<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, 1997
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
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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
(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 13, 1997, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $1,980,868. 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 13, 1997
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 13, 1996, there were 4,073,500 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 Reports on Form 8-K dated September 14, 1993 and April 21, 1997 are
hereby incorporated by reference.
TOTAL PAGES IN THIS REPORT: 17 EXHIBIT INDEX: PAGE 15
[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. Currently, the Company
provides a full range of vocational rehabilitation and disability management
services through its wholly owned subsidiary, RPM Rehabilitation & Associates,
Inc.
Through April 1997, the Company was also 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. Over the past several years, the hospital bill audit ("HBA") industry
as a whole suffered a decline in demand for its services and the number of
hospital bill audits being performed. The Company experienced decreasing
revenue and shrinking gross margins throughout this period. Management
determined that the HBA division would no longer be able to sustain operating
earnings as it began the new fiscal year and opted to sell its HBA division to
one of its competitors. Accordingly, the HBA division has been reflected as a
discontinued operation and, unless otherwise indicated, all of the information
contained in this Item has been restated to delete data applicable to the HBA
division (See Note 2 to the Consolidated Financial Statements in this Annual
Report on Form 10-K). As defined in the agreement, the Company will be entitled
to payments based upon the net revenues generated over the period ending April
30, 2000. Due to the uncertainty of the future of hospital bill auditing as a
viable cost containment alternative, management does not anticipate the
potential value of these payments to be material.
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 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 are to
bring the injured worker back to work with the employer of injury as soon as
medically feasible. The role of a vocational rehabilitation consultant 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 consultant 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 indicates a trusting, team approach which allows for
clear and accurate assessments that expedites the adjudication process,
resulting in timely and successful case closure.
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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. L & I has extended all
vocational service contracts to August 1997. 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.
American Rehabilitation Services, Inc. ("ARS"), a New York corporation, was
formed by the Company in November 1993 to expand its vocational rehabilitation
services. ARS remained inactive through August 1996, at which time it was
dissolved.
Marketing and Advertising
The President 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.
Competition
The vocational rehabilitation field is highly competitive. The Company competes
with a number of businesses that 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 that the
Company does not provide.
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 consultants, proper pricing and range
of services offered are the principal factors that will enable the Company to
compete effectively.
Employees
As of March 31, 1997, the Company had 27 full-time employees and five part-time
employees. Of these full-time employees, four were in management, thirteen were
vocational rehabilitation consultants and ten were in administration.
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 maintained its National Operations Center for its hospital bill audit
operations in Dallas, Texas. This facility consists of 4,500 square feet of
space on an amended lease which expires in July 1998. The Company is presently
seeking a sublessee to occupy the space. 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.
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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, 1997.
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<PAGE>
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, 1995 through March
31, 1997:
High Low
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
Fiscal 1997:
4/01/96 - 6/30/96 2 9/16 2 1/16
7/01/96 - 9/30/96 2 3/8 1 1/2
10/01/96 - 12/31/96 2 7/16 1 1/4
1/01/96 - 3/31/97 1 15/16 1 5/16
The number of holders of the Company's Shares was approximately 950 on March
31, 1997, 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, 1997.
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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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Summary Earnings Data (1)
Revenues $1,219,890 $1,293,166 $1,304,212 $748,794 $ --
Operating loss from
continuing operations (581,431) (635,462) (840,886) (912,848) (884,472)
Earnings (loss) from continuing
operations before provision
for (benefit from) income
taxes 167,514 264,934 (422,285) (649,551) (611,303)
Net earnings (loss) from
continuing operations 94,514 156,934 (287,285) (410,551) (374,303)
Discontinued operations (2) 210,767 580,704 351,782 458,699 1,452,722
Net earnings 305,281 737,638 64,497 48,148 1,078,419
Net earnings per share:
Continuing operations $.02 $.04 $(.07) $(.10) $(.09)
Discontinued operations $.05 $.13 $.09 $.11 $.35
Net earnings $.07 $.17 $.02 $.01 $.26
Weighted average common
and common share
equivalents 4,151,421 4,251,662 4,256,072 4,246,214 4,212,332
</TABLE>
<TABLE>
<CAPTION>
March 31,
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1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $7,607,725 $7,569,169 $5,550,420 $6,445,381 $6,766,471
Total assets 8,791,554 9,266,786 8,567,184 8,150,779 7,733,119
Stockholders' equity 8,294,179 8,404,270 7,680,720 7,484,980 7,010,912
</TABLE>
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(1) There were no cash dividends paid per Common Share during this period.
(2) See note (2) to the consolidated financial statements in this Annual
Report on Form 10-K
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Business Environment
Over the past several years, the hospital bill audit ("HBA") industry as a
whole suffered a decline in demand for its services and the number of hospital
bill audits being performed. This negative trend accelerated during Fiscal 1997
and management determined that the Company's HBA division would not be able to
continue to generate net earnings on a going forward basis in the upcoming
fiscal year. The Company then entered into an agreement to sell the HBA
division to one of its competitors in April 1997. As defined in the agreement,
the Company will be entitled to payments based upon the net revenues generated
over the period ending April 30, 2000. Due to the uncertainty of the future of
hospital bill auditing as a viable cost containment alternative, management
does not anticipate the potential value of these payments to be material. The
financial statements have been reclassified to exclude the operating results of
the HBA division from the continuing operations and account for them as
discontinued operations (see Note 2 to the Consolidated Financial Statements.)
The following discussion relates only to the Company's continuing operations,
unless otherwise noted.
Summary of Operations - Fiscal years ended March 31, 1997, 1996 and 1995
For the fiscal year ended March 31, 1997 ("Fiscal 1997"), the Company had net
earnings from continuing operations of $94,514 or $.02 per share, coupled with
net earnings of $210,767 from discontinued operations, resulting in total net
earnings after discontinued operations of $305,281 or $.07 per share. During
the fiscal year ended March 31, 1996 ("Fiscal 1996"), the Company had net
earnings of $156,934 or $.04 per share from continuing operations with earnings
of $580,704 from discontinued operations producing total net earnings of
$737,638 or $.17 per share. The Company had a net loss from operations of
$287,285, a net loss per share of $.07, for the fiscal year ended March 31,
1995 ("Fiscal 1995"), net earnings of $351,782 from discontinued operations and
net earnings of $64,497 after discontinued operations, or net earnings per
share of $.02.
During Fiscal 1997, revenue from vocational rehabilitation services totaled
$1,219,890, a 5.7% decrease from the $1,293,166 reported for Fiscal 1996.
Revenue for Fiscal 1996 had experienced only a marginal decrease (less than 1%)
from the $1,304,212 generated in Fiscal 1995. The majority of the Company's
vocational rehabilitation services are provided to the Washington State
Department of Labor & Industries ("L & I"). Although referrals for services
from this client have decreased, the Company has maintained a consistent market
share in its two contract regions. Management has continued to focus its
marketing plans on self-insured corporations as a source of new business and
for decreasing its dependence on the L & I contracts.
The cost of services was 42.3% as a percentage of revenues for Fiscal 1997 as
compared to 44.8% as a percentage of revenues for Fiscal 1996. This decrease
was caused in part by an increase in vocational rehabilitation services
provided to self-insured clients, which are billed at higher rates than those
provided under the L & I contracts. 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.
Selling, general and administrative expenses during Fiscal 1997 decreased to
$1,280,644 from $1,349,086 in Fiscal 96. During Fiscal 1995, selling, general
and administrative expenses were $1,508,740. Management is currently exploring
various alternatives to decrease corporate overhead which had previously
supported the HBA division's operations.
Interest income increased to $417,293 during Fiscal 1997, as compared to
interest income of $338,517 and $272,331 for Fiscal 1996 and Fiscal 1995,
respectively. This increase was a direct result of the increase in
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<PAGE>
available cash balances (as the Company liquidated its investments in
marketable securities) combined with a rise in prevailing market rates. During
Fiscal 1997, 1996 and 1995, the Company realized gains on the sales of
marketable securities of $285,356 $470,652 and $50,988, respectively.
Miscellaneous income, representing ancillary revenues, amounted to $46,296 in
Fiscal 1997, as compared with ancillary revenues of $91,277 for Fiscal 1996 and
$95,282 for Fiscal 1995.
Liquidity and Capital Resources
At March 31, 1997, the Company had working capital of $7,607,725 as compared to
working capital of $7,569,169 at March 31, 1996.
During Fiscal 1997, operating activities of continuing operations used
$264,477, primarily due to gains on the sale of marketable securities and a
decrease in income tax payable. Cash flows of $496,934 were provided by
discontinued operations. During Fiscal 1996, cash flows used by operating
activities amounted to $238,675 offset by $746,771 of net cash flows provided
by discontinued operations.
Net cash provided by investing activities of $472,348 during the fiscal year
ended March 31, 1997 consisted of $591,116 of proceeds from the sales of
marketable securities, net of $118,768 of marketable securities purchases.
During Fiscal 1997, the Company used $298,217 in its financing activities to
purchase 176,500 shares of its common stock. There were no cash flows from
financing activities during Fiscal 1996.
The Company has intensified its review of strategic alternatives for maximizing
shareholder value. With the disposition of the HBA division completed, the
Company will focus its attention on seeking acquisitions. 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.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement No. 128,
"Earnings per Share" (SFAS 128"). SFAS 128 establishes standards for the
computation and presentation of earnings per share ("EPS"). The provisions of
SFAS 128 are effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. SFAS 128 does not permit early
application and requires restatement of all prior period EPS data presented. In
the opinion of management, adoption of SFAS 128 will not have a material effect
on the Company's previously reported EPS.
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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<PAGE>
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 50 Chairman of the Board,
President and Chief Executive Officer
Gary J. Knauer 37 Chief Financial Officer,
Treasurer and Secretary
Bonnie C. Jackson 54 Vice President - Operations
Edward M. Elkin, M.D. 58 Director
Peter Gutmann 68 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. In March
1996, Mr. Gelman became Chairman of the Board of Directors for Misonix, Inc., a
publicly traded company engaged in the design, development and manufacturing of
ultrasonic medical devices.
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. Before 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
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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 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 $100,000 during the Company's fiscal year ended
March 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
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Name and Other Annual All Other
Principal Fiscal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($) (1) (#) ($) (2)
- - ----------- ------ ---------- --------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gary Gelman 1997 $397,772 - - - $ -
Chairman, 1996 397,772 - - - 227
President 1995 406,745 - - - 811
and CEO
</TABLE>
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(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 and $811 of matching contributions made by the Company
under the 401(k) profit sharing plan for the fiscal years ended 1996
and 1995, 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,
1997, 1996 and 1995 or pursuant to which such compensation may be distributed
in the future, to the Chief Executive Officer.
401(k) Profit Sharing Plan
The Company sponsors a profit sharing plan covering all employees having
reached the age of 21 with one or more years of service. 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.
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Stock Option Plans
In July 1985, the Company's Board of Directors adopted the 1985 Stock Option
Plan (the "1985 Plan"). As at March 31, 1997, the 1985 Plan has expired, except
as to options outstanding, and no additional options may be granted. The 1985
Plan provided 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
could have been either incentive stock options, as defined under the Internal
Revenue Code of 1986, as amended, or nonqualified stock options. Options were
to be granted at the fair market value (as defined in the 1985 Plan) of the
Company's Shares at the date of grant. The option terms were determined by the
Board of Directors, but no options were 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, 1997, 35,000 options were granted under
the 1985 Plan. Additionally, the Board of Directors approved a change in the
exercise price of 5,000 outstanding employee options to $2.25, a price in
excess of the then current fair market value.
In March 1991, the Board of Directors adopted the Company's 1991 Stock Option
Plan (the "1991 Plan") and in October 1991, the shareholders of the Company
ratified, approved and adopted the 1991 Plan. 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 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.
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During the fiscal year ended March 31, 1997, options to purchase 15,000 Shares
were granted to each of the Company's two outside directors under the 1991 Plan
at an option price of $2.25 per Share, exercisable immediately. Additionally,
the Board of Directors approved a change in the exercise price of 14,000
outstanding employee options to $2.25, a price in excess of the then current
fair market value.
During May 1997, the Board of Directors approved the 1997 Incentive Stock
Option Plan ("the 1997 Plan") covering 750,000 Shares. The Board of Directors
then granted 300,000 Shares at an exercise price of $1.25, exercisable
immediately, to the Chief Executive Officer on June 4, 1997. The 1997 Plan and
the grant of options thereunder are subject to shareholder approval at the next
Annual Meeting of Shareholders.
Aggregated Option/SAR Exercises in 1997
and FY-End Option/SAR Values
The following table summarizes the number and dollar value of unexercised stock
options at March 31, 1997 for the Chief Executive Officer.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Value FY-End (#) FY-End ($)(1)
Shares Acquired Realized Exercisable/ Exercisable/
Name on Exercise(#) ($) Unexercisable Unexercisable
- - ------------ --------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Gary Gelman - - 100,000/0 $0/$0
Chairman,
President
and CEO
</TABLE>
(1) The closing price of the Company's Shares on March 31, 1997 as reported
by the NASDAQ National Market System was $1.4375 per Share.
Employment Agreements
Mr. Gelman's employment agreement with the Company provides for him to be
employed as Chairman of the Board of Directors and Chief Executive Officer at
an annual salary of $388,800. Effective June 4, 1997, Mr. Gelman's annual
salary has been reduced to $238,800. 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.
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<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 13, 1997 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.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Percent of Voting
of Beneficial Owner Ownership (1) (5) Securities (1)
- - ------------------- ---------------------- ------------------
<S> <C> <C>
Gary Gelman (2) 2,696,400 (3)(4) 56.4%
Peter Gutmann (2) 80,000 (3) 1.7%
Edward M. Elkin, M.D. (2) 60,200 1.3%
Gary J. Knauer (2) 25,250 *
Bonnie C. Jackson (2) 7,000 *
D.H. Blair Investment Corp. 561,224 (6) 11.7%
All officers and directors
as a group (five persons) 2,868,850 60.0%
</TABLE>
- - -------------------
* Less than 1%
(1) Based on a total of 4,073,500 Shares issued and outstanding, 505,250
Shares issuable upon the exercise of presently exercisable stock options
by persons described in the preceding table and 200,000 Shares being
purchased by Mr. Gelman from the Company.
(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 200,000 Shares which Mr. Gelman agreed on June 4, 1997 to
purchase from the Company at a price of $1.25 per Share.
(5) Includes the presently exercisable portions of outstanding stock options
(aggregating 505,250 Shares) which, in the case of Messrs. Gelman,
Gutmann, Elkin, and Knauer and Ms. Jackson are 400,000, 34,000, 40,000,
25,250 and 6,000 Shares, respectively.
(6) 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.
-14-
<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, 1997 and 1996
Consolidated Statements of Earnings for the Three Year Period
ended March 31, 1997
Consolidated Statements of Stockholders' Equity for the Three
Year Period ended March 31, 1997
Consolidated Statements of Cash Flows for the Three Year Period
ended March 31, 1997
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 Accountants' Consent
2.B 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, 1996 and are incorporated by reference
herein:
1. Ninth Amendment dated February 13, 1996 to Employment Agreement
between the Company and Gary Gelman.
2. First Amendment to Lease dated March 28, 1996 between HMS Office,
L.P. as landlord and the Company as tenant with respect to
premises located 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, 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:
-15-
<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 reports on Form 8-K dated September 14, 1993 and
April 21, 1997 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, 1997.
-16-
<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 24, 1997
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 24, 1997
- - ------------------------ President and Chief
Gary Gelman Executive Officer
(Principal Executive Officer)
/s/ Gary J. Knauer Chief Financial Officer, June 24, 1997
- - ------------------------ Treasurer (Principal Financial
Gary J. Knauer Officer) and Secretary
/s/ Edward M. Elkin Director June 24, 1997
- - ------------------------
Edward M. Elkin, M.D.
/s/ Peter Gutmann Director June 24, 1997
- - ------------------------
Peter Gutmann
-17-
<PAGE>
AMERICAN CLAIMS EVALUATION, INC.
AND SUBSIDIARY
Consolidated Financial Statements
(Form 10-K)
March 31, 1997 and 1996
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Index to Consolidated Financial Statements
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1997 and 1996
Consolidated Statements of Earnings for the years ended
March 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Financial statement schedules have been omitted as the
required information is inapplicable or the information
is presented in the related notes to the consolidated
financial statements.
<PAGE>
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 subsidiary 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 subsidiary, as of March 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1997, 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 30, 1997
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $7,648,617 7,242,029
Marketable securities -- 364,500
Accounts receivable (net of allowance for doubtful
accounts of $1,000 in 1997 and 1996) 119,880 99,642
Current assets of discontinued operations 272,871 704,494
Prepaid expenses 24,732 21,020
Deferred income taxes 39,000 --
----------- -----------
Total current assets 8,105,100 8,431,685
Property and equipment, net 81,461 134,618
Non-current assets of discontinued operations 71,332 134,397
Excess cost over fair value of net assets acquired, net of accumulated
amortization of $114,839 and $82,414 in 1997 and 1996, respectively 533,661 566,086
----------- -----------
$8,791,554 9,266,786
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 21,299 20,272
Accrued expenses 94,074 92,734
Current liabilities of discontinued operations 362,525 527,981
Income taxes payable 11,004 142,703
Deferred income taxes 8,473 78,826
----------- -----------
Total current liabilities 497,375 862,516
----------- -----------
Commitments
Stockholders' equity:
Common stock, $.01 par value - authorized 10,000,000
shares; 4,250,000 shares issued 42,500 42,500
Additional paid-in capital 3,267,699 3,267,699
Unrealized gain on marketable securities, net of tax -- 117,155
Retained earnings 5,282,197 4,976,916
----------- -----------
8,592,396 8,404,270
Less treasury shares, at cost, 176,500 shares at March 31, 1997 (298,217) --
----------- -----------
Total stockholders' equity 8,294,179 8,404,270
----------- -----------
$8,791,554 9,266,786
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues $1,219,890 1,293,166 1,304,212
Cost of services 520,677 579,542 636,358
----------- ----------- -----------
Gross margin 699,213 713,624 667,854
Selling, general and administrative expenses 1,280,644 1,349,086 1,508,740
----------- ----------- -----------
Operating loss from continuing operations (581,431) (635,462) (840,886)
Other income:
Interest income 417,293 338,517 272,331
Gain on sale of marketable securities 285,356 470,652 50,988
Miscellaneous income 46,296 91,227 95,282
----------- ----------- -----------
Earnings (loss) from continuing operations
before provision for (benefit from)
income taxes 167,514 264,934 (422,285)
Provision for (benefit from) income taxes 73,000 108,000 (135,000)
----------- ----------- -----------
Net earnings (loss) from continuing operations 94,514 156,934 (287,285)
Discontinued operations (note 2):
Earnings from operations, net of taxes of
$151,000 in 1997, $349,000 in 1996 and
$185,000 in 1995) 271,767 580,704 351,782
Provision for loss on disposal, net of taxes (61,000) -- --
----------- ----------- -----------
Net earnings $305,281 737,638 64,497
=========== =========== ===========
Net earnings (loss) per share:
From continuing operations .02 .04 (.07)
From discontinued operations .05 .13 .09
----------- ----------- -----------
Net earnings per share $.07 .17 .02
=========== =========== ===========
Weighted average common and common
equivalent shares outstanding 4,151,421 4,251,662 4,256,072
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Common stock Additional gain on
------------------------- paid-in marketable
Shares Par value capital securities
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at March 31, 1994 4,250,000 $42,500 3,267,699 --
Unrealized gain on market-
able securities, net of tax -- -- -- 131,243
Net earnings -- -- -- --
---------- ---------- ---------- ----------
Balance at March 31, 1995 4,250,000 42,500 3,267,699 131,243
Reduction in unrealized gain
on marketable securities,
net of tax -- -- -- (14,088)
Net earnings -- -- -- --
---------- ---------- ---------- ----------
Balance at March 31, 1996 4,250,000 42,500 3,267,699 117,155
Reduction in unrealized gain on
marketable securities,
net of tax -- -- -- (117,155)
Purchase of common stock -- -- -- --
Net earnings -- -- -- --
---------- ---------- ---------- ----------
Balance at March 31, 1997 4,250,000 $42,500 3,267,699 --
========== ========== ========== ==========
<CAPTION>
Treasury stock Total
Retained -------------------------- stockholders'
earnings Shares Amount equity
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at March 31, 1994 4,174,781 -- $ -- 7,484,980
Unrealized gain on market-
able securities, net of tax -- -- -- 131,243
Net earnings 64,497 _ _ 64,497
---------- ---------- ---------- ----------
Balance at March 31, 1995 4,239,278 -- -- 7,680,720
Reduction in unrealized gain
on marketable securities,
net of tax -- -- -- (14,088)
Net earnings 737,638 -- -- 737,638
---------- ---------- ---------- ----------
Balance at March 31, 1996 4,976,916 -- -- 8,404,270
Reduction in unrealized gain on
marketable securities,
net of tax -- -- -- (117,155)
Purchase of common stock -- (176,500) (298,217) (298,217)
Net earnings 305,281 -- -- 305,281
---------- ---------- ---------- ----------
Balance at March 31, 1997 5,282,197 (176,500) $(298,217) 8,294,179
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) from continuing operations $94,514 156,934 (287,285)
----------- ----------- -----------
Adjustments to reconcile net earnings (loss) to
net cash used in continuing operations:
Depreciation and amortization 128,647 144,437 153,594
Gain on sale of marketable securities (285,356) (470,652) (50,988)
Deferred income taxes (49,000) (96,000) (94,000)
Changes in assets and liabilities:
Accounts receivable (20,238) (3,714) 5,462
Prepaid expenses (3,712) 5,470 (12,905)
Prepaid income taxes -- -- 166,838
Accounts payable 1,027 (22,665) 17,175
Accrued expenses 1,340 7,954 (5,800)
Income taxes payable (131,699) 39,561 103,142
----------- ----------- -----------
Total adjustments (358,991) (395,609) 282,518
----------- ----------- -----------
Net cash used in operating activities
of continuing operations (264,477) (238,675) (4,767)
----------- ----------- -----------
Net cash flows provided by discontinued operations 496,934 746,771 491,744
----------- ----------- -----------
Cash flows from investing activities:
Decrease in short-term investments -- -- 2,030,107
Purchases of marketable securities (118,768) (26,893) (1,059,317)
Proceeds from sales of marketable securities 591,116 1,269,435 151,423
Capital expenditures, net -- (8,768) (87,440)
----------- ----------- -----------
Net cash provided by investing activities 472,348 1,233,774 1,034,773
----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock (298,217) -- --
----------- ----------- -----------
Net increase in cash and cash equivalents 406,588 1,741,870 1,521,750
Cash and cash equivalents - beginning of year 7,242,029 5,500,159 3,978,409
----------- ----------- -----------
Cash and cash equivalents - end of year $7,648,617 7,242,029 5,500,159
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $366,279 514,300 36,057
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Business
American Claims Evaluation, Inc. (the Company) provides a full range of
vocational rehabilitation and disability management services through
its wholly-owned subsidiary, RPM Rehabilitation & Associates, Inc.
(b) Principles of Consolidation
The Company's financial statements are prepared on a consolidated basis
and include the Company and its wholly-owned subsidiary. All
significant intercompany transactions and balances have been
eliminated in consolidation.
(c) Revenue Recognition
Revenue for vocational rehabilitation 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, 1996 were
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, 1997, 1996 and 1995 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.
(g) Long-Lived Assets
In March 1995, 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," was issued. SFAS No.121
requires that long-lived assets and certain identifiable intangibles
to be held and used or
(Continued)
<PAGE>
2
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
disposed of 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 when measured by comparing the carrying
amount of an asset to the future net cash flows expected to be
generated by the asset. During fiscal 1997, the Company adopted SFAS
No.121 and determined that no impairment loss need be recognized for
applicable assets of continuing operations, and thus, it did not have
a material impact on the Company's financial position or results of
operations.
(h) Income Taxes
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards No.109,
"Accounting for 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.
(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 Financial Accounting Standards Board has issued SFAS No.128,
"Earnings per Share" which establishes standards for computing and
presenting EPS. The provisions of SFAS No.128 are effective for
financial statement issued for periods ending after December 15,
1997, including interim periods. SFAS No.128 does not permit early
application and requires restatement of all prior period EPS data
presented. In the opinion of management, adoption of SFAS No.128 will
not have a material effect on the Company's previously reported EPS.
(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) Discontinued Operations
During April 1997, the Company signed an agreement to sell its hospital
bill audit division. As defined in the agreement, the Company will be
entitled to an ongoing stream of payments based upon the net revenues
generated over the period ending April 30, 2000. Management expects
that these payments will not be material. The Company anticipates
that the remaining assets and liabilities will be sold, relocated or
settled no later than September 30, 1997.
The Company's consolidated financial statements have been reclassified to
reflect the effects of the decision to account for the sale of the
hospital bill audit division as discontinued operations.
(Continued)
<PAGE>
3
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Accordingly, the net sales, costs and expenses, assets and
liabilities, and cash flows associated with the hospital bill audit
operations have been excluded from the respective captions in the
accompanying consolidated balance sheets, statements of earnings and
statements of cash flows.
Revenues of the discontinued operations were $1,846,365, $3,946,682 and
$4,061,918 for the fiscal years ended March 31, 1997, 1996 and 1995,
respectively.
The following summarizes assets and liabilities of the discontinued
operations which have been segregated in the accompanying
consolidated balance sheets:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current assets - discontinued operations:
Accounts receivable, net $258,116 671,943
Prepaid expenses 14,755 32,551
-------- --------
$272,871 704,494
======== ========
Non-current assets - discontinued operations:
Property and equipment, net $71,332 134,397
======== ========
Current liabilities - discontinued operations:
Accounts payable 266,480 491,422
Accrued expenses 96,045 36,559
-------- --------
$362,525 527,981
======== ========
</TABLE>
Discontinued operations include management's best estimates of the
amounts expected to be realized on the liquidation of the hospital
bill audit division. While these estimates are based on an analysis
of the recoverability of assets and estimated losses during the
phase-out period, actual results may differ.
(3) 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 1997, no additional
consideration has been earned. 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.
(4) Marketable Securities
Marketable securities at March 31, 1996 consisted entirely of available
for sale equity securities. Gross unrealized gains and fair value for
available for sale securities at March 31, 1996 were as follows:
Cost $ 186,992
========
Gross unrealized gain $ 177,508
========
Fair value $ 364,500
========
(Continued)
<PAGE>
4
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Property and Equipment
Property and equipment at March 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
Estimated
1997 1996 useful life
---- ---- -----------
<S> <C> <C> <C>
Equipment $ 276,918 276,918 3 to 5 years
Furniture and fixtures 107,418 107,418 5 to 10 years
---------- ---------
384,336 384,336
Less accumulated depreciation 302,875 249,718
---------- ---------
$ 81,461 134,618
========== =========
</TABLE>
Depreciation expense for the years ended March 31, 1997, 1996 and 1995
amounted to $53,157, $61,735 and $71,448, respectively.
(6) Income Taxes
Income tax expense for the years ended March 31, 1997, 1996 and 1995 is
comprised of the following:
Year ended March 31,
------------------------------------------
1997 1996 1995
---- ---- ----
Current:
Federal $ 75,000 104,900 (123,300)
State 8,000 8,000 (8,000)
---------- ---------- -----------
83,000 112,900 (131,300)
---------- ---------- -----------
Deferred:
Federal (10,000) (4,900) (3,700)
State - - -
---------- ---------- -----------
(10,000) (4,900) (3,700)
---------- ---------- -----------
$ 73,000 108,000 (135,000)
========== ========== ===========
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,
---------------------------------------
1997 1996 1995
------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Expected income tax provision (benefit)
at the statutory Federal tax rate $ 57,000 34% $ 90,000 34% $ (144,000) (34)%
State taxes, net of Federal tax benefit 5,000 3 5,000 2 (5,000) (1)
Amortization of goodwill 11,000 7 11,000 4 11,000 2
Other, net - - 2,000 1 3,000 1
---------- -- --------- -- --------- ---
Actual income tax provision (benefit) $ 73,000 44% $ 108,000 41% $ (135,000) (32)%
========== == ========= == ========= ===
</TABLE>
(Continued)
<PAGE>
5
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at March 31, 1997
and 1996 are as follows:
<TABLE>
<S> <C> <C>
Deferred tax assets:
Discontinued operations $ 39,000 -
======== ========
Deferred tax liabilities:
Cash basis recognition of revenue
and expense for tax purposes - 4,000
Unrealized gains on marketable securities - 60,353
Depreciation 8,473 14,473
-------- --------
$ 8,473 78,826
======== ========
</TABLE>
(7) Major Customer
The Company had one customer who accounted for 84%, 87% and 91% of
consolidated revenues for the years ended March 31, 1997, 1996 and
1995, respectively. Services are performed by the Company for this
customer under two separate contracts which expire in August 1997.
The Company anticipates that these contracts will be renewed.
(8) Treasury Stock
During fiscal 1997, the Company repurchased 176,500 shares of its own
common shares through open market transactions at an aggregate cost
of $298,217.
(9) Stock Options
The Company has two stock option plans, the 1985 Stock Option Plan and
the 1991 Stock Option Plan. The 1985 Plan, which provided for the
granting of 400,000 shares of the Company's common stock expired,
except as to options outstanding.
The 1991 Plan provides for the granting of 400,000 stock options, which
may be incentive or non-qualified stock options, to directors and
employees, at option prices not less than the fair market value on
the date the option is granted.
Options become exercisable as determined at the date of grant by a
committee of the Board of Directors. Options expire ten years after
the date of grant unless an earlier expiration date is set at the
time of grant. The vesting schedules for the options are from zero to
five years.
Changes in the options outstanding during the fiscal years 1997, 1996 and
1995 are summarized in the following table:
<PAGE>
6
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Weighted
No. of average
shares exercise price
--------- --------------
Balance - March 31, 1994 173,000 $ 2.83
Fiscal 1995:
Options granted 29,000 2.38
Options terminated (16,000) 5.14
--------- ----
Balance - March 31, 1995 186,000 2.57
Fiscal 1996:
Options granted 22,500 2.00
Options terminated (6,000) 3.50
--------- ----
Balance - March 31, 1996 202,500 2.48
Fiscal 1997:
Options granted 65,000 2.25
Options terminated (3,000) 2.33
--------- ----
Balance - March 31, 1997 264,500 $ 2.29
========= ====
In September 1996, the Company's Board of Directors approved a change in
the exercise price of 19,000 outstanding employee stock options to an
exercise price of $2.25 per share.
During May 1997, the Board of Directors approved the 1997 Incentive Stock
Option Plan (the "1997 Plan") covering 750,000 shares. The Board of
Directors then granted 300,000 shares at an exercise price of $1.25
per share, exercisable immediately. The 1997 Plan and the grant of
options thereunder are subject to shareholder approval.
The following table sets forth the exercise prices, the number of options
outstanding and exercisable, and the remaining contractual lives of
the Company's stock options at March 31, 1997:
<TABLE>
<CAPTION>
Number of options Weighted average
------------------------------ contractual
Exercise price Outstanding Exercisable life remaining
-------------- ----------- ----------- --------------
<S> <C> <C> <C>
1.82 - 2.25 258,000 201,750 7.0 years
3.50 5,500 4,000 7.0 years
7.75 1,000 1,000 4.5 years
</TABLE>
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. Had compensation expense for the
(Continued)
<PAGE>
7
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Company's stock option plans been determined based on the fair value
at the grant date for awards in fiscal 1997 and 1996 consistent with
the provisions of SFAS No.123, the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts
indicated below:
1997 1996
---- ----
Net earnings, as reported $ 305,281 737,638
Net earnings, pro forma 241,458 717,316
Net earnings per share, as reported .07 .17
Net earnings per share, pro forma .06 .17
The per share weighted average fair value of stock options granted during
fiscal 1997 and fiscal 1996 was $1.39 and $1.69, respectively, using
the Black-Scholes option pricing model with the following weighted
average assumptions: (a) no dividend yield on the Company's stock,
(b) expected volatility of the Company's stock of 95%, (c) a risk
free interest rate of 6.0%, and (d) expected option lives of 7-1/2
years.
Pro forma net earnings reflects only options granted in 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No.123 is not reflected in the pro forma net
earnings amounts presented above because compensation cost is
reflected over the options' vesting period and compensation cost for
options granted prior to April 1, 1995 was not considered.
(10) Commitments
Rental expense under non-cancelable operating leases for office space
amounted to $189,039, $211,592 and $223,554 for the years ended March
31, 1997, 1996 and 1995, respectively. Minimum lease payments under
non-cancelable operating leases, exclusive of future escalation
charges, as of March 31, 1997 are as follows:
1998 $ 169,000
1999 110,000
2000 56,000
2001 15,000
--------
Total minimum lease payments $ 350,000
========
(11) Profit Sharing Plan
The Company sponsors 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 $6,806, $7,408
and $7,244 for the years ended March 31, 1997, 1996 and 1995,
respectively.
<PAGE>
EXHIBIT 2.A
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 30, 1997, relating to the consolidated balance sheets of American Claims
Evaluation, Inc. and subsidiary as of March 31, 1997 and 1996, the related
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended March 31, 1997 which report appears in the
March 31, 1997 annual report on Form 10-K of American Claims Evaluation, Inc.
KPMG PEAT MARWICK LLP
Jericho, New York
June 20, 1997
<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>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,648,617
<SECURITIES> 0
<RECEIVABLES> 120,880
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,105,100
<PP&E> 384,336
<DEPRECIATION> 302,875
<TOTAL-ASSETS> 8,791,554
<CURRENT-LIABILITIES> 497,375
<BONDS> 0
0
0
<COMMON> 42,500
<OTHER-SE> 3,267,699
<TOTAL-LIABILITY-AND-EQUITY> 8,294,179
<SALES> 1,219,890
<TOTAL-REVENUES> 1,219,890
<CGS> 520,677
<TOTAL-COSTS> 520,677
<OTHER-EXPENSES> 1,280,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 167,514
<INCOME-TAX> 73,000
<INCOME-CONTINUING> 94,514
<DISCONTINUED> 210,767
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 305,281
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
