TOTAL PAGES IN THIS REPORT: 20 EXHIBIT INDEX: PAGE 18
[Cover page 2 of 2 pages]
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PART I
Item 1. Business
American Claims Evaluation, Inc. (the "Company") was incorporated in the State
of New York and commenced operations in April 1982. The Company is in the
business of verifying the accuracy of hospital bills submitted for payment to
its clients, which include commercial health insurance companies, third-party
administrators, self-funded employers, health maintenance organizations
("HMO's") and other third-party payers. The Company also provides a full range
of vocational rehabilitation and disability management services through its
wholly owned subsidiaries, RPM Rehabilitation & Associates, Inc. and American
Rehabilitation Services, Inc.
Hospital Bill Auditing Services
Upon receipt of a patient's hospital bill, the Company's clients decide to pay
all or part of the bill, request further information from the hospital or
patient or refer the bill for examination by an in-house auditor or an outside
service such as the Company. The Company reviews the bill to determine if all
the charges contained in the bill were for services actually delivered and
related to the stated conditions or diagnosis. The Company initially screens all
bills submitted to it for review against its comprehensive computerized hospital
database to determine whether they meet the guidelines set by the Company for a
complete review. Based on its experience, the Company has determined that it is
most cost effective to review hospital bills in excess of $10,000, since the
higher the bill, the more likely it is that it will contain large errors. In
response to its clients' requests to maximize their cost saving opportunities
and to control costs on lower dollar value hospital bills, the Company developed
the "Best of" program. This program encompasses three proven cost-cutting
concepts into one unique product. In addition to on-site hospital bill reviews,
the program includes a provider discount network, which delivers substantial
discounts through access to over 10,000 health care facilities nationwide, and
nurse-directed negotiations that provide for a line-by-line analysis of medical
bills by a registered nurse. The "Best of" program enables the Company to
utilize alternative methods to realize savings for its clients on hospital bills
that are deemed inappropriate for a full on-site review.
If the Company determines that the hospital bill warrants a complete
examination, it will send a copy of the bill to an independent registered nurse,
who will visit the hospital. The nurse compares the hospital's itemized bill
with the patient's hospital charts to determine if all the charges contained in
the bill were for services actually delivered, requested by a physician and
related to the stated condition or diagnosis. Upon completion of the review, the
nurse works directly with the hospital's business office to obtain a prompt
resolution of any billing discrepancies.
The Company has found that the most common errors contained in hospital bills
are due to a number of factors, including charges for treatment, services and
supplies ordered by the physician but not in fact delivered or provided because
the orders are changed but notice of the change is not given to the billing
department, typographical errors, poor accounting and record keeping procedures
and errors in reading doctors' instructions.
To offer a provider discount service to its clients, the Company entered into
contracts with two preferred provider organizations (PPO's). Under these
arrangements, hospital bills may be repriced according to fee schedules that the
PPO's have previously established with billing hospitals. The Company charges
its client a percentage of the savings and allocates a portion of its fees to
the PPO. These two extensive PPO networks encompass all fifty states, offering
discounts for such diverse medical facilities and services as: hospitals imaging
centers, psychiatric and substance abuse facilities, physical therapy and rehab
services, home health care and ambulatory surgery,
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and a wide assortment of advanced care services. Fees earned for provider
discount services represented approximately 53% of hospital bill audit revenues
for the fiscal year ended March 31, 1996.
As part of the "Best of" program, the Company also provides Nurse-directed
negotiations. The registered nurses performing these negotiations have extensive
backgrounds in medical cost containment. When a bill is in question, the nurse
conducts an in-depth negotiation with the health care facility to determine if
charges deviate from customary or normal billing procedures. These negotiations
result in savings as a result of uncovering unusual pharmaceutical and medical
supply charges, or other deviations in billing (such as unbundling of charges,
and the overall size of the bill itself).
The Company also reviews hospital bills from acute care hospitals in the State
of New York based on the Diagnostic Related Groups ("DRG") system. Under this
system, hospital cost reimbursement is based on the patient diagnosis and not on
costs of actual treatment provided. The Company will review such bills to
determine whether the appropriate DRG assignment was used and to correct any
errors in calculations. Review of DRG bills accounted for approximately 4% and
5% of the Company's hospital bill audit revenues for the years ended March 31,
1996 and 1995, respectively.
The Company does not charge its clients for a hospital bill which it screens but
does not elect to review. Fees for hospital bills which the Company reviews are
based on a variety of billing options. These options include a contingency fee
based on the amount of overcharges uncovered by the examiners, a flat fee
charged on a per case basis, hourly charges or a fixed fee charge based on the
gross amount of the hospital bill. The Company believes that its contingent fee
structure encourages clients to have hospital bills reviewed, since the client
incurs almost no expenses unless the services provided by the Company obtain
positive results.
For the fiscal year ended March 31, 1996, one hospital bill audit services
client, the Equitable, accounted for 11% of consolidated revenues. During the
two previous fiscal years ended March 31, 1995 and 1994, the Company's then
largest client, MetraHealth (formerly The Metropolitan Life Insurance Company),
had accounted for 22% and 12% of consolidated revenues, respectively. In August
1995, the Company was notified that MetraHealth would be acquired by United
Healthcare Corp. and would perform its hospital bill audit function internally
on a prospective basis. During the current fiscal year ended March 31, 1996,
MetraHealth accounted for 9% of consolidated revenues. The Travelers Insurance
Company ("Travelers"), once the Company's largest customer, accounted for 11% of
consolidated revenues for the fiscal year ended March 31, 1994.
The Company's "backlog" varies from the traditional sense of that term, since
essentially all audit requests are in one stage or another of processing,
starting with obtaining a patient authorization to review hospital and medical
records. However, by using the term "backlog" to include cases in all stages of
processing and review, as of March 31, 1996, the Company had a backlog of
approximately 700 evaluations as opposed to approximately 1,700 evaluations as
of March 31, 1995. Because of the Company's method of charging for evaluations
based upon results, it cannot estimate the approximate revenues which may be
derived from such backlog. In prior years', the Company's backlog has not been a
significant factor in terms of estimates of future revenue. However, the decline
in the number of cases in backlog is indicative of the reduction in the volume
of hospital bill auditing services being performed by the Company.
Review of bills from hospitals in the states of California, Illinois, Texas and
Florida accounted for an aggregate of approximately 31% and 38% of the Company's
revenues from hospital bill auditing services for each of the fiscal years ended
March 31, 1996 and 1995, respectively.
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Vocational Rehabilitation Services
On September 14, 1993, the Company acquired 100% of the outstanding common stock
of RPM Rehabilitation & Associates, Inc. (RPM), a Washington state corporation,
pursuant to a stock purchase agreement between the Company and the shareholders
of RPM. RPM, which commenced operations in 1986, provides rehabilitation
services designed to maximize injured workers' abilities in order to reintegrate
them into their respective communities.
The Company formed American Rehabilitation Services, Inc. ("ARS"), a New York
corporation, on November 16, 1993 to expand its vocational rehabilitation
services. ARS is currently inactive.
The functional capabilities of the injured workers referred to the Company vary.
Comprehensive, in-house vocational evaluations are utilized to assess aptitudes,
interests, values and abilities. Issues of medical restrictions, functional
overlays, illiteracy and occupational diseases are assessed and factored into
the development of a rehabilitation strategy.
Specifically, in working with injured workers, the purpose and intent is to
bring the injured worker back to work with the employer of injury as soon as
medically feasible. The role of a vocational rehabilitation counselor is to
convene the claimant, the employer of injury, and associated medical
professionals to facilitate an expedited return to work, utilizing the
principles of job accommodation, job modification and transitional work. In
addition, the counselor can provide medical monitoring of the worker's progress
through Pain Clinics and Work Hardening programs. Coordination of these services
assist the worker in building strength and motivation to return to their
employer and/or occupation at the time of injury. The Company's philosophy is
that timely coordination of professional services, coupled with education and
liaison with the employer community provides positive results for all parties
concerned.
Some early intervention activities include contacting employers at the time of
injury to develop return to work strategies such as work restructuring and job
modification, on site analysis, local labor market analysis and obtaining work
histories. Feedback from clients' claims managers regarding the Company's
responsive interventions indicate a trusting, team approach which allows for
clear and accurate assessments that expedites the adjudication process,
resulting in timely and successful case closure.
RPM is currently approved as a "preferred provider" of vocational rehabilitation
services to the Washington State Department of Labor & Industries ("L & I")
under two separate contracts originally scheduled to expire in June 1996. L & I
has extended all vocational service contracts to August 30, 1996. The loss of
these contracts would have a material impact on RPM's revenues. Although RPM has
successfully renewed its contracts with L & I since its inception in 1986, there
can be no assurances that these contracts will continue to be renewed in future
periods. Revenues derived from such contracts with the L & I for the fiscal
years ended March 31, 1996 and 1995 and for the period from September 15, 1993
to March 31, 1994 accounted for 21%, 22% and 12% of consolidated revenues,
respectively.
Marketing and Advertising
The President, the National Sales Manager and the President of RPM are
responsible for the Company's sales and marketing program. In addition to direct
contact with leading health care payers, the Company advertises its services in
trade magazines and exhibits at conventions and trade association meetings.
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Competition
The health care cost containment field is highly competitive. The Company
competes with a number of businesses which provide the same services, some of
which firms are directly owned by insurance companies which are clients of the
Company. Many of these competitors have a longer operating history, greater
financial resources, and provide other services to the insurance companies which
the Company does not provide.
Principal competitors in hospital bill auditing include Equifax, Inc. and Med-Co
Review, Inc. There can be no assurances that other companies or free-lance
nurses will not enter this business or that more health insurance companies will
not themselves employ nurses or commence in-house procedures to verify hospital
bills, thereby reducing demand for the Company's services.
The Company's ability to successfully meet competition will depend, among other
things, upon its maintaining a record of prompt and efficient completion of
audits, the continuing ability to contract qualified registered nurse
evaluators, and the expansion of sales to existing and other clients.
Principal competitors in vocational rehabilitation include national firms, such
as CRA Managed Care, Inc. and Crawford & Company, as well as many regional
firms. Quality of service, high caliber counselors and proper pricing and range
of services offered are the principal factors that will enable the Company to
compete effectively.
Government Regulations
Various governmental agencies have in the past, and may in the future, enact
cost containment legislation, including legislative restrictions on fees which
may be charged by hospitals and other medical providers and the method by which
such fees are calculated. The Company is unable to predict what governmental
regulations, if any, may be promulgated in the future which would directly or
indirectly affect its business. The Federal government, with regard to Medicare
and Medicaid reimbursements, and the State of New York, with regard to acute
care hospitals, have enacted regulations governing hospital cost reimbursements
involving the establishing of diagnostic related groups ("DRGs"). Under these
regulations, hospital in-patients are classified into DRGs by diagnosis, age,
standard length of stay, necessary medical procedures, and other factors.
Payments to hospitals for the care of in-patients covered by federally-funded
reimbursement programs and insurance company reimbursements in the State of New
York are set for each hospital at a pre-determined amount for each DRG. Should
other states adopt similar laws, the Company would be adversely affected, since
the Company's revenues are derived primarily from review of bills which are not
based on the DRG system. The Company may review a DRG bill to determine whether
the proper DRG assignment was used. However, the Company generally reviews
considerably fewer bills in DRG states than in states which have not adopted the
DRG system and secures less revenue per bill reviewed under the DRG system.
RN Evaluators
The reviews of the hospital records are performed at the hospitals by
independent Registered Nurse ("RN") Evaluators who are retained on a job-by-job
basis. The Company currently has approximately 100 RNs on its list of active
claim evaluators.
Employees
As of March 31, 1996, the Company had 33 full-time employees and 3 part-time
employees. Of these full-time employees, four were in management, one was in
sales and marketing, ten were vocational rehabilitation consultants and eighteen
were in administration.
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Item 2. Properties
The Company leases approximately 2,700 square feet of space at its executive
office in Jericho, New York under a lease which expires in November 1998. The
Company maintains its National Operations Center for its hospital bill audit
operations in Dallas, Texas. The Dallas facility originally consisted of 7,200
square feet of space on a lease which expires in July 1998. During March 1996,
the Company amended its lease to reduce its total space requirements to
approximately 4,500 square feet. Monthly lease payments were decreased
accordingly for the remainder of the lease term. RPM leases approximately 3,900
square feet of office space in Spokane, Washington. This lease expires in June
2000. RPM also maintains an office in Moses Lake, Washington which is leased on
a month-to-month basis.
The Company believes that its existing facilities will be adequate to meet its
present needs. However, should the Company require additional space it is
assumed that such space will be available.
Item 3. Legal Proceedings
(a) The Company is not engaged in any material litigation.
(b) Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1996.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common shares (the "Shares") trade on the NASDAQ stock market
under the symbol "AMCE".
The following table sets forth the range of high and low sales prices for the
Company's Shares for each quarter during the period April 1, 1994 through March
31, 1996:
High Low
---- ---
Fiscal 1995:
4/01/94 - 6/30/94 2 1/2 1 7/8
7/01/94 - 9/30/94 3 1/8 1 13/16
10/01/94 - 12/31/94 2 15/16 1 13/16
1/01/95 - 3/31/95 2 1/8 1 5/8
Fiscal 1996:
4/01/95 - 6/30/95 2 1 5/8
7/01/95 - 9/30/95 3 1 13/16
10/01/95 - 12/31/95 2 1/8 1 5/8
1/01/96 - 3/31/96 2 5/8 1 13/16
The number of holders of the Company's Shares was approximately 1,230 on March
31, 1996, computed by the number of record holders, inclusive of holders for
whom Shares are being held in the name of brokerage houses and clearing
agencies.
The Company has never paid a cash dividend and does not presently anticipate
doing so in the foreseeable future, but expects to retain earnings, if any, for
use in its business.
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Item 6. Selected Financial Data
The following table sets forth certain selected financial data with respect to
the Company for each of the years in the five year period ended March 31, 1996.
The information set forth below should be read in conjunction with the financial
statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended March 31,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary Earnings Data(1)
Revenues $5,239,848 $5,366,130 $5,811,928 $7,463,800 $7,873,334
Gross margin 2,880,734 3,196,709 3,837,010 4,916,314 5,356,224
Operating earnings(loss) 294,242 (304,104) (228,649) 1,432,250 2,021,315
Earnings before provision
for (benefit from) income
taxes 1,194,638 114,497 34,648 1,705,419 2,332,636
Net earnings 737,638 64,497 48,148 1,078,419 1,465,636
Net earnings per share
of Common Stock (2) $ .17 $ .02 $ .01 $ .26 $ .35
Weighted average common
and common share
equivalents (2) 4,251,662 4,256,072 4,246,214 4,212,332 4,194,141
<CAPTION>
March 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Condensed Balance Sheets:
Working capital $7,569,169 $5,550,420 $6,445,381 $6,766,471 $5,634,067
Total assets 9,266,786 8,567,184 8,150,779 7,733,119 7,236,954
Short-term debt -- -- -- -- --
Long-term debt -- -- -- -- --
Stockholders' equity 8,404,270 7,680,720 7,484,980 7,010,912 5,894,993
</TABLE>
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(1) There were no cash dividends paid per Common Share during this period.
(2) Net earnings per share of Common Stock reflects a 100% share dividend
declared October 1, 1991.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Summary of Operations - Fiscal years ended March 31, 1996, 1995 and 1994
The following table sets forth information with respect to the Company's types
of revenues for the fiscal years ended March 31, 1996, 1995 and 1994:
Type of revenues: 1996 1995 1994
- - ----------------- ----------- ----------- -----------
Hospital bill audit services $ 3,946,682 $ 4,061,918 $ 5,063,134
Vocational rehabilitation services 1,293,166 1,304,212 748,794
----------- ----------- -----------
$ 5,239,848 $ 5,366,130 $ 5,811,928
=========== =========== ===========
For the fiscal year ended March 31, 1996 ("Fiscal 1996"), consolidated revenues
were $5,239,848, down 2.3 % from consolidated revenues of $5,366,130 during the
fiscal year ended March 31, 1995 ("Fiscal 1995"). This shortfall follows a
decline in consolidated revenues of 7.7% in Fiscal 1995 from the $5,811,928
reported during the fiscal year ended March 31, 1994 ("Fiscal 1994").
Hospital bill auditing ("HBA") revenues have been severely affected by several
factors, the first of which is the successive loss of its two largest clients.
During Fiscal 1996, the Company was notified that MetraHealth, formerly
Metropolitan Life Insurance Company's group health division, would no longer be
utilizing the Company's hospital bill auditing services. MetraHealth comprised
9%, 22% and 12% of consolidated revenues for the fiscal years ended March 31,
1996, 1995 and 1994, respectively. Previously, The Travelers, which represented
11% of Fiscal 1994 consolidated revenues, chose not to renew its HBA services
contract with the Company.
Over the past several years, the HBA industry as a whole has suffered a decline
in demand for its services and the number of hospital bill audits being
performed. To compensate for the erosion in traditional hospital bill audits,
the Company introduced two additional services in Fiscal 1995, a provider
discount network and nurse-directed negotiations. Although these services have
provided new sources of HBA revenue, they have not been able to generate enough
incremental revenue to counter the continuing decrease in the total number of
claims received for HBA services. Management anticipates that the volume of
claims received for HBA services may continue to decrease during the upcoming
year. This trend may have a material impact on earnings from HBA operations.
During Fiscal 1996, revenue from vocational rehabilitation services totaled
$1,293,166, a marginal decrease from the $1,304,212 reported for Fiscal 1995.
The majority of the Company's vocational rehabilitation services are provided to
the Washington State Department of Labor & Industries. Although referrals for
services from this client have decreased, the Company has maintained a
consistent market share in its two contract regions. Management has focused its
marketing plans on self-insured corporations as a source of new business and as
a means of decreasing its dependence on the State contracts. From September 15,
1993, the acquisition date, through March 31, 1994, revenues generated by
vocational rehabilitation services amounted to $748,794.
The cost of evaluations for HBA services was 45.1% as a percentage of HBA
revenues during Fiscal 1996 as compared to 37.7% as a percentage of revenues for
Fiscal 1995. This increase is predominantly attributable to a change in the mix
of HBA services being rendered. Provider discount network services, which are
now contributing approximately 53% of HBA revenues, generally provide lower
gross margins due to the cost of the
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related access fees. The cost of evaluator fees during Fiscal 1995 had increased
to 37.7% of related revenues from 34.1% as a percentage of HBA revenues in
Fiscal 1994 when these new services were being introduced. For Fiscal 1996, the
cost of services for vocational rehabilitation services was 44.8% as a
percentage of related revenues, compared to 48.8% of related revenues during
Fiscal 1995. This cost consists primarily of wages paid to the Company's
vocational rehabilitation consultants.
Selling, general and administrative expenses during Fiscal 1996 decreased
$914,321 to 49.4% of consolidated revenues from 65.2% of consolidated revenues
in Fiscal 1995. This decrease was achieved through various cost saving
initiatives introduced during the prior fiscal year, the benefits of which were
fully realized during Fiscal 1996. During Fiscal 1995, selling, general and
administrative expenses decreased by $564,846, or 13.9%, from Fiscal 1994 even
though Fiscal 1995 contained a full year of expenses from RPM Rehabilitation &
Associates, Inc., which was acquired on September 15, 1993. This decrease was
achieved as a direct result of the savings produced by the centralization of HBA
services to Dallas, Texas and the initial implementation of the Company's cost
saving program which included workforce reductions.
Interest income increased to $338,517 during Fiscal 1996, as compared to
interest income of $272,331 and $178,606 for Fiscal 1995 and Fiscal 1994,
respectively. This increase was a direct result of the increase in available
cash balances combined with a rise in prevailing market rates. During Fiscal
1996 and 1995, the Company realized gains on the sales of marketable securities
of $470,652 and $50,988, respectively. Miscellaneous income, representing
ancillary revenues, amounted to $91,277 in Fiscal 1996, as compared with
ancillary revenues of $95,282 for Fiscal 1995 and $84,691 for Fiscal 1994.
The effective income tax rate declined from 44% in Fiscal 1995 to 38% in Fiscal
1996. The provision for income taxes in Fiscal 1995 produced a higher effective
tax rate as a result of nondeductible amortization of goodwill related to the
acquisition of RPM being added to a low level of net earnings. For Fiscal 1994,
the Company recorded a tax benefit of $13,500 as result of a reduction in
deferred taxes due to the elimination of cash basis accounting for tax purposes,
tax-exempt income and the benefit of graduated tax rates being imposed on a
reduced level of income.
Liquidity and Capital Resources
At March 31, 1996, the Company had working capital of $7,569,169, including cash
and cash equivalents of $7,242,909, as compared to working capital of $5,550,420
at March 31, 1995. This $2,018,749 increase in working capital is attributable
to the sale of marketable securities which had been classified as non-current in
the prior year and net earnings from operations.
Net cash provided by operations during Fiscal 1996 of $508,096 was primarily the
result of net earnings from operations and non-cash depreciation and
amortization.
Net cash provided by investing activities of $1,233,774 during the fiscal year
ended March 31, 1996 consisted predominantly of $1,269,435 of proceeds from the
sales of marketable securities, net of $26,893 of additional marketable
securities purchases.
There were no cash flows from financing activities during Fiscal 1996 or 1995.
The Company has intensified its review of strategic alternatives for maximizing
shareholder value, focusing upon acquisitions and/or the dispositions of certain
assets. Potential acquisitions will be evaluated based on their merits within
its current line of business, as well as other fields. The Company believes that
it has sufficient cash resources and working capital to meet its capital
resource requirements for the foreseeable future.
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Recent Accounting Pronouncements
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) was issued. SFAS 123
encourages companies to adopt a fair value basis method of accounting for
stock-based compensation plans in place of the intrinsic value method provided
for by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25). Companies which continue to apply the provisions of APB
25 must make pro forma disclosures in the notes to their financial statements of
net income and earnings per share as if the fair value based method of
accounting defined in SFAS 123 had been applied. The Company plans to adopt the
SFAS 123 in fiscal year 1997 on a pro forma disclosure basis.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this Item are set
forth at the pages indicated in Item 14(a)(1).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Company
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Gary Gelman 49 Chairman of the Board,
President and Chief Executive Officer
Gary J. Knauer 36 Chief Financial Officer,
Treasurer and Secretary
Bonnie C. Jackson 53 Vice President - Operations
Edward M. Elkin, M.D. 57 Director
Peter Gutmann 67 Director
Gary Gelman, the founder of the Company, has been Chairman of the Board since
July 1, 1985, and President, chief Executive Officer and a director since
inception. Mr. Gelman served as Treasurer from inception to October 1991. Since
1973, Mr. Gelman has also been Chief Executive Officer and a principal of
American Para Professional Systems, Inc., which provides nurses who perform
physical examinations of applicants for life and/or health insurance for
insurance companies. He received a B.A. Degree from Queens College.
Gary J. Knauer joined the Company as its Controller in July 1991 and has served
as Chief Financial Officer and Treasurer since October 1991 and as Secretary
since March 1993. Prior to joining the Company, Mr. Knauer was employed from
October 1984 to June 1991 by the accounting firm of KPMG Peat Marwick LLP. He is
a Certified Public Accountant and holds a B.S. degree from the State University
of New York at Binghamton. Since February 1994, Mr. Knauer also serves as Chief
Financial Officer of American Para Professional Systems, Inc.
Bonnie C. Jackson joined the Company as the Southern Regional Manager in
February 1990 and has served as Vice President - Operations of the Company since
March 1994. Ms. Jackson received a B.A. degree from the University of Texas at
Arlington and a Master of Business Administration degree from the University of
Dallas.
Edward M. Elkin, M.D. has been a director of the Company since July 1, 1985. For
more than the past five years, Dr. Elkin has been performing services relating
to utilization review and quality assurance in hospitals for the New York State
Department of Health. He is certified by the American Board of Pediatrics and
the American Board of Quality Assurance and Utilization Review Physicians. He
received his B.A. Degree from Harvard College and his M.D. Degree from New York
University School of Medicine.
Peter Gutmann has been a director of the Company since July 1, 1985. For more
than the past twenty years, he has been a Professor of Economics and Finance at
Baruch College, City University of New York and was Chairman of the Economics
and Finance Department from 1971 to 1977. Mr. Gutmann was also a director of
Instinet Corporation, a company which operates an automated trading system,
until May 13, 1987 when that
-13-
<PAGE>
corporation was acquired by a subsidiary of Reuters Holdings P.L.C. He received
a B.A. from Williams College, a B.S. from Massachusetts Institute of Technology,
an M.A. from Columbia University and a Ph.D. degree from Harvard University.
Item 11. Executive Compensation
The following table sets forth all plan and non-plan compensation awarded to,
earned or paid to the Company's Chief Executive Officer for each of the
Company's last three fiscal years. No other executive officer had total annual
salary and bonus which exceeded $100,000 during the Company's fiscal year ended
March 31, 1996.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------- ------------
Name and Other Annual All Other
Principal Fiscal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($) (1) (#) ($) (2)
- - ----------- ------ -------- ----- ------------ ------- ------------
Gary Gelman 1996 $397,772 - - - $227
Chairman, 1995 406,745 - - - 811
President 1994 388,800 - - 100,000 210
and CEO
(1) The aggregate amount of all perquisites and other personal benefits paid to
the Chief Executive Officer is not greater than either $50,000 or 10% of
the total annual salary and bonus reported.
(2) Consists of $227, $811 and $210 of matching contributions made by the
Company under the 401(k) profit sharing plan for each of the fiscal years
ended 1996, 1995 and 1994, respectively.
Compensation Plans
The following describes plans adopted by the Company pursuant to which cash or
non-cash compensation was paid or distributed during the years ended March 31,
1996, 1995 or 1994 or pursuant to which such compensation may be distributed in
the future, to the Chief Executive Officer.
401(k) Profit Sharing Plan
Effective January 1, 1991, the Company established a profit sharing plan
covering all employees with one or more years of service as of January 1, 1991,
and measured semi-annually thereafter. The plan is qualified under Section
401(k) of the Internal Revenue Code of 1986 (the "Code"). Such plan requires the
Company to match participants' contributions to the extent of 10% of such
eligible contributions. Under the terms of the Plan, there is a vesting
requirement with respect to Company contributions, but employees will be fully
vested in their own salary deferral contributions.
-14-
<PAGE>
Stock Option Plans
The following description of stock options issued takes account of 100% share
dividends declared October 1, 1991 and June 12, 1990, and to changes in the
option price and number of shares contained, occasioned by anti-dilution
provisions called into effect, as a result of such share dividends.
In July 1985 the Company's Board of Directors adopted the 1985 Stock Option Plan
(the "1985 Plan"). The 1985 Plan provides for the issuance of up to 400,000
Shares to all full-time employees and directors of the Company. Pursuant to the
Plan, options granted may be either incentive stock options, as defined under
the Internal Revenue Code of 1986, as amended, or nonqualified stock options.
Options may be granted during a ten-year period at the fair market value (as
defined in the 1985 Plan) of the Company's Shares at the date of grant. The 1985
Plan limits the market value of Shares underlying options granted to any one
employee to $100,000 per year with certain exceptions and limits options which
may be granted to any shareholder of the Company owning more than 10% of its
voting securities to a maximum term of five years and an exercise price of not
less than 110% of the fair market value of the date of grant. The option term
may be determined by the Board of Directors but no option may be granted with a
term of more than ten years. The options are not transferable, not exercisable
while any previously granted incentive stock options under the 1985 Plan are
outstanding, and are exercisable only while the optionee is associated with the
Company and for three months thereafter, with certain exceptions.
During the fiscal year ended March 31, 1996, 12,500 options were granted under
the 1985 Plan, which included 5,000 options granted to an executive officer of
the Company.
On March 12, 1991, the Board of Directors adopted the Company's 1991 Stock
Option Plan (the "1991 Plan") and on October 1, 1991, the shareholders of the
Company ratified, approved and adopted the 1991 Plan. The 1985 Plan remains in
effect as well. Under the 1991 Plan, a total of 400,000 Shares are reserved for
issuance to employees, including directors and officers who may not be salaried
employees ("Eligible Participants"). The 1991 Plan provides that the number of
Shares subject thereto and the outstanding options and their exercise prices,
are to be appropriately adjusted for mergers, consolidations, recapitalizations,
stock dividends, stock splits or combinations of shares. Shares allocated to
options and stock appreciation rights which have terminated for reasons other
than the exercise thereof may be reallocated to other options and/or stock
appreciation rights.
Both incentive and nonstatutory stock options may be granted under the 1991 Plan
to Eligible Participants, at a price to be determined by the option committee,
provided, however, that incentive stock options must be granted at an exercise
price not less than the fair market value of the Shares on the date of the
grant. Such exercise price may be payable in cash or, with the approval of the
committee which administers the 1991 Plan, by a combination of cash or Shares.
Shares received upon exercise of options granted under the 1991 Plan will be
subject to certain restrictions on sale or transfer. The term of any option may
not exceed ten years from the date of grant. Condi tions of the exercise of
options, which must be consistent with the terms of the 1991 Plan, are fixed by
a committee appointed by the Board of Directors, consisting of not less than two
nor more than five persons. The current committee consists of Messrs. Gelman,
Gutmann and Elkin.
Optionees under the 1991 Plan with incentive options may exercise up to 25
percent of such option granted for each year of service to the Company after the
date of grant of the option, but the committee may accelerate the schedule of
the time or times when an option may be exercised, provided that the fair market
value of the securities subject to an incentive option may not exceed $100,000
at the first time such options become exercisable.
The 1991 Plan also provides for stock appreciation rights, pursuant to which the
optionee may surrender to the Company all or any part of an unexercised option
and receive from the Company in exchange therefor Shares
-15-
<PAGE>
having an aggregate market value equal to the dollar amount obtained by
multiplying the number of Shares subject to the surrendered options by the
amount by which the market value per share at the time of such surrender exceeds
the exercise price per share of the related option. The Company's obligation
arising from an exercise of stock appreciation rights may also be settled by the
payment of cash, or a combination of cash and Shares. The Board of Directors may
at any time terminate or from time to time amend or alter the 1991 Plan.
During the fiscal year ended March 31, 1996, options to purchase 5,000 Shares
were granted to each of the Company's two outside directors under the 1991 Plan
at an option price of $1.875 per Share .
Aggregated Option/SAR Exercises in 1996
and FY-End Option/SAR Values
The following table summarizes the number and dollar value of unexercised stock
options at March 31, 1996 for the Chief Executive Officer.
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)(1)
Value ------------- -------------
Shares Acquired Realized Exercisable/ Exercisable/
Name on Exercise(#) ($) Unexercisable Unexercisable
- - ------------ --------------- -------- ------------- -------------
Gary Gelman - - 100,000/0 $0/$0
Chairman,
President
and CEO
(1) The closing price of the Company's Shares on March 31, 1996 as reported by
the NASDAQ National Market System was $2.3125 per Share.
Employment Agreements
During February 1996, Mr. Gelman's employment agreement with the Company was
extended for an additional year on the terms prevailing. It provides for him to
be employed as Chairman of the Board of Directors and Chief Executive Officer
through March 1997 at an annual salary of $388,800. In addition, Mr. Gelman is
entitled to participate in all employee benefit programs and other policies and
programs of the Company. Mr. Gelman is not required to devote any specific
number of hours to the business of the Company. He is subject to a
non-competition and non-disclosure covenant for a period of three years
following termination of employment with the Company.
Director Compensation
The Company's policy is to pay its non-employee directors a uniform fee of $400
for each Board of Director's meeting attended in person.
-16-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table and notes thereto sets forth information regarding the
beneficial ownership of the Company's Shares as of June 14, 1996 by (i) each
person known by the Company to be the beneficial owner of more than 5% of such
voting security, (ii) each director of the Company and (iii) all officers and
directors of the Company as a group. The percentages have been calculated by
taking into account all Shares owned on the record date as well as all such
Shares with respect to which such person has the right to acquire beneficial
ownership at such date or within 60 days thereafter. Unless otherwise indicated
all persons listed below have sole voting and sole investment power over the
Shares owned.
Amount and Nature
Name and Address of Beneficial Percent of Voting
of Beneficial Owner Ownership (1) (4) Securities (1)
- - ------------------- ----------------- -----------------
Gary Gelman (2) 2,175,200 (3) 49.3%
Peter Gutmann (2) 65,000 (3) 1.5%
Edward M. Elkin, M.D. (2) 45,200 1.0%
Gary J. Knauer (2) 18,500 *
Bonnie C. Jackson (2) 4,500 *
D.H. Blair Investment Corp. 561,224 (5) 12.7%
All officers and directors
as a group (five persons) 2,308,400 52.3%
- - ----------
* Less than 1%
(1) Based on a total of 4,250,000 Shares issued and outstanding and 166,000
Shares issuable upon the exercise of presently exercisable stock options by
persons described in the preceding table.
(2) Address is c/o the Company, One Jericho Plaza, Jericho, N.Y. 11753
(3) Includes 10,000 Shares and 4,000 Shares owned, respectively by the wives of
Messrs. Gelman and Gutmann, as to which beneficial ownership is disclaimed
by the respective reporting person.
(4) Includes the presently exercisable portions of outstanding stock options
(aggregating 166,000 Shares) which, in the case of Messrs. Gelman, Gutmann,
Elkin, and Knauer and Ms. Jackson are 100,000, 19,000, 25,000, 18,500 and
3,500 Shares, respectively.
(5) These Shares are owned of record by D.H. Blair Investment Banking Corp.,
whose address is 44 Wall Street, New York, New York ("Blair Investment")
(532,224 Shares), by Mr. J. Morton Davis' wife (7,200 Shares) and by
Rivkalex Corporation, a private corporation controlled by Mr. Davis's wife
(21,800 Shares). Mr. Davis has reported Blair Investment's Shares as being
beneficially owned by himself but has disclaimed ownership of the 21,800
Shares and 7,200 Shares described in this table owned by Rivkalex
Corporation and by Mr. Davis's wife, respectively.
Item 13. Certain Relationships and Related Transactions
None.
-17-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of March 31, 1996 and 1995
Consolidated Statements of Earnings for the Three Year Period ended
March 31, 1996
Consolidated Statements of Stockholders' Equity for the Three Year
Period ended March 31, 1996
Consolidated Statements of Cash Flows for the Three Year Period
ended March 31, 1996
Notes to Consolidated Financial Statements
Financial Statement Schedules
Financial statement schedules have been omitted because the required
information is inapplicable or because the information is presented
in the financial statements or related notes.
2.A Ninth Amendment to Employment Agreement dated February 13, 1996
between the Company and Gary Gelman.
2.B First Amendment to Lease dated March 28, 1996 between HMS Office,
L.P. as landlord and the Company as tenant with respect to premises
at 222 West las Colinas Blvd., Irving, Texas
2.C Accountants' Consent
2.D Exhibits and Index:
The following were filed as exhibits to the Company's Annual Report on Form 10-K
for its year ended March 31, 1995 and are incorporated by reference herein:
1. Eighth Amendment dated March 2, 1995 to Employment Agreement between
the Company and Gary Gelman.
2 Lease dated March 10, 1995 between Gateway Associates as landlord
and RPM Rehabilitation & Associates, Inc. as tenant with respect to
premises at 901 East Second Avenue, Spokane, Washington.
The following were filed as exhibits to the Company's Annual Report on
Form 10-K for its year ended March 31, 1994 and are incorporated by reference
herein:
-18-
<PAGE>
1. Seventh Amendment dated March 9, 1994 to Employment Agreement
between the Company and Gary Gelman.
2. Lease dated August 20, 1993 between Chasco Company as landlord and
the Company as tenant with respect to premises at One Jericho Plaza,
Jericho, New York.
3. Lease dated June 3, 1993 between Homart Development Co. as landlord
and the Company as tenant with respect to premises at 222 West Las
Colinas Blvd., Irving, Texas.
The following were filed as exhibits to the Company's Annual Report on Form 10-K
for its year ended March 31, 1989 and are incorporated by reference herein:
1. Amendment dated March 1, 1989 to Employment Agreement between the
Company and Gary Gelman.
2. Lease dated October 24, 1988 between Jerry Spiegel as landlord and
the Company as tenant with respect to premises at 375 North
Broadway, Jericho, New York.
3. Agreement dated March 1, 1989 between the Company and The Travelers
Insurance Company.
4. Certificate of Amendment of Certificate of Incorporation of the
Company filed October 19, 1987.
The following were filed as an Exhibit to the Company's Registration Statement
on Form S-18 (File No. 2-99625-NY) and are incorporated by reference herein:
3.1 Certificate of Incorporation of the Company as amended.
10.1 Employment Agreement dated February 1, 1986 between the Company and
Gary Gelman.
10.2 Agreement among the Company, Gary Gelman and D. H. Blair & Co., Inc.
relating to Preferred Stock conversion and other matters.
10.3 1985 Stock Option Plan.
The following were filed as an Exhibit to the Company's Registration Statement
on Form S-3 (File No. 33-40200) and are incorporated by reference herein:
3.2 By-Laws of the Company.
10.1 Fourth Amendment to Employment Agreement dated as of February 27,
1991 between the Company and Gary Gelman.
10.5 1991 Stock Option Plan
Exhibits to the Company's report on Form 8-K dated September 14, 1993 are
incorporated by reference herein.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March 31,
1996.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN CLAIMS EVALUATION, INC.
By: /s/ Gary Gelman
------------------------------
Gary Gelman
Chairman of the Board, President
and Chief Executive Officer
DATE: June 14, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
SIGNATURES TITLE DATE
- - ---------- ----- ----
/s/ Gary Gelman Chairman of the Board, June 14, 1996
- - ----------------------------- President and Chief
Gary Gelman Executive Officer
(Principal Executive
Officer)
/s/ Gary J. Knauer Chief Financial Officer, June 14, 1996
- - ----------------------------- Treasurer (Principal
Gary J. Knauer Financial Officer) and
Secretary
/s/ Edward M. Elkin Director June 14, 1996
- - -----------------------------
Edward M. Elkin, M.D.
/s/ Peter Gutmann Director June 14, 1996
- - -----------------------------
Peter Gutmann
-20-
<PAGE>
AMERICAN CLAIMS EVALUATION, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
(Form 10-K)
March 31, 1996 and 1995
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1996 and 1995
Consolidated Statements of Earnings for the years ended
March 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Financial statement schedules have been omitted as the required information is
inapplicable or the information is presented in the consolidated or related
notes.
<PAGE>
KPMG Peat Marwick LLP
Independent Auditors' Report
The Board of Directors and Stockholders
American Claims Evaluation, Inc.:
We have audited the consolidated financial statements of American Claims
Evaluation, Inc. and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Claims
Evaluation, Inc. and subsidiaries, as of March 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No.115, "Accounting for Certain Investments in
Debt and Equity Securities", in fiscal 1995.
KPMG PEAT MARWICK LLP
Jericho, New York
May 15, 1996
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $7,242,029 5,500,159
Marketable securities 364,500 --
Accounts receivable (net of allowance for doubtful accounts of
$15,000 in 1996 and 1995) 771,585 834,932
Prepaid expenses 53,571 101,793
---------- ---------
Total current assets 8,431,685 6,436,884
Marketable securities -- 1,157,625
Property and equipment, net 269,015 372,259
Excess cost over fair value of net assets acquired, net of accumulated
amortization of $82,414 and $49,989 in 1996 and 1995, respectively 566,086 598,511
Deposits -- 1,905
---------- ---------
$9,266,786 8,567,184
========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 511,694 481,444
Accrued expenses 129,293 119,905
Income taxes payable 142,703 103,142
Deferred income taxes 78,826 181,973
---------- ---------
Total current liabilities 862,516 886,464
---------- ---------
Commitments
Stockholders' equity:
Common stock, $.01 par value - authorized 10,000,000 shares;
4,250,000 shares issued and outstanding 42,500 42,500
Additional paid-in capital 3,267,699 3,267,699
Unrealized gain on marketable securities, net of tax 117,155 131,243
Retained earnings 4,976,916 4,239,278
---------- ---------
Total stockholders' equity 8,404,270 7,680,720
---------- ---------
$9,266,786 8,567,184
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $5,239,848 5,366,130 5,811,928
Cost of services 2,359,114 2,169,421 1,974,918
---------- --------- ---------
Gross margin 2,880,734 3,196,709 3,837,010
Selling, general and administrative expenses 2,586,492 3,500,813 4,065,659
---------- --------- ---------
Operating earnings (loss) 294,242 (304,104) (228,649)
Other income:
Interest income 338,517 272,331 178,606
Gain on sale of marketable securities 470,652 50,988 --
Miscellaneous income 91,227 95,282 84,691
---------- --------- ---------
Earnings before provision for (benefit
from) income taxes 1,194,638 114,497 34,648
Provision for (benefit from) income taxes 457,000 50,000 (13,500)
---------- --------- ---------
Net earnings $ 737,638 64,497 48,148
========== ========= =========
Net earnings per share of common stock $ .17 .02 .01
========== ========= =========
Weighted average common and common
equivalent shares 4,251,662 4,256,072 4,246,214
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Common stock Additional gain on Total
--------------------- paid-in marketable Retained stockholders'
Shares Par value capital securities earnings equity
------ --------- ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993 4,044,000 $ 40,440 2,843,839 -- 4,126,633 7,010,912
Exercise of stock options 206,000 2,060 423,860 -- -- 425,920
Net earnings -- -- -- -- 48,148 48,148
--------- ---------- --------- ------- --------- ---------
Balance at March 31, 1994 4,250,000 42,500 3,267,699 -- 4,174,781 7,484,980
Unrealized gain on market-
able securities, net of tax -- -- -- 131,243 -- 131,243
Net earnings -- -- -- -- 64,497 64,497
--------- ---------- --------- ------- --------- ---------
Balance at March 31, 1995 4,250,000 42,500 3,267,699 131,243 4,239,278 7,680,720
Reduction in unrealized gain
on marketable securities,
net of tax -- -- -- (14,088) -- (14,088)
Net earnings -- -- -- -- 737,638 737,638
--------- ---------- --------- ------- --------- ---------
Balance at March 31, 1996 4,250,000 $ 42,500 3,267,699 117,155 4,976,916 8,404,270
========= ========== ========= ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 737,638 64,497 48,148
----------- --------- ---------
Adjustments to reconcile net earnings to net cash provided
by operating activities net of effect of acquisition:
Depreciation and amortization 144,437 153,594 121,780
Gain on sale of marketable securities (470,652) (50,988) --
Deferred income taxes (96,000) (94,000) (117,500)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 63,347 (10,438) 133,234
(Increase) decrease in prepaid expenses 48,222 9,539 (9,797)
(Increase) decrease in prepaid income taxes -- 166,838 (161,965)
Decrease in deposits 1,905 770 16,314
Increase in accounts payable 30,250 201,322 60,851
Increase (decrease) in accrued expenses 9,388 (57,299) (20,223)
Increase (decrease) in income taxes payable 39,561 103,142 (47,250)
----------- --------- ---------
Total adjustments (229,542) 422,480 (24,556)
----------- --------- ---------
Net cash provided by operating activities 508,096 486,977 23,592
----------- --------- ---------
Cash flows used in investing activities:
Decrease in short-term investments -- 2,030,107 1,010,753
Purchases of marketable securities (26,893) (1,059,317) --
Proceeds from sales of marketable securities 1,269,435 151,423 --
Payments for acquisition, net of cash acquired -- -- (715,448)
Capital expenditures, net (8,768) (87,440) (261,027)
----------- --------- ---------
Net cash provided by investing activities 1,233,774 1,034,773 34,278
----------- --------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options -- -- 425,920
----------- --------- ---------
Net increase in cash and cash equivalents 1,741,870 1,521,750 483,790
Cash and cash equivalents - beginning of year 5,500,159 3,978,409 3,494,619
----------- --------- ---------
Cash and cash equivalents - end of year $ 7,242,029 5,500,159 3,978,409
=========== ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 514,300 36,057 274,889
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) Nature of Business
American Claims Evaluation, Inc. (the Company) is in the business of
verifying the accuracy of hospital bills throughout the United
States submitted to its clients for payment; such clients include
commercial health insurance companies, third-party administrators,
health maintenance organizations and corporations which maintain
self-insurance programs. The Company also provides a full range of
vocational rehabilitation and disability management services through
its wholly-owned subsidiaries.
(b) Principles of Consolidation
The Company's financial statements are prepared on a consolidated basis
and include the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated in consolidation.
(c) Revenue Recognition
Revenue is recognized on hospital bill audits by the Company at the time
an evaluation is completed and results accepted. This is defined as
the date on which the hospital confirms an insurance claim
discrepancy. Revenue for all other services are recognized when the
related services are provided.
(d) Marketable Securities
The Company adopted the provisions of Statement of Financial Accounting
Standards No.115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities" effective April 1, 1994. In accordance
with SFAS 115, marketable securities at March 31, 1995 are
classified as available for sale securities and as a result are
recorded at fair value. Fair value is determined based on quoted
market prices. Unrealized gains, net of taxes, are reported as a
separate component of stockholders' equity. For purposes of
determining realized gains and losses, the cost of marketable
securities sold is based upon the first-in, first-out method.
(e) Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation
and amortization. Depreciation of property and equipment is provided
by the straight-line method over the estimated useful lives of the
respective assets. Leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful lives or
the remaining term of the lease.
(f) Excess of Cost over Fair Value of Net Assets Acquired
The excess of cost over fair value of net assets acquired (goodwill) is
being amortized on a straight-line basis over a period of twenty
years. Amortization expense amounted to $32,425 in each of the years
ended March 31, 1996 and 1995 and $17,564 in the year ended March
31, 1994 and is included in selling, general and administrative
expenses in the consolidated statements of earnings. The Company
assesses the recoverability of unamortized goodwill using the
undiscounted projected future results of the related business.
(Continued)
<PAGE>
2
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(g) Income Taxes
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes", on a
prospective basis. This statement requires the use of the asset and
liability approach for financial accounting and reporting of income
taxes. Under this method, deferred tax assets and liabilities are
recognized based on the temporary differences between the carrying
amounts of assets and liabilities for financial statement purposes
and income tax purposes using enacted tax rates expected to be in
effect when such amounts are realized and settled. The adoption of
this statement did not have a material effect on the Company's
financial position or results of operations.
(h) Fair Value of Financial Instruments
The carrying value of all financial instruments approximate fair value.
(i) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during each reporting period.
Actual results could differ from those estimates.
(j) Earnings Per Share
The computation of earnings per share is based on the weighted average
number of common shares and common share equivalents outstanding.
Common share equivalents include dilutive stock options (using the
treasury stock method) exercisable under the Company's stock option
plans. The weighted average number of common and common equivalent
shares outstanding was 4,251,662, 4,256,072 and 4,246,214 for the
years ended March 31, 1996, 1995 and 1994, respectively.
(k) 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.
(2) Acquisition
On September 14, 1993, the Company acquired all of the outstanding stock
of RPM Rehabilitation & Associates, Inc. (RPM). The total
acquisition cost amounted to $723,500 (including expenses of
$48,500). The purchase price included a cash payment of $675,000 at
closing and may include payments up to an additional $675,000,
contingent upon the future earnings through September 14, 1998, of
RPM as defined in the stock purchase agreement. Through March 1996,
no additional consideration has been earned. The acquisition has
been accounted for as a purchase, and the operating results of RPM
are included in the consolidated statements of earnings from the
date of acquisition. The excess of cost over fair value of net
assets acquired, amounting to approximately $648,500, is being
amortized on a straight-line basis over 20 years.
(Continued)
<PAGE>
3
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following unaudited pro-forma consolidated results of operations
assume that this acquisition occurred on April 1, 1992, and reflects
the historical operations of RPM after including the impact of
certain adjustments, such as: amortization of intangibles and the
related income tax effects:
1994 1993
---- ----
Revenue $ 6,527,659 8,998,438
Net earnings (loss) (4,453) 1,091,365
Earnings per share - .26
=========== =========
The pro-forma results are not necessarily indicative of the actual
results of operations that would have occurred had the acquisition
been made at the beginning of the period, or of results which may
occur in the future.
(3) Marketable Securities
Marketable securities at March 31, 1996 and 1995 consist entirely of
available for sale equity securities. Gross unrealized gains and
fair value for available for sale securities at March 31, 1996 and
1995 were as follows:
1996 1995
---- ----
Cost $ 186,992 958,882
========= =========
Gross unrealized gain $ 177,508 198,743
========= =========
Fair value $ 364,500 1,157,625
========= =========
(4) Property and Equipment
Property and equipment at March 31, 1996 and 1995 consist of the
following:
Estimated
1996 1995 useful life
---- ---- -----------
Equipment $471,889 637,369 3 to 5 years
Furniture and fixtures 175,431 208,910 5 to 10 years
-------- -------
647,320 846,279
Less accumulated depreciation 378,305 474,020
-------- -------
$269,015 372,259
======== =======
Depreciation for the years ended March 31, 1996, 1995 and 1994 amounted to
$112,012, $121,169 and $104,216, respectively.
(Continued)
<PAGE>
4
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Income Taxes
Income tax expense for the years ended March 31, 1996, 1995 and 1994 is
comprised of the following:
Year ended March 31,
------------------------------------
1996 1995 1994
---- ---- ----
Current:
Federal $ 500,000 129,500 78,500
State 53,000 14,500 5,500
--------- ------- ------
553,000 144,000 84,000
--------- ------- ------
Deferred:
Federal (95,000) (86,000) (86,000)
State (1,000) (8,000) (11,500)
--------- ------- ------
(96,000) (94,000) (97,500)
--------- ------- ------
$ 457,000 50,000 (13,500)
========= ====== =======
The actual provision for (benefit from) income taxes differed from that
which would have resulted when applying the statutory Federal income
tax rate as a result of the following items:
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------------------
1996 1995 1994
-------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Expected income tax provision at
the statutory Federal tax rate $406,000 34% $ 39,000 34% $ 12,000 34%
Benefit of graduated tax rates -- -- (9,000) (8) (6,500) (19)
State taxes, net of Federal tax benefit 34,000 3 5,000 4 4,000 12
Amortization of goodwill 11,000 1 11,000 10 6,000 17
Tax exempt interest -- -- -- -- (16,000) (46)
Other, net 6,000 -- 4,000 4 (13,000) (37)
-------- -- -------- -- -------- ---
Actual income tax provision (benefit) $457,000 38% $ 50,000 44% $(13,500) (39)%
======== == ======== == ======== ===
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at March 31, 1996 and 1995
are as follows:
1996 1995
---- ----
Cash basis recognition of revenue and
expense for tax purposes $ 4,000 95,400
Unrealized gains on marketable securities 60,363 67,500
Depreciation 14,463 19,073
-------- -------
$ 78,826 181,973
======== =======
(Continued)
<PAGE>
5
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Major Customers
Revenues from the Company's two largest customers each represented 21% and
11% of consolidated revenues for the year ended March 31, 1996.
During the year ended March 31, 1995, the Company had two customers
who accounted for 22% of revenues each. The Company had two
customers who accounted for 12% of revenues each and another
customer who accounted for 11% of revenues for the year ended March
31, 1994.
(7) Stock Options
The Company has two stock option plans - the 1985 Stock Option Plan and
the 1991 Stock Option Plan - which provide for the granting of stock
options, which may be incentive or non-qualified stock options, to
directors, officers and employees, at option prices equal to the
current market price of the common stock. Accordingly, the Company
makes no charge against earnings with respect to options. Options
may not be exercised within one year from the date of grant, and
expire, if not completely exercised, within five years from the date
of grant. Generally, in any year after the first year, the options
can be exercised with respect to only up to 25% of the shares
subject to the option, computed cumulatively.
Mar. 31, 1996 Mar. 31, 1995
------------- -------------
Options exercisable 153,750 142,250
======= =======
Shares available for grant 307,500 324,000
======= =======
Changes in the options outstanding during the fiscal years 1996, 1995 and
1994 are summarized in the following table:
No. of Price
shares per share
------ ---------
Balance - March 31, 1993 258,000 1.79-12.25
Fiscal 1994:
Options granted 125,000 2.50-3.50
Options exercised (206,000) 1.79-1.82
Options terminated (4,000) 7.75-12.25
--------
Balance - March 31, 1994 173,000 1.82-12.25
Fiscal 1995:
Options granted 29,000 1.88-3.50
Options terminated (16,000) 2.63-12.25
------- ----------
Balance - March 31, 1995 186,000 1.82-7.75
Fiscal 1996:
Options granted 22,500 1.88-2.10
Options terminated (6,000) 3.50
------- ---------
Balance - March 31, 1996 202,500 1.82-7.75
======= =========
(Continued)
<PAGE>
6
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Commitments
Rental expense under non-cancellable operating leases for office space
amounted to $211,592, $223,554 and $270,058 for the years ended
March 31, 1996, 1995 and 1994, respectively. Minimum lease payments
under non-cancelable operating leases, exclusive of future
escalation charges, as of March 31, 1996 are as follows:
1997 $ 167,000
1998 169,000
1999 110,000
2000 56,000
2001 15,000
---------
Total minimum lease
payments $ 517,000
=========
(9) Profit Sharing Plan
Effective January 1, 1991, the Company established a 401(k) profit sharing
plan covering all employees with one or more years of service. Under
the plan, participants can contribute up to 12% of their salaries as
defined, and the Company is required to match participants'
contributions to the extent of 10% of such contributions.
Participants are fully vested to the extent of their own salary
deferral contributions and become vested in Company contributions
over a six-year period in accordance with the terms of the plan. The
401(k) profit sharing plan expense was $7,408, $7,244 and $8,679 for
the years ended March 31, 1996, 1995 and 1994, respectively.
(10) Impact of New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", effective for fiscal years beginning after December
15, 1995, requires among other things, that long-lived and certain
identified intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Impairment losses should be based upon the fair value of the asset
and reported in the period in which the recognition criteria are
first applied and met. The management of the Company does not
believe that the implementation of SFAS No. 121 will have a
significant impact on its financial position or results of
operations.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, "Accounting for Stock-Based Compensation", which
must be adopted by the Company in fiscal 1997. The Company has
elected not to implement the fair value based accounting method for
employee stock options, but has elected to disclose, commencing in
fiscal 1997, the proforma net income and earnings per share as if
such method has been used to account for stock-based compensation
cost as described in the statement.
EXHIBIT 2.A
NINTH AMENDMENT TO EMPLOYMENT AGREEMENT
Ninth amendment entered into as of the 13th day of February, 1996 (the
"Amendment") to a certain Employment Agreement dated February 1, 1986 (as
heretofore amended) (the "Employment Agreement") by and between American Claims
Evaluation, Inc., a New York corporation, having a place of business at One
Jericho Plaza, Jericho, New York 11753-1635 ("Employer"), and Gary Gelman, with
an office c/o Employer ("Employee").
W I T N E S S E T H:
WHEREAS, Employee is employed as Chairman of the Board, President and Chief
Executive Officer of Employer under the Employment Agreement; and
WHEREAS, the parties desire to amend the Employment Agreement to continue the
employment of Employee thereunder, subject to, and in accordance with, the terms
and conditions of the Employment Agreement as presently in existence;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
covenants herein contained, it is agreed as follows:
1. Term
The term of this Agreement shall commence on the 11th day of March, 1996
and continue for a period of one year until March 10, 1997. The Employment
Agreement shall be deemed amended accordingly.
2. General.
The terms of the Employment Agreement are hereby incorporated by reference
and made a part hereof. Except as expressly modified herein, the
Employment Agreement shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on and as of
the day and year first above written.
EMPLOYER: AMERICAN CLAIMS EVALUATION, INC.
By: /s/ Gary J. Knauer
------------------------------------------
Gary J. Knauer - Chief Financial Officer
EMPLOYEE: /s/ Gary Gelman
------------------------------------------
Gary Gelman - Employee
EXHIBIT 2.B
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made and entered into
as of the 28th day of March, 1996 (the "Effective Date") by and between HMS
OFFICE, L.P. ("Landlord") and AMERICAN CLAIMS EVALUATION, INC. ("Tenant").
WITNESSETH:
WHEREAS, Homart Development Co. ("Original Landlord") and Tenant entered into
that certain Office Building-Lease dated June 2, 1993 (the "Lease"), with
respect to the lease of approximately 7,168 rentable square feet (the
"Premises") on the 12th floor of that certain office building known as Xerox
Centre II;
WHEREAS, Original Landlord assigned its interest under the Lease to Landlord,
the current owner of the Building; and
WHEREAS, Landlord and Tenant now desire to terminate the Lease as to 2,650
square feet of the Premises in the location shown on Exhibit A attached hereto
(the "Terminated Space") subject to the terms and conditions set forth below in
this Amendment.
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00), the
mutual covenants herein contained and other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Landlord and Tenant intending
to be and being legally bound do hereby agree as follows:
1. All capitalized terms utilized herein and not defined herein shall have
the meanings ascribed thereto in the Lease.
2. Subject to the provision of Paragraph 5 below, Landlord and Tenant
hereby agree that the term of the Lease shall terminate as to the Terminated
Space only effective as of April 7, 1996 (the "Termination Date"). As a result
of such termination, Landlord and Tenant shall be released of all further
obligations, covenants, and agreements accruing under the Lease as to the
Terminated Space only after the Termination Date. Notwithstanding the foregoing,
in no event shall Tenant or Landlord be released from any of their obligations,
covenants, and agreements which accrue under the Lease as to all of the Premises
prior to the Termination Date (including, without limitation, Tenant's
obligation to pay rent with respect to the period prior to the Termination Date
in accordance with the provisions of the Lease or Tenant's obligations to
deliver the Terminated Premises to Landlord on or prior to the Termination Date)
or any other provisions under the Lease which by their terms expressly survive
the termination or expiration of the Lease. The Lease, as it relates to the
Premises other than the Terminated Space ("Remaining Space"), however, shall
continue in full force and effect, unmodified by this Amendment. As of the
Termination Date, the Premises as defined in the Lease shall be the Remaining
Space which consists of 4,518 rentable square feet. Tenant shall be obligated to
vacate all of the Terminated Premises in the condition required by the Lease on
or prior to the Termination Date. Notwithstanding anything to the contrary
contained herein, if Tenant fails to surrender the Terminated Premises prior to
the Termination Date in accordance with the provisions of this Amendment, Tenant
shall be a tenant at will, and in addition to the remedies available at law and
in equity (including without
<PAGE>
limitation, the right to commence a forcible entry and detainer suit) the
provisions of Section 18(b) of the Lease shall apply to any such holding over
after the Termination Date and Tenant shall not be released from its
obligations, covenants and agreements under the Lease as to the Terminated Space
relating to such holdover period.
3. Paragraph 1(b) of the Lease shall be deleted in its entirety and the
following shall be substituted therefor:
"(b) Minimum Rent: $55,345.50 per annum, in equal monthly installments of
$4,612.13."
4. Paragraph 4(b)(i) of the Lease shall be amended by deleting the ".898%"
in the last line thereof and substituting therefor ".566%".
5. Notwithstanding anything to the contrary set forth in this Amendment,
if Landlord and Staffing Resources, Inc. ("Staffing"), an existing tenant of the
Building, do not enter into a binding amendment to Staffing's existing lease on
or before 5:00 p.m. on April 12, 1996, in form and substance satisfactory to
Landlord in its sole discretion (Staffing Amendment), whereby Staffing shall
lease the Terminated Premises for a term commencing on the Termination Date and
continuing through and until December 31, 2000, then this Amendment shall
terminate automatically effective as of April 5, 1996, and shall be of no force
and effect.
Tenant acknowledges and agrees that if the Staffing Amendment is entered
into by Staffing and Landlord, Landlord will cause Staffing to construct a
Building standard demising wall ("Wall") to separate the Remaining Space from
the Terminated Space after the Termination Date. Landlord shall have no
liability, to Tenant for, and Tenant releases Landlord from, all claims, causes
of action, liability costs and expenses which may result from the installation
of the Wall (including without limitation, any interruption in Tenant's business
resulting therefrom). Tenant shall be obligated to make any improvements to the
Wall within its Premises desired by Tenant, at Tenant's cost and expense,
subject to Landlord's prior written approval and to the other limitations
contained in the Lease.
6. Rider No. 1 to the Lease shall be amended by deleting the "thirty-five
(35)" in the fourth (4th) line thereof and substituting therefor "twenty-seven
(27)".
7. This Amendment shall be binding upon and shall inure to the benefit of
all parties hereto and their permitted successors and assigns under the Lease,
as applicable.
8. This Amendment may be executed in counterparts, and each such executed
counterpart when taken together shall constitute one and the same agreement.
9. Each party represents and warrants to the other that the person signing
on its behalf is duly authorized to execute and deliver this Amendment and that
no further consents or approvals, whether corporate or third party, are required
in order to execute and deliver, and perform its covenants contained in, this
Amendment.
10. The parties agree that each party and its legal counsel has reviewed
or has had the opportunity to review this Amendment and that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not apply in any construction or interpretation of this
Amendment.
11. This Amendment shall be construed and enforced in accordance with the
laws of the State of Texas.
<PAGE>
12. The Lease remains in full force and effect without any further
amendments, alterations, or modifications thereto except as set forth herein,
and Landlord and Tenant expressly ratify and confirm the Lease as amended
hereby.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
28th day of March, 1996.
LANDLORD: TENANT:
HMS OFFICE, L.P.
a Delaware limited partnership
By: Hines Office Company, L.L.C, AMERICAN CLAIMS
General Partner EVALUATION, INC.
By: /s/Tom Owens By: /s/ Gary Gelman
------------------------- -----------------------
Its: Manager Name: Gary Gelman
Its: President
EXHIBIT 2.C
KPMG PEAT MARWICK LLP
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
American Claims Evaluation, Inc.
We consent to incorporation by reference in the Registration Statement No.
33-41350 on Form S-8 of American Claims Evaluation, Inc. of our report dated May
15, 1996, relating to the consolidated balance sheets of American Claims
Evaluation, Inc. and subsidiaries as of March 31, 1996 and 1995, the related
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended March 31, 1996 which report appears in the
March 31, 1996 annual report on Form 10-K of American Claims Evaluation, Inc.
KPMG PEAT MARWICK LLP
Jericho, New York
June 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,242,029
<SECURITIES> 364,500
<RECEIVABLES> 786,585
<ALLOWANCES> 15,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,431,685
<PP&E> 647,320
<DEPRECIATION> 378,305
<TOTAL-ASSETS> 9,266,786
<CURRENT-LIABILITIES> 862,516
<BONDS> 0
0
0
<COMMON> 42,500
<OTHER-SE> 3,267,699
<TOTAL-LIABILITY-AND-EQUITY> 9,266,786
<SALES> 5,239,848
<TOTAL-REVENUES> 5,239,848
<CGS> 2,359,114
<TOTAL-COSTS> 2,359,114
<OTHER-EXPENSES> 2,586,492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,194,638
<INCOME-TAX> 457,000
<INCOME-CONTINUING> 737,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 737,638
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
