<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, 1998
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.
--------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2601199
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(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 5, 1998, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $2,172,749. 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 5, 1998
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 5, 1998, there were 4,273,500 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. 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 was
reflected as a discontinued operation at March 31, 1997 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 is entitled to payments based upon the net revenues
generated over the period ending April 30, 2000. 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 1999. 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.
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 Concentra 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, 1998, the Company had 23 full-time employees and three
part-time employees. Of these full-time employees, three were in management,
twelve were vocational rehabilitation consultants and eight 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, as extended, which expires in
November 2003. The Company had maintained its hospital bill audit operations
in Dallas, Texas; this facility consisted of 4,500 square feet of space on an
amended lease which will expire in July 1998. 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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<PAGE>
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, 1998.
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 National
Market(R) under the symbol "AMCE." NASD marketplace Rule(s) 4450(a)(2) became
effective February 23, 1998. Under these new National Market System ("NMS")
maintenance standards, the Company's common stock was not in compliance with
the new market value of NMS public float requirements. The Company has filed a
request for an oral hearing to appeal the potential removal of its securities
from the NMS. The Company anticipates that its securities would be approved
for a transfer to The Nasdaq SmallCap Market(SM) in the event that its appeal
is unsuccessful.
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, 1996 through
March 31, 1998:
High Low
---- ---
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
1/01/97 - 3/31/97 1 15/16 1 5/16
Fiscal 1998:
4/01/97 - 6/30/97 1 7/16 1 3/16
7/01/97 - 9/30/97 2 1/2 1 3/16
10/01/97 - 12/31/97 2 13/32 1 3/8
1/01/98 - 3/31/98 1 15/16 1 5/8
The number of holders of the Company's Shares was approximately 532 on March
31, 1998, 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,
1998. 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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1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary Earnings Data (1)
Revenues $1,285,798 $1,219,890 $1,293,166 $1,304,212 $ 748,794
Operating loss from
continuing operations (473,260) (581,431) (635,462) (840,886) (912,848)
Earnings (loss) from continuing
operations before provision
for (benefit from) income
taxes 54,085 167,514 264,934 (422,285) (649,551)
Net earnings (loss) from
continuing operations 40,085 94,514 156,934 (287,285) (410,551)
Discontinued operations (2) - 210,767 580,704 351,782 458,699
Net earnings 40,085 305,281 737,638 64,497 48,148
Net earnings per share - basic
Continuing operations $ .01 $ .02 $ .04 $ (.07) $ (.10)
Discontinued operations - $ .05 $ .13 $ .09 $ .11
Net earnings per share - basic $ .01 $ .07 $ .17 $ .02 $ .01
Net earnings per share - diluted
Continuing operations $ .01 $ .02 $ .04 $ (.07) $ (.10)
Discontinued operations - $ .05 $ .13 $ .09 $ .11
Net earnings per share - diluted $ .01 $ .07 $ .17 $ .02 $ .01
Weighted average shares:
Basic 4,223,500 4,147,042 4,250,000 4,250,000 4,196,667
Diluted 4,302,888 4,151,421 4,251,662 4,256,072 4,246,214
<CAPTION>
March 31,
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1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $7,988,972 $7,607,725 $7,569,169 $5,550,420 $6,445,381
Total assets 8,819,478 8,791,554 9,266,786 8,567,184 8,150,779
Stockholders' equity 8,584,264 8,294,179 8,404,270 7,680,720 7,484,980
</TABLE>
(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.
Summary of Operations - Fiscal years ended March 31, 1998, 1997 and 1996
The Company had net earnings of $40,085 for the fiscal year ended March 31,
1998 ("Fiscal 1998"). For the fiscal year ended March 31, 1997 ("Fiscal
1997"), the Company had net earnings from continuing operations of $94,514,
coupled with net earnings of $210,767 from discontinued operations, resulting
in total net earnings after discontinued operations of $305,281. During the
fiscal year ended March 31, 1996 ("Fiscal 1996"), the Company had net earnings
of $156,934 from continuing operations with earnings of $580,704 from
discontinued operations producing total net earnings of $737,638.
During Fiscal 1998, revenue from vocational rehabilitation services totaled
$1,285,798, an increase of 5.4% from the $1,219,890 reported for Fiscal 1997.
Revenue for Fiscal 1997 had experienced a 5.7% decrease from the $1,293,166
generated in Fiscal 1996. The majority of the Company's vocational
rehabilitation services are provided to the Washington State Department of
Labor & Industries ("L & I"). Management continues 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 for vocational rehabilitation services was 43.5% as a
percentage of revenues for Fiscal 1998 as compared to 42.7% as a percentage of
revenues for Fiscal 1997. During Fiscal 1996, the cost of services was 44.8%
as a percentage of related revenues.
Selling, general and administrative expenses were $1,199,277, $1,280,644 and
$1,349,086 in Fiscal 1998, Fiscal 1997 and Fiscal 1996, respectively. With the
disposition of the HBA division, management continually seeks new alternatives
to reduce corporate overhead. However, it is anticipated that certain
expenditures related to the Company's search for acquisition candidates will
increase.
Interest income increased to $460,758 during Fiscal 1998, as compared to
interest income of $417,293 and $338,517 for Fiscal 1997 and Fiscal 1996,
respectively. This increase was a direct result of the continued increase in
available cash balances combined with increases in prevailing market rates.
During Fiscal 1998, 1997 and 1996, the Company realized gains on the sales of
marketable securities of $6,970, $285,356 and $470,652, respectively.
Miscellaneous income, representing ancillary revenues, amounted to $59,617 in
Fiscal 1998, as compared with ancillary revenues of $46,296 for Fiscal 1997
and $91,277 for Fiscal 1996.
Liquidity and Capital Resources
The Company's primary source of cash is internally generated funds. At March
31, 1998, the Company had working capital of $7,988,972 as compared to working
capital of $7,607,725 at March 31, 1997.
For the fiscal year ended March 31, 1998, the net cash provided by operating
activities of continuing operations was $212,681. The significant sources were
income from continuing operations of $40,085, a net decrease of $33,000 in
deferred tax assets, $100,020 of depreciation and amortization and a $29,402
decrease in accounts receivable. During Fiscal 1998, net cash provided by
financing activities consisted of $250,000 received from the issuance of
common stock.
The Company continues its review of strategic alternatives for maximizing
shareholder value. Potential acquisitions will be evaluated based on their
merits within its current line of business, as well as other fields.
Management believes that the Company has sufficient cash resources and working
capital to meet its capital resource requirements for the foreseeable future.
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<PAGE>
Discontinued Operations
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
continue to generate net earnings on a going forward basis. In April 1997, the
Company sold the HBA division to one of its competitors. The financial
statements were reclassified at March 31, 1997 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.) As defined in the agreement, the Company is entitled to payments
based upon the net revenues generated over the three year period ending April
30, 2000. Management does not anticipate the potential value of these payments
to be material.
Year 2000 Computer Systems Compliance
This issue affects computer systems that have time-sensitive programs that may
not properly recognize the Year 2000. Such programs may interpret the Year
2000 to mean some other year or not interpret it at all. If not corrected,
those programs could cause date-related transaction failures.
Assessment of both Company and client information systems has been initiated.
Outside companies such as vendors and banks are also being asked to verify
their Year 2000 readiness. We expect these projects to be successfully
completed during the upcoming fiscal year.
Based on current plans and efforts to date, management expects that there will
be no material adverse effect on operations and the future costs to be
incurred are not considered to be material. There is no guarantee, however,
that all problems will be foreseen and corrected.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income, which becomes effective for the Company's Fiscal 1999 financial
statements. SFAS No. 130 requires disclosure of comprehensive income, which
consists of all changes in equity from nonshareholder sources. The adoption of
the statement will be limited to form and content of the Company's disclosures
and will not affect results. Currently, the Company does not have any
comprehensive income type items.
In June 1997, the FASB also issued SFAS No. 131, Disclosure About Segments of
an Enterprise and Related Information, which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting information about operating segments, and related disclosures about
products and services, geographic areas and major customers. The Company has
not determined the impact that the adoption will have on its consolidated
financial statement disclosures. The Company will adopt this statement
effective April 1, 1998, as required. Interim information is not required
until the second year of application, at which time comparative information is
required.
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Safe Harbor Statement under the Private Securities Litigation Act
Except for the historical information contained herein, the matters discussed
in this report on Form 10-K and the Company's other periodic reports and other
documents incorporated by reference or incorporated herein as exhibits, may
contain forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, general economic and market conditions, the
potential loss or termination of existing clients and contracts and the
ability of the Company to successfully identify and thereafter consummate one
or more acquisitions.
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 51 Chairman of the Board, President and
Chief Executive Officer
Gary J. Knauer 38 Chief Financial Officer,
Treasurer and Secretary
Edward M. Elkin, M.D. 59 Director
Peter Gutmann 69 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. Since
1996, Mr. Gelman has been 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.
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. 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.
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<PAGE>
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 $100,000 during the Company's fiscal year
ended March 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- -----------
Name and Other Annual All Other
Principal Fiscal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($) (1) (#) ($) (2)
- ----------- ------ ------------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gary Gelman 1998 $278,498 - - - $ -
Chairman, 1997 397,772 - - - -
President 1996 397,772 - - - 227
and CEO
</TABLE>
(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 of matching contributions made by the Company under
the 401(k) profit sharing plan during the fiscal year ended March 31,
1996.
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,
1998, 1997 and 1996 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.
Stock Option Plans
In July 1985, the Company's Board of Directors adopted the 1985 Stock Option
Plan (the "1985 Plan"). The 1985 Plan has expired, except as to options
outstanding, and no additional options may be granted. The 1985
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Plan provided for the issuance of up to 400,000 Shares to all full-time
employees and directors of the Company. Incentive stock options were granted
at the fair market value 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
and 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.
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.
Both incentive and nonstatutory stock options may be granted under the 1991
Plan, 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 by a combination of cash or Shares
with the approval of the committee which administers the 1991 Plan. 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.
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.
On May 7, 1997, the Board of Directors adopted the 1997 Incentive Stock Option
Plan (the "1997 Plan") covering 750,000 Shares. The shareholders of the
Company ratified and approved the 1997 Plan in September 1997. Under the 1997
Plan, either incentive stock options or nonstatutory options may be granted as
an incentive to key employees (including directors and officers who are key
employees), non-employee directors, independent contractors and consultants of
the Company and to offer an additional inducement in obtaining the services of
such individuals.
The exercise price of the Shares under each option shall be determined by a
fixed committee appointed by the Board of Directors; provided, however, that
the exercise price shall not be less than the fair market value (as defined in
the 1997 Plan) of the Shares subject to such option on the date of the grant.
The term of each option pursuant to the Plan shall be such term as established
by the committee appointed by the Board of Directors, in its sole discretion,
provided that it shall be for a period not exceeding ten years from the date
of the grant.
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On June 4, 1997, The Board of Directors granted options to purchase 300,000
Shares under the 1997 Plan at an exercise price of $1.25, exercisable
immediately, to the Chief Executive Officer. Additionally, grants of options
to purchase 35,000 Shares (including 25,000 Shares granted to an executive
officer), inadvertently made under the 1985 Plan after its provisions had
expired, were invalidated simultaneously with the issuance of grants under the
1997 Plan at the same price ($2.25/Share), vested retroactively to the date
the invalidated grants were first made.
Both the 1997 and 1991 Plans provide that the number of Shares subject thereto
and the outstanding options and their exercise prices, are to be appropriately
adjusted for mergers, consolidations, recapitalizations, stock dividends,
stock splits or combinations of shares.
The current option committee appointed by the Board of Directors to administer
the Company's stock option plans consists of Messrs. Gelman, Gutmann and
Elkin. The Board of Directors may at any time terminate or from time to time
amend or alter any of the existing stock option plans.
Aggregated Option/SAR Exercises in 1998
and FY-End Option/SAR Values
The following table summarizes the number and dollar value of unexercised
stock options at March 31, 1998 for the Chief Executive Officer.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)(1)
------------- -------------
Value
Shares Acquired Realized Exercisable/ Exercisable/
Name on Exercise(#) ($) Unexercisable Unexercisable
- ------------ --------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Gary Gelman, - - 400,000/- $112,500/$0
Chairman,
President and CEO
</TABLE>
(1) The closing price of the Company's Shares on March 31, 1998 as reported
by the NASDAQ National Market System was $1.625 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 $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 and/or Audit Committee meeting
attended in person.
-13-
<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 5, 1998 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) 2,696,400 (3) 56.3%
Peter Gutmann (2) 80,000 (3) 1.7%
Edward M. Elkin, M.D. (2) 60,200 1.3%
Gary J. Knauer (2) 40,250 *
D.H. Blair Investment Corp. 573,824 (5) 12.0%
All officers and directors
as a group (five persons) 2,876,850 60.1%
- ---------
* Less than 1%
(1) Based on a total of 4,273,500 Shares issued and outstanding, 514,250
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 514,250 Shares) which, in the case of Messrs. Gelman,
Gutmann, Elkin, and Knauer are 400,000, 34,000, 40,000, and 40,250
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")
(535,824 Shares), by Mr. J. Morton Davis' wife (16,200 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 16,200 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, 1998 and 1997
Consolidated Statements of Earnings for the Three Year Period
ended March 31, 1998
Consolidated Statements of Stockholders' Equity for the Three
Year Period ended March 31, 1998
Consolidated Statements of Cash Flows for the Three Year Period
ended March 31, 1998
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. Tenth Amendment dated May 1997 to Employment Agreement between
the Company and Gary Gelman.
2.C Lease Extension and Modification Agreement dated February 24,
1998 between Chasco Company as landlord and the Company as
tenant with respect to the premises at One Jericho Plaza,
Jericho, New York.
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, 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.
-15-
<PAGE>
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:
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. 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.
10.3 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, 1998.
-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 22, 1998
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 22, 1998
- ----------------------- President and Chief
Gary Gelman Executive Officer
(Principal Executive Officer)
/s/ Gary J. Knauer Chief Financial Officer, June 22, 1998
- ----------------------- Treasurer (Principal Financial
Gary J. Knauer Officer) and Secretary
/s/ Edward M. Elkin Director June 22, 1998
- -----------------------
Edward M. Elkin, M.D.
/s/ Peter Gutmann Director June 22, 1998
- -----------------------
Peter Gutmann
-17-
<PAGE>
[KPMG LOGO]
AMERICAN CLAIMS EVALUATION, INC.
AND SUBSIDIARY
Consolidated Financial Statements
(Form 10-K)
March 31, 1998 and 1997
<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, 1998 and 1997
Consolidated Statements of Earnings for the years ended
March 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
March 31, 1998, 1997 and 1996
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>
[KPMG LETTERHEAD]
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, 1998 and 1997, and the results of their operations and
their cash flows for each of the years in the three-year period ended
March 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
--------------------------
KPMG PEAT MARWICK LLP
Jericho, New York
June 2, 1998
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................................ $ 8,105,960 7,648,617
Accounts receivable (net of allowance for doubtful
accounts of $1,000) ............................................................... 90,478 119,880
Current assets of discontinued operations ............................................ -- 272,871
Prepaid expenses ..................................................................... 27,748 24,732
Deferred income taxes ................................................................ -- 39,000
----------- -----------
Total current assets ................................................... 8,224,186 8,105,100
Property and equipment, net .............................................................. 94,056 81,461
Non-current assets of discontinued operations ............................................ -- 71,332
Excess cost over fair value of net assets acquired, net of accumulated
amortization of $147,264 and $114,839 in 1998 and 1997, respectively ................. 501,236 533,661
----------- -----------
$ 8,819,478 8,791,554
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ..................................................................... 42,775 21,299
Accrued expenses ..................................................................... 101,032 94,074
Current liabilities of discontinued operations ....................................... 86,204 362,525
Income taxes payable ................................................................. 2,730 11,004
Deferred income taxes ................................................................ 2,473 8,473
----------- -----------
Total current liabilities .............................................. 235,214 497,375
----------- -----------
Commitments
Stockholders' equity:
Common stock, $.01 par value - authorized 10,000,000
shares; 4,450,000 and 4,250,000 shares issued ..................................... 44,500 42,500
Additional paid-in capital ........................................................... 3,515,699 3,267,699
Retained earnings .................................................................... 5,322,282 5,282,197
----------- -----------
8,882,481 8,592,396
Less treasury shares, at cost, 176,500 shares ............................................ (298,217) (298,217)
----------- -----------
Total stockholders' equity ............................................. 8,584,264 8,294,179
----------- -----------
$ 8,819,478 8,791,554
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues ............................................................... $ 1,285,798 1,219,890 1,293,166
Cost of services ....................................................... 559,781 520,677 579,542
----------- ----------- -----------
Gross margin ......................................... 726,017 699,213 713,624
Selling, general and administrative expenses ........................... 1,199,277 1,280,644 1,349,086
----------- ----------- -----------
Operating loss from continuing operations ............ (473,260) (581,431) (635,462)
Other income:
Interest income .................................................... 460,758 417,293 338,517
Gain on sale of marketable securities .............................. 6,970 285,356 470,652
Miscellaneous income ............................................... 59,617 46,296 91,227
----------- ----------- -----------
Earnings from continuing operations
before provision for income taxes ................. 54,085 167,514 264,934
Provision for income taxes ............................................. 14,000 73,000 108,000
----------- ----------- -----------
Net earnings from continuing operations .............. 40,085 94,514 156,934
Discontinued operations (note 2):
Earnings from operations, net of taxes of
$151,000 in 1997 and $349,000 in 1996 ........................... -- 271,767 580,704
Provision for loss on disposal, net of taxes ....................... -- (61,000) --
----------- ----------- -----------
Net earnings ......................................... $ 40,085 305,281 737,638
=========== =========== ===========
Net earnings per share - basic:
From continuing operations ......................................... .01 .02 .04
From discontinued operations ....................................... -- .05 .13
----------- ----------- -----------
Net earnings per share ................................................. $ .01 .07 .17
=========== =========== ===========
Net earnings per share - diluted:
From continuing operations ......................................... .01 .02 .04
From discontinued operations ....................................... -- .05 .13
----------- ----------- -----------
Net earnings per share ................................................. $ .01 .07 .17
=========== =========== ===========
Weighted average shares - basic ........................................ 4,223,500 4,147,042 4,250,000
=========== =========== ===========
Weighted average shares - diluted ...................................... 4,302,888 4,151,421 4,251,662
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized
Common stock Additional gain on Treasury stock Total
---------------------- paid-in marketable Retained ----------------------- stockholders'
Shares Par value capital securities earnings Shares Amount equity
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
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
Reduction in unrealized gain
on marketable securities,
net of tax ............... -- -- -- (117,155) -- -- -- (117,155)
Purchase of common stock ...... -- -- -- -- -- (176,500) (298,217) (298,217)
Net earnings .................. -- -- -- -- 305,281 -- -- 305,281
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1997 ..... 4,250,000 42,500 3,267,699 -- 5,282,197 (176,500) (298,217) 8,294,179
Issuance of common stock ...... 200,000 2,000 248,000 -- -- -- -- 250,000
Net earnings .................. -- -- -- -- 40,085 -- -- 40,085
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1998 ..... 4,450,000 $ 44,500 3,515,699 -- 5,322,282 (176,500) $ (298,217) 8,584,264
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations ............. $ 40,085 94,514 156,934
Adjustments to reconcile net earnings to net cash ----------- ----------- -----------
provided by (used in) continuing operations:
Depreciation and amortization ................. 100,020 128,647 144,437
Gain on sale of marketable securities ......... (6,970) (285,356) (470,652)
Deferred income taxes ......................... 33,000 (49,000) (96,000)
Changes in assets and liabilities:
Accounts receivable ....................... 29,402 (20,238) (3,714)
Prepaid expenses .......................... (3,016) (3,712) 5,470
Accounts payable .......................... 21,476 1,027 (22,665)
Accrued expenses .......................... 6,958 1,340 7,954
Income taxes payable ...................... (8,274) (131,699) 39,561
----------- ----------- -----------
Total adjustments ...................... 172,596 (358,991) (395,609)
----------- ----------- -----------
Net cash provided by (used in) operating
activities of continuing operations . 212,681 (264,477) (238,675)
----------- ----------- -----------
Net cash flows provided by discontinued operations ....... 35,453 496,934 746,771
----------- ----------- -----------
Cash flows from investing activities:
Purchases of marketable securities .................. (14,334) (118,768) (26,893)
Proceeds from sales of marketable securities ........ 21,304 591,116 1,269,435
Capital expenditures, net ........................... (47,761) -- (8,768)
----------- ----------- -----------
Net cash (used in) provided by
investing activities ................ (40,791) 472,348 1,233,774
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock .............. 250,000 -- --
Purchase of treasury stock .......................... -- (298,217) --
----------- ----------- -----------
Net cash provided by (used in)
financing activities ................ 250,000 (298,217) --
----------- ----------- -----------
Net increase in cash and cash equivalents ................ 457,343 406,588 1,741,870
Cash and cash equivalents - beginning of year ........... 7,648,617 7,242,029 5,500,159
----------- ----------- -----------
Cash and cash equivalents - end of year .................. $ 8,105,960 7,648,617 7,242,029
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ ................................... 10,672 366,279 514,300
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(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) Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts and disclosures in these financial
statements. Actual results could differ from those estimates.
(e) 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.
(f) Long-Lived Assets
Property and equipment is stated at cost, less accumulated
depreciation and amortization. Depreciation of property and
equipment is computed using 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.
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, 1998, 1997 and 1996 and is
included in selling, general and administrative expenses in the
consolidated statements of earnings.
The Company reviews long-lived assets for impairment whenever
events or changes in business circumstances occur that indicated
that the carrying amount of the assets may not be recoverable.
The Company assesses the recoverability of long-lived assets
held and to be used on undiscounted cash flows, and measures the
impairment, if any, using discounted cash flows.
(Continued)
<PAGE>
2
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1), Continued
(g) 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.
(h) Earnings per Share
Statement of Financial Accounting Standards No.128, Earnings per
Share, which became effective December 31, 1997, requires
presentation of two calculations of earnings per share. Basic
earnings per share equals net earnings dividend by weighted
average common shares outstanding during the period. Diluted
earnings per share equals net earnings divided by the sum of
weighted average common shares outstanding during the period
plus common stock equivalents. Common stock equivalents are
shares assumed to be issued if outstanding stock options were
exercised. The Company has restated all prior period amounts to
reflect these calculations.
(2) Discontinued Operations
In April 1997, the Company sold its hospital bill audit division. As
defined in the agreement, the Company is 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.
As at March 31, 1997, the Company's consolidated financial statements
were reclassified to account for the sale of the hospital bill audit
division as discontinued operations. Accordingly, the net sales, costs
and expenses, assets and liabilities, and cash flows associated with
the hospital bill audit operations were 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 and $3,946,682
for the fiscal years ended March 31, 1997 and 1996, respectively.
The following summarizes assets and liabilities of the discontinued
operations which have been segregated in the accompanying consolidated
balance sheets:
1998 1997
--------- ---------
Current assets - discontinued operations:
Accounts receivable, net $ - 258,116
Prepaid expenses - 14,755
--------- ---------
$ - 272,871
========= =========
(Continued)
<PAGE>
3
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2), Continued
1998 1997
--------- ---------
Non-current assets - discontinued operations:
Property and equipment, net $ - 71,332
========= =========
Current liabilities - discontinued operations:
Accounts payable 61,324 266,480
Accrued expenses 24,880 96,045
--------- ---------
$ 86,204 362,525
========= =========
(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 1998, 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) Property and Equipment
Property and equipment at March 31, 1998 and 1997 consist of the
following:
Estimated
1998 1997 useful life
---- ---- -----------
Equipment $ 392,860 276,918 5 years
Furniture and fixtures 107,418 107,418 5 to 10 years
---------- ---------
500,278 384,336
Less accumulated depreciation 406,222 302,875
---------- ---------
$ 94,056 81,461
========== =========
Depreciation expense for the years ended March 31, 1998, 1997 and 1996
amounted to $67,595, $53,157 and $61,735, respectively.
(Continued)
<PAGE>
4
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Income Taxes
Income tax expense (benefit) for the years ended March 31, 1998, 1997
and 1996 is comprised of the following:
Year ended March 31,
------------------------------------
1998 1997 1996
--------- ---------- ----------
Current:
Federal $ 22,000 75,000 104,900
State (2,000) 8,000 8,000
--------- ---------- ----------
20,000 83,000 112,900
--------- ---------- ----------
Deferred:
Federal (6,000) (10,000) (4,900)
--------- ---------- ----------
$ 14,000 73,000 108,000
========= ========== ==========
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,
----------------------------------------------------
1998 1997 1996
-------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Expected income tax provision (benefit)
at the statutory Federal tax rate $ 18,000 34% $ 57,000 34% $ 90,000 34%
State taxes, net of Federal tax benefit (1,000) (2) 5,000 3 5,000 2
Amortization of goodwill 11,000 20 11,000 7 11,000 4
Benefit of graduated rates (12,000) (22) - - - -
Other, net (2,000) (4) - - 2,000 1
-------- ---- -------- ---- -------- ----
Actual income tax provision $ 14,000 26% $ 73,000 44% $108,000 41%
======== ==== ======== ==== ======== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at March 31, 1998
and 1997 are as follows:
1998 1997
------- --------
Deferred tax assets:
Discontinued operations $ - 39,000
======= ========
Deferred tax liabilities:
Depreciation $ 2,473 8,473
======= ========
(6) Major Customer
The Company has one customer who accounted for 77%, 84% and 87% of
consolidated revenues for the years ended March 31, 1998, 1997 and
1996, respectively. Services are performed by the Company for this
customer under two separate contracts which expire in August 1999. The
Company anticipates that these contracts will be renewed.
(Continued)
<PAGE>
5
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) 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.
(8) Stock Options
The Company has three stock option plans, the 1985 Stock Option Plan,
the 1991 Stock Option Plan and the 1997 Incentive Stock Option Plan.
The 1985 Plan, which provided for the granting of 400,000 stock options
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.
During May 1997, the Company adopted the 1997 Incentive Stock Option
Plan. The 1997 Plan provides for options to be granted to key
employees, officers, directors, independent contractors and consultants
of the Company, for the purchase of up to 750,000 shares. The Board of
Directors then granted options to purchase 300,000 shares at an
exercise price of $1.25 per share, exercisable immediately, to the
Chief Executive Officer.
Under the Plans, options may be granted at 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 1998, 1997
and 1996 are summarized in the following table:
Weighted
average
No. of exercise
shares price
-------- --------
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
Fiscal 1998:
Options granted 300,000 1.25
Options terminated (14,000) 3.05
-------- --------
Balance - March 31, 1998 550,500 $ 1.70
======== ========
(Continued)
<PAGE>
6
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8), Continued
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, 1998:
Number of options Weighted average
------------------------- contractual
Exercise price Outstanding Exercisable life remaining
-------------- ----------- ----------- --------------
$ 1.25 300,000 300,000 9 years
1.82 - 2.25 250,500 218,000 6 years
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
Company's stock option plans been determined based on the fair value at
the grant date for awards in fiscal 1998, 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:
1998 1997 1996
-------- ------- -------
Net earnings (loss):
As reported $ 40,085 305,281 737,638
Pro forma (201,575) 241,458 717,316
Basic net earnings (loss) per share:
As reported .01 .07 .17
Pro forma (.05) .06 .17
Diluted net earnings (loss) per share:
As reported .01 .07 .17
Pro forma (.05) .06 .17
The weighted average fair value per stock option granted was $.76,
$1.39 and $1.69 for those options granted in the fiscal years ended
March 31, 1998, 1997 and 1996, respectively. The Company estimated the
fair values using the Black-Scholes option pricing model, using the
following assumptions:
1998 1997 1996
---- ---- ----
Expected dividend yield - - -
Risk-free interest rate 6.00% 6.00% 6.00%
Expected stock price volatility 50.00% 95.00% 95.00%
Expected option lives (years) 7.5 7.5 7.5
The pro forma effects on net earnings and net earnings per share for
the years ended March 31, 1998, 1997 and 1996 may not be representative
of the pro forma effects in future years since compensation cost is
allocated on a straight-line basis over the vesting periods of the
grants, which extend beyond the reported years.
(Continued)
<PAGE>
7
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) 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 $6,168,
$6,806 and $7,408 for the years ended March 31, 1998, 1997 and 1996,
respectively.
(10) Commitments
Rental expense under non-cancelable operating leases for office space
amounted to $206,154, $189,039 and $211,592 for the years ended March
31, 1998, 1997 and 1996, respectively. Minimum lease payments under
non-cancelable operating leases, exclusive of future escalation
charges, as of March 31, 1998 are as follows:
1999 $ 136,000
2000 124,000
2001 126,000
2002 82,000
2003 and thereafter 113,000
----------
Total minimum lease payments $ 581,000
==========
<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.
333-39071 on Form S-8 of American Claims Evaluation, Inc. of our report dated
June 2, 1998, relating to the consolidated balance sheets of American Claims
Evaluation, Inc. and subsidiary as of March 31, 1998 and 1997, the related
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended March 31, 1998 which report appears in
the March 31, 1998 annual report on Form 10-K of American Claims Evaluation,
Inc.
KPMG PEAT MARWICK LLP
Jericho, New York
June 22, 1998
<PAGE>
EXHIBIT 2.B
TENTH AMENDMENT TO EMPLOYMENT AGREEMENT
Tenth amendment entered into as of the 11th day of June, 1997 (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 ("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, as
modified by the provisions hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
covenants herein contained, it is agreed as follows:
1. Compensation.
The compensation of Employee shall be at the current rate through June
4, 1997 and, commencing June 4, 1997 and for the balance of the term of this
Amendment, Employee's rate of annual compensation shall be $238,800 per annum.
2. Term.
The term of this Amendment shall commence on the day of March 1997 and
continue for a period of two years until March 10, 1999. The term of the
Employment Agreement shall be deemed amended accordingly.
3. General.
The terms of the Employment Agreement are hereby incorporated by
reference and shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed the 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
<PAGE>
EXHIBIT 2.C
LEASE EXTENSION AND MODIFICATION AGREEMENT
THIS AGREEMENT, entered into as of this 24 day of February, 1998, by and
between CHASCO COMPANY, a New York general partnership, having its principal
office and place of business located at Two Jericho Plaza, Jericho, New York
11753 (hereinafter referred to as "Landlord") and AMERICAN CLAIMS EVALUATION,
INC., having an office and place of business located at One Jericho Plaza,
Jericho, New York 11753 (hereinafter referred to as "Tenant").
W I T N E S S E T H :
WHEREAS, Landlord and Tenant entered into a certain lease (hereinafter
referred to as "Lease") dated August 20, 1993 for two thousand seven hundred
four (2,074) rentable square feet of third floor (Wing B) office space (the
"Demised Premises") in the building (the "Building") known as One Jericho
Plaza, Jericho, New York.
WHEREAS, Tenant has requested that Landlord agree to extend the term of the
Lease so that the Lease, as so extended, shall expire on November 30, 2003,
and Landlord, subject to the terms and conditions hereinafter set forth, is
willing to so extend the term of the Lease on the Remaining Premises.
NOW, THEREFORE, for Ten and no/100 ($10.00) Dollars and other good and
valuable consideration, receipt whereof by each party is hereby acknowledged,
the parties hereto agree as follows:
1. The term of the Lease, as hereby amended, shall, subject to the terms and
conditions set for herein, be extended to expire on November 30, 2003. For the
purpose of this Agreement, the term "lease year" shall mean each one-year
period commencing on the first day of December of a calendar year. The first
lease year of the extension term shall be the period commencing on December 1,
1998 and ending on November 30, 1999.
2. The Basic Rent for the Demised Premises for each lease year of the
extension term shall be at the per annum rate of (i) Sixty-seven Thousand Six
Hundred and no/100 ($67,600.00) Dollars payable in equal monthly installments
of Five Thousand Six Hundred Thirty-three and 34/100 ($5,633.34) Dollars on
the first day of each month in advance.
3. For the period subsequent to November 30, 1998, (i) the term "Base Year
Taxes" or "base year taxes" shall mean the aggregate Taxes for (y) 1998 Town
and County taxes (z) the aggregate of the second half of 1997-1998 School Tax
and the first half of the 1998-99 School tax and (ii) the term "Expense Base
Year" shall mean the period of twelve (12) consecutive calendar months
starting on the first day of November, 1997 and ending on the last day of
October, 1998.
4. Nothing herein contained shall relieve or release Tenant from its
obligation, on demand of Landlord, to promptly pay any installment of Basic
Rent or item of Additional Rent or other charges allocable to any period, or
arising or accruing, prior to December 1, 1998 that Landlord did not bill to
Tenant or Tenant did not pay to Landlord.
<PAGE>
5. Except as amended hereby, all the terms and conditions of the Lease, as
heretofore in effect, shall remain in full force and effect and all the terms
and conditions of the Lease, as hereby amended, are hereby ratified and
confirmed in all respects.
6. Tenant hereby warrants and represents to Landlord that it dealt with no
broker in connection with this transaction and had no conversation or dealings
with any broker in connection with this transaction other than Corporate
National Realty, Inc. (the "Broker"). Tenant hereby indemnifies Landlord
against all loss, costs or damages suffered or incurred by Landlord
(including, without limitation, reasonable attorney's fees and expenses)
arising out of or in any way connected with a misrepresentation or breach of
warranty by Tenant hereunder. Landlord shall be responsible for any commission
payable to Broker pursuant to the terms of a certain agreement executed by and
between landlord and Broker in connection with the initial execution of the
Lease.
7. Tenant hereby acknowledges and agrees that (i) Landlord has no obligation
to do any work in the Demised Premises to make it usable by Tenant and Tenant
reconfirms its acceptance of the Demised Premises for the initial term and the
extension term in an "as is" condition and (ii) the provisions of the Lease
relative to Tenant's obligation to pay for electricity and overtime HVAC
services shall continue on the basis set forth in the Lease to the same extent
and as if the extension term had been included in the original demise of the
Demised Premises.
8. Any right or option contained in the Lease to extend then established
expiration date provided for under the Lease, as hereby extended, and/or to be
offered or to take additional space shall be conclusively deemed to have been
waived and Tenant shall have no right or option, and shall not be able to
exercise any right or option, to (i) extend the term of the Lease, as hereby
extended, or (ii) take any additional space, and any attempt to do so shall be
a nullity.
9. Where the context so requires, the plural shall include the singular and
the singular shall include the plural. The terms and definitions used herein
shall, unless specifically noted otherwise, have the same meanings and
definitions used in the Lease, as hereby amended.
IN WITNESS WHEREOF, the parties hereto have, or have caused to be, executed
this Agreement as of the day and year set forth above.
LANDLORD:
CHASCO COMPANY
By: /s/ Stephen Chasanoff
---------------------------
Name: Stephen Chasanoff
Title: President
TENANT:
AMERICAN CLAIMS EVALUATION, INC.
By: /s/ Gary Gelman
---------------------------
Name: Gary Gelman
Title: President
<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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,105,960
<SECURITIES> 0
<RECEIVABLES> 91,478
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,224,186
<PP&E> 500,278
<DEPRECIATION> 406,222
<TOTAL-ASSETS> 8,819,478
<CURRENT-LIABILITIES> 235,214
<BONDS> 0
<COMMON> 44,500
0
0
<OTHER-SE> 3,515,699
<TOTAL-LIABILITY-AND-EQUITY> 8,819,478
<SALES> 1,285,798
<TOTAL-REVENUES> 1,285,798
<CGS> 559,781
<TOTAL-COSTS> 559,781
<OTHER-EXPENSES> 1,199,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 54,085
<INCOME-TAX> 14,000
<INCOME-CONTINUING> 40,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,085
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
