<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, 1999
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 9, 1999, the aggregate market value of the Registrant's voting stock
held by non-affiliates was $3,142,106. 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 9, 1999 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 9, 1999, 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: 16 EXHIBIT INDEX: PAGE 14
[Cover page 2 of 2 pages]
<PAGE>
PART I
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Item 1. Business
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American Claims Evaluation, Inc. (the "Company") was incorporated in the State
of New York and commenced operations in April 1982. 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. During the
preceding 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 and opted
to sell the 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. As defined in the
agreement, the Company receives payments based upon net revenues generated
throughout the period ending April 30, 2000. The total realized value of these
payments will not 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.
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, which expire in August 1999. For the year ended March
31, 1999, the L&I contracts accounted for 69% of total revenues. Although RPM
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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.
During the period from March 1999 through May 1999, RPM experienced a
substantial decrease in new case referrals received from L&I. Under a new
performance-based vocational referral program ("the referral program"), RPM's
performance rating was deemed to be below L&I's required rating to receive new
case referrals. The implementation and criteria used in the referral program are
currently the subject of considerable debate and potential litigation amongst
numerous vocational rehabilitation providers and L&I. Although updated ratings
were released by L&I in May 1999, which reported a qualifying rating for RPM, it
cannot be predicted whether or not RPM will continue to receive a favorable
rating under the referral program as it currently exists. If the referral
program is not modified or eliminated and RPM receives an unfavorable rating
and/or if the Company=s contracts with L&I are not renewed in August 1999, it
would have a material adverse effect on the consolidated results of operations.
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. 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, 1999, the Company had twenty-one full-time employees and one
part-time employee. Of these full-time employees, three were in management,
twelve were vocational rehabilitation consultants and six 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. 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 year ended March 31, 1999.
PART II
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Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- --------------------------------------------------------------------------
The Company's common shares (the "Shares") trade on the Nasdaq SmallCap 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, 1997 through March
31, 1999:
High Low
---- ---
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
Fiscal 1999:
4/01/98 - 6/30/98 2 5/8 1 3/8
7/01/98 - 9/30/98 2 11/16 1 7/8
10/01/98 - 12/31/98 2 1/8 1 5/8
1/01/99 - 3/31/99 2 1/4 1 11/16
The number of holders of the Company's Shares was approximately 582 on March 31,
1999, 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, 1999.
The information set forth below should be read in conjunction with the
consolidated financial statements and the notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
Year Ended March, 31
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Summary Earnings Data (1):
Revenues $ 1,169,436 $ 1,285,798 $ 1,219,890 $ 1,293,166 $ 1,304,212
Operating loss from
continuing operations (475,224) (473,260) (581,431) (635,462) (840,886)
Earnings (loss) from continuing
operations before provision
for (benefit from) income
taxes 92,924 54,085 167,514 264,934 (422,285)
Net earnings (loss) from
continuing operations 59,924 40,085 94,514 156,934 (287,285)
Discontinued operations (2) -- -- 210,767 580,704 351,782
Net earnings 59,924 40,085 305,281 737,638 64,497
Net earnings per share - basic
Continuing operations $ .01 $ .01 $ .02 $ .04 $ (.07)
Discontinued operations -- $ -- $ .05 $ .13 $ .09
Net earnings per share - basic $ .01 $ .01 $ .07 $ .17 $ .02
Net earnings per share - diluted
Continuing operations $ .01 $ .01 $ .02 $ .04 $ (.07)
Discontinued operations -- $ -- $ .05 $ .13 $ .09
Net earnings per share - diluted $ .01 $ .01 $ .07 $ .17 $ .02
Weighted average shares:
Basic 4,273,500 4,223,500 4,147,042 4,250,000 4,250,000
Diluted 4,384,877 4,302,888 4,151,421 4,251,662 4,256,072
<CAPTION>
March, 31
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 8,120,621 $ 7,988,972 $ 7,607,725 $ 7,569,169 $ 5,550,420
Total assets 8,842,886 8,819,478 8,791,554 9,266,786 8,567,184
Stockholders' equity 8,644,188 8,584,264 8,294,179 8,404,270 7,680,720
</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
-6-
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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Summary of Operations - Fiscal years ended March 31, 1998, 1997 and 1996
- ------------------------------------------------------------------------
For the fiscal year ended March 31, 1999 ("Fiscal 1999"), revenue from
vocational rehabilitation services totaled $1,169,436, a decrease of 9.0% from
the $1,285,798 reported for the fiscal year ended March 31, 1998 ("Fiscal
1998"). Revenue for Fiscal 1998 had experienced a 5.4% increase from the
$1,219,890 generated in the fiscal year ended March 31, 1997 ("Fiscal 1997").
During Fiscal 1999, approximately 69% of total revenues were generated providing
vocational rehabilitation services to the Washington State Department of Labor &
Industries ("L&I"). Beginning in March 1999 and through May 1999, RPM
experienced a substantial decrease in new case referrals received from L&I.
Under a new performance-based vocational referral program ("the referral
program"), RPM's performance rating was deemed to be below L&I's required rating
to receive new case referrals. The implementation and criteria used in the
referral program are currently the subject of considerable debate and potential
litigation amongst numerous vocational rehabilitation providers and L&I.
Although updated ratings were released by L&I in May 1999, which reported a
qualifying rating for RPM, it cannot be predicted whether or not RPM will
continue to receive a favorable rating under the referral program as it
currently exists. If the referral program is not modified or eliminated and RPM
should receive an unfavorable rating and/or if the Company's contracts with L&I
are not renewed in August 1999, there would be a material adverse effect on the
consolidated results of operation. Management assesses the unamortized goodwill
for potential impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Such goodwill totaled $468,811
at March 31, 1999.
The cost of vocational rehabilitation services was 43.7% of revenues for Fiscal
1999 as compared to 43.5% of revenues for Fiscal 1998. During Fiscal 1997, the
cost of vocational rehabilitation services was 42.7% of related revenues.
Selling, general and administrative expenses were $1,133,580, $1,199,277, and
$1,280,644 in Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. It is
anticipated that certain expenditures related to the Company's search for
acquisition candidates will increase.
Interest income decreased slightly to $452,181 during Fiscal 1999, as compared
to interest income of $460,758 and $417,293 for Fiscal 1998 and Fiscal 1997,
respectively. During Fiscal 1998, and 1997, the Company realized gains on the
sales of marketable securities of $6,970 and $285,356, respectively.
Miscellaneous income, including commission payments received based upon the net
revenues of its sold hospital bill audit division, amounted to $115,967 in
Fiscal 1999, as compared with ancillary revenues of $59,617 for Fiscal 1998 and
$46,296 for Fiscal 1997.
Liquidity and Capital Resources
- -------------------------------
The Company's primary source of cash is internally generated funds. At March 31,
1999, the Company had working capital of $8,120,621 as compared to working
capital of $7,988,972 at March 31, 1998.
For Fiscal 1999, net cash provided by operating activities of continuing
operations was $192,779. The primary sources of cash were net earnings from
continuing operations of $59,924 and a $48,045 increase in income tax payable.
-7-
<PAGE>
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.
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 is ongoing. The
Company believes that with minor modifications to existing operating systems,
the Year 2000 issue will not pose significant operational problems for its
computer systems. Communications are in progress with all significant clients
and vendors to determine the extent to which the Company's systems are
vulnerable to such third parties' failure to remediate their own Year 2000
issues. The Company can provide no assurance that such clients and vendors will
complete their respective Year 2000 solutions in time for the Company to fully
test interfaces with them. Although the Company does not have a formal Year 2000
contingency plan, it will be responding to any disruption in service from a Year
2000 compliance problem in its systems and software or in a client's or vendor's
system. There is no assurance, however, that the Company will be able to remedy
any disruption in service, in particular any disruption from a client's or
vendor's failure to be Year 2000 compliant.
Based on current plans and efforts to date, management expects that there will
be no material adverse effect on operations and the associated costs to be
incurred are not considered to be material. There is no guarantee, however, that
all problems will be foreseen and corrected. In the event that the Company was
unable to complete any portion of its Year 2000 plans, the Company could be
unable to receive new case referrals, invoice clients and collect payments
electronically.
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 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
None.
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).
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<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- ------------------------------------------------------------------------
None.
PART III
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Item 10. Directors and Executive Officers of the Company
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The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Gary Gelman 52 Chairman of the Board,
President and
Chief Executive Officer
Gary J. Knauer 39 Chief Financial Officer,
Treasurer and Secretary
Edward M. Elkin, M.D. 60 Director
Peter Gutmann 70 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 devices including medical instruments.
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
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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
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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 $100,000 during the Company's fiscal year ended
March 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------- ------
Name and Other Annual All Other
Principal Fiscal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($) (1) (#) ($)
- ----------- ------ ---------- ------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gary Gelman 1999 $244,311 - - - -
Chairman, 1998 278,498 - - - -
President 1997 397,772 - - - -
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.
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,
1999, 1998 and 1997 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
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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 Plan
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provided for the issuance of up to 400,000 Shares to 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. Conditions of the
exercise of options 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 reserved for issuance. 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.
On June 23, 1998, the Board of Directors granted options to purchase 20,000
Shares under the 1997 Plan at an exercise price of $2.25 to an executive
officer.
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Both the 1997 and 1991 Plans provide that the number of Shares subject thereto
and the outstanding options and their exercise prices, are to be appropriately
adjusted for mergers, consolidations, recapitalizations, stock dividends, stock
splits or combinations of shares.
The current option committee appointed by the Board of Directors to administer
the Company's stock option plans consists of Messrs. Gelman, Gutmann and Elkin.
The Board of Directors may at any time terminate or from time to time amend or
alter any of the existing stock option plans.
Aggregated Option/SAR Exercises in 1999
---------------------------------------
and FY-End Option/SAR Values
----------------------------
The following table summarizes the number and dollar value of unexercised stock
options at March 31, 1999 for the Chief Executive Officer.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Options at Options at
Value FY-End (#) FY-End ($)(1)
Shares Acquired Realized Exercisable/ Exercisable/
Name on Exercise(#) ($) Unexercisable Unexercisable
- ----------------------------------- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Gary Gelman, - - 400,000/- $150,000/-
Chairman of the Board,
President and CEO
</TABLE>
(1) The closing price of the Company's Shares on March 31, 1999 as reported by
the NASDAQ National Market System was $1.75 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.
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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 4, 1999 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) 56.1%
Peter Gutmann (2) 80,000 (3) 1.7%
Edward M. Elkin, M.D. (2) 60,200 1.3%
Gary J. Knauer (2) 56,500 1.2%
D.H. Blair Investment Corp. 423,824 (5) 8.8%
All officers and directors
as a group (four persons) 2,893,100 60.2%
- ----------
(1) Based on a total of 4,273,500 Shares issued and outstanding, 530,500
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 530,500 Shares) which, in the case of Messrs. Gelman,
Gutmann, Elkin, and Knauer are 400,000, 34,000, 40,000, and 56,500 Shares,
respectively.
(5) These Shares are owned of record by D.H. Blair Investment Banking Corp.,
whose address is 44 Wall Street, New York, New York ("Blair Investment")
(385,824 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.
-13-
<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, 1999 and 1998
Consolidated Statements of Earnings for the Three Year Period
ended March 31, 1999
Consolidated Statements of Stockholders' Equity for the Three Year
Period ended March 31, 1999
Consolidated Statements of Cash Flows for the Three Year Period
ended March 31, 1999
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. 23 Consent of Independent Auditors
27 Financial Data Schedule
3. 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, 1998 and are incorporated by
reference herein:
1. Tenth Amendment dated May 1997 to Employment Agreement between the
Company and Gary Gelman.
2. 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.
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.
-14-
<PAGE>
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:
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.
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, 1999.
-15-
<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 23, 1999
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 23, 1999
- ------------------------- President and Chief
Gary Gelman Executive Officer
(Principal Executive Officer)
/s/ Gary J. Knauer Chief Financial Officer, June 23, 1999
- ------------------------- Treasurer (Principal Financial
Gary J. Knauer Officer) and Secretary
/s/ Edward M. Elkin Director June 23, 1999
- -------------------------
Edward M. Elkin, M.D.
/s/ Peter Gutmann Director June 23, 1999
- -------------------------
Peter Gutmann
-16-
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1999 and 1998 2
Consolidated Statements of Earnings for the years ended
March 31, 1999, 1998 and 1997 3
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1999, 1998 and 1997 4
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
</TABLE>
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
American Claims Evaluation, Inc.:
We have audited the accompanying consolidated balance sheets of American Claims
Evaluation, Inc. and subsidiary as of March 31, 1999 and 1998 and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended March 31, 1999. 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 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, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
---------------------------
KPMG LLP
Melville, New York
June 7, 1999
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
--------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 8,209,421 8,105,960
Accounts receivable (net of allowance for doubtful
accounts of $1,000 in 1999 and 1998) 88,991 90,478
Prepaid expenses 19,380 27,748
Deferred income taxes 1,527 -
------------- -------------
Total current assets 8,319,319 8,224,186
Property and equipment, net 54,756 94,056
Excess cost over fair value of net assets acquired, net of
accumulated amortization of $179,689 and $147,264
in 1999 and 1998, respectively 468,811 501,236
------------- -------------
$ 8,842,886 8,819,478
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 50,122 42,775
Accrued expenses 97,801 101,032
Current liabilities of discontinued operations - 86,204
Income taxes payable 50,775 2,730
Deferred income taxes - 2,473
------------- -------------
Total current liabilities 198,698 235,214
------------- -------------
Commitments
Stockholders' equity:
Common stock, $.01 par value -10,000,000 shares
authorized; 4,450,000 shares issued; 4,273,500
shares outstanding 44,500 44,500
Additional paid-in capital 3,515,699 3,515,699
Retained earnings 5,382,206 5,322,282
------------- -------------
8,942,405 8,882,481
Treasury shares, at cost, 176,500 shares (298,217) (298,217)
------------- -------------
Total stockholders' equity 8,644,188 8,584,264
------------- -------------
$ 8,842,886 8,819,478
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 1,169,436 1,285,798 1,219,890
Cost of services 511,080 559,781 520,677
----------- ----------- -----------
Gross margin 658,356 726,017 699,213
Selling, general and administrative expenses 1,133,580 1,199,277 1,280,644
----------- ----------- -----------
Operating loss from continuing operations (475,224) (473,260) (581,431)
Other income:
Interest income 452,181 460,758 417,293
Gain on sale of marketable securities - 6,970 285,356
Miscellaneous income 115,967 59,617 46,296
----------- ----------- -----------
Earnings from continuing operations
before provision for income taxes 92,924 54,085 167,514
Provision for income taxes 33,000 14,000 73,000
----------- ----------- -----------
Net earnings from continuing
operations 59,924 40,085 94,514
Discontinued operations (note 2):
Earnings from operations, net of taxes of $151,000 - - 271,767
Provision for loss on disposal, net of taxes - - (61,000)
----------- ----------- -----------
Net earnings $ 59,924 40,085 305,281
=========== =========== ===========
Net earnings per share - basic:
From continuing operations 0.01 0.01 0.02
From discontinued operations - - 0.05
----------- ----------- -----------
Net earnings per share $ 0.01 0.01 0.07
=========== =========== ===========
Net earnings per share - diluted:
From continuing operations 0.01 0.01 0.02
From discontinued operations - - 0.05
----------- ----------- -----------
Net earnings per share $ 0.01 0.01 0.07
=========== =========== ===========
Weighted average shares - basic 4,273,500 4,223,500 4,147,042
=========== =========== ===========
Weighted average shares - diluted 4,384,877 4,302,888 4,151,421
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1999, 1998 and 1997
<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, 1996 4,250,000 $ 42,500 3,267,699 117,155
Reduction in unrealized gain on
marketable securities - - - (117,155)
Purchase of common stock - - - -
Net earnings - - - -
------------- ------------ ------------ -------------
Balance at March 31, 1997 4,250,000 42,500 3,267,699 -
Issuance of common stock 200,000 2,000 248,000 -
Net earnings - - - -
------------- ------------ ------------ -------------
Balance at March 31, 1998 4,450,000 44,500 3,515,699 -
Net earnings - - - -
------------- ------------ ------------ -------------
Balance at March 31, 1999 4,450,000 $ 44,500 3,515,699 -
============= ============ ============ =============
<CAPTION>
Treasury stock Total
Retained -------------------------- stockholders'
earnings Shares Amount equity
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at March 31, 1996 4,976,916 - $ - 8,404,270
Reduction in unrealized gain on
marketable securities - - - (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
Issuance of common stock - - - 250,000
Net earnings 40,085 - - 40,085
------------ --------- ----------- ------------
Balance at March 31, 1998 5,322,282 176,500 (298,217) 8,584,264
Net earnings 59,924 - - 59,924
------------ --------- ----------- ------------
Balance at March 31, 1999 5,382,206 176,500 $ (298,217) 8,644,188
============ ========= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations $ 59,924 40,085 94,514
------------ ----------- -----------
Adjustments to reconcile net earnings to net cash
provided by (used in) continuing operations:
Depreciation and amortization 74,339 100,020 128,647
Gain on sale of marketable securities - (6,970) (285,356)
Deferred income taxes (4,000) 33,000 (49,000)
Changes in assets and liabilities:
Accounts receivable 1,487 29,402 (20,238)
Prepaid expenses 8,368 (3,016) (3,712)
Accounts payable 7,347 21,476 1,027
Accrued expenses (3,231) 6,958 1,340
Income taxes payable 48,045 (8,274) (131,699)
------------ ----------- -----------
Total adjustments 132,355 172,596 (358,991)
------------ ----------- -----------
Net cash provided by (used in) operating
activities of continuing operations 192,279 212,681 (264,477)
------------ ----------- -----------
Net cash flows provided by (used in) discontinued
operations (86,204) 35,453 496,934
------------ ----------- -----------
Cash flows from investing activities:
Purchases of marketable securities - (14,334) (118,768)
Proceeds from sales of marketable securities - 21,304 591,116
Capital expenditures, net (2,614) (47,761) -
------------ ----------- -----------
Net cash (used in) provided by
investing activities (2,614) (40,791) 472,348
------------ ----------- -----------
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 103,461 457,343 406,588
Cash and cash equivalents - beginning of year 8,105,960 7,648,617 7,242,029
------------ ----------- -----------
Cash and cash equivalents - end of year $ 8,209,421 8,105,960 7,648,617
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 10,511 10,672 366,279
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(1) Summary of Significant Accounting Policies
(a) Nature of Business
American Claims Evaluation, Inc. (the Company) operates in a
single segment that 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
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted
accounting principles. 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. Cash equivalents are comprised of short-term
commercial paper of $7,954,166 and $7,730,909 as of March 31, 1999
and 1998, respectively.
(f) Property and Equipment
Property and equipment is stated at cost, less accumulated
depreciation. Depreciation of property and equipment is computed
using the straight-line method over the estimated useful lives of
the respective assets.
(g) Goodwill
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, 1999, 1998 and 1997 and is
included in selling, general and administrative expenses in the
consolidated statements of earnings.
The Company assesses the recoverability of this intangible asset
by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of
the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
7
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(h) Income Taxes
The Company accounts for income taxes under the liability method
in accordance with Statement of Financial Accounting Standards
(SFAS) 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) Earnings per Share
SFAS No. 128, Earnings per Share, which became effective for the
Company for the year ended March 31, 1998, requires presentation
of two calculations of earnings per share. Basic earnings per
share equals net earnings divided by the 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. A reconciliation between the numerators and
denominators of the basic and diluted earnings per common share is
as follows:
<TABLE>
<CAPTION>
For the years ended March 31,
1999 1998 1997
------------- ------------- --------
<S> <C> <C> <C>
Net earnings from continuing operations
(numerator for net earnings from
continuing operations per common share,
basic and diluted) $ 59,924 40,085 94,514
Discontinued operations - - 210,767
------------ ------------ -----------
Net earnings (numerator for net
earnings per common share,
basic and diluted) $ 59,924 40,085 305,281
============ ============ ===========
Weighted average common shares
(denominator for net earnings
from continuing operations and
discontinued operations per
common share, basic) 4,273,500 4,223,500 4,147,042
Effect of dilutive securities:
Employee stock options 111,377 79,388 4,379
------------ ------------ -----------
Weighted average common and potential
common shares outstanding (denominator
for net earnings from continuing operations
and discontinued operations per common share,
diluted) $ 4,384,877 4,302,888 4,151,421
============ ============ ===========
</TABLE>
(Continued)
8
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
<TABLE>
<CAPTION>
For the years ended March 31,
1999 1998 1997
--------- ---------- --------
<S> <C> <C> <C>
Net earnings per share - basic:
From continuing operations $ 0.01 0.01 0.02
From discontinued operations - - 0.05
--------- --------- --------
Net earnings per share $ 0.01 0.01 0.07
========= ========= ========
Net earnings per share - diluted:
From continuing operations 0.01 0.01 0.02
From discontinued operations - - 0.05
--------- -------- --------
Net earnings per share $ 0.01 0.01 0.07
========= ========= ========
</TABLE>
Employee stock options totaling 206,500, 250,500 and 200,500 for
the years ended March 31, 1999, 1998 and 1997, respectively, were
not included in the net earnings per share calculation because
their effect would have been anti-dilutive.
(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 did not expect that these payments would be
material. Such payments amounted to $64,422 and $46,269 in 1999 and 1998,
respectively, and are included in miscellaneous income.
As of 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 for the fiscal
year ended March 31, 1997.
Liabilities of discontinued operations consisted of accounts payable and
accrued expenses as of March 31, 1998, which were paid during the year
ended March 31, 1999.
(3) Property and Equipment
Property and equipment at March 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
Estimated
1999 1998 useful life
---------- ---------- -----------
<S> <C> <C> <C>
Equipment $ 290,214 392,860 5 years
Furniture and fixtures 72,366 107,418 5 to 10 years
---------- ---------
362,580 500,278
Less accumulated depreciation 307,824 406,222
---------- ---------
$ 54,756 94,056
========== =========
</TABLE>
(Continued)
9
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
Depreciation expense for the years ended March 31, 1999, 1998 and 1997
amounted to $41,914, $67,595 and $53,157, respectively.
(4) Income Taxes
Income tax expense (benefit) for the years ended March 31, 1999, 1998 and
1997 is comprised of the following:
Year ended March 31,
1999 1998 1997
--------- --------- --------
Current:
Federal $ 36,000 22,000 75,000
State 1,000 (2,000) 8,000
--------- --------- --------
37,000 20,000 83,000
--------- --------- --------
Deferred:
Federal (4,000) (6,000) (10,000)
--------- --------- --------
$ 33,000 14,000 73,000
========= ========= ========
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,
-------------------------------------------------------------------
1999 1998 1997
------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Expected income tax provision
at the statutory Federal tax rate $ 32,000 34% $ 18,000 34% $ 57,000 34%
State taxes, net of Federal tax benefit - - (1,000) (2) 5,000 3
Amortization of goodwill 11,000 12 11,000 20 11,000 7
Benefit of graduated rates (11,000) (11) (12,000) (22) - -
Other, net 1,000 1 (2,000) (4) - -
---------- ---- --------- --- -------- --
Actual income tax provision $ 33,000 36% $ 14,000 26% $ 73,000 44%
========== ==== ========== == ======== ==
</TABLE>
The tax effects of temporary differences that give rise to the deferred
tax assets or liabilities at March 31, 1999 and 1998 are as follows:
1999 1998
------- -------
Deferred tax assets:
Depreciation $ 1,527 -
======= =======
Deferred tax liabilities:
Depreciation $ - 2,473
======= =======
10
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(5) Major Customer
The Company has one customer who accounted for 69%, 77% and 84% of
revenues for the years ended March 31, 1999, 1998 and 1997, respectively.
Services are performed by the Company for this customer under two
separate contracts which expire in August 1999. The renewal of these
contracts can not be assured. The Company also has a customer who
accounted for 11% of revenues for the year ended March 31, 1999.
(6) Stock Options
The Company has three stock option plans, the 1985 Stock Option Plan
(1985 Plan), the 1991 Stock Option Plan (1991 Plan) and the 1997
Incentive Stock Option Plan (1997 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. The 1991 Plan
also provides for stock appreciation rights. No such rights have been
granted as of March 31, 1999.
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.
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 1999, 1998 and
1997 are summarized in the following table:
<TABLE>
<CAPTION>
Weighted
No. of average
shares exercise price
--------- --------------
<S> <C> <C>
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
Fiscal 1999:
Options granted 20,000 2.25
-------- ----
Balance - March 31, 1999 570,500 1.72
======= ====
</TABLE>
(Continued)
11
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
As of March 31, 1999, 6,000 and 395,000 options were available for grant
under the 1991 Plan and 1997 Plan, respectively.
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, 1999:
<TABLE>
<CAPTION>
Weighted
average
exercise Weighted
price of average
Number of options exercisable contractual
Exercise price Outstanding Exercisable options life remaining
-------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.25 300,000 300,000 1.25 8 years
$1.82 - $2.50 270,500 232,375 2.24 5.4 years
</TABLE>
The Company has adopted the "disclosure only" provisions of 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 1999, 1998 and 1997 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:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Net earnings (loss):
As reported $ 59,924 40,085 305,281
Pro forma 42,339 (201,575) 241,458
Basic net earnings (loss) per share:
As reported .01 .01 .07
Pro forma .01 (.05) .06
Diluted net earnings (loss) per share:
As reported .01 .01 .07
Pro forma .01 (.05) .06
</TABLE>
The weighted average fair value per stock option granted was $1.03, $.76
and $1.39 for those options granted in the years ended March 31, 1999,
1998 and 1997, respectively. The Company estimated the fair values using
the Black-Scholes option pricing model, using the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -------
<S> <C> <C> <C>
Expected dividend yield - - -
Risk-free interest rate 6.00% 6.00% 6.00%
Expected stock price volatility 55.00% 50.00% 95.00%
Expected option lives (years) 7.5 7.5 7.5
</TABLE>
(Continued)
12
<PAGE>
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
The pro forma effects on net earnings and net earnings per share for the
years ended March 31, 1999, 1998 and 1997 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.
(7) 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 $2,917, $6,168 and
$6,806 for the years ended March 31, 1999, 1998 and 1997, respectively.
(8) Financial Instruments
The carrying value of the Company's financial instruments is deemed to
approximate fair value due to the short-term nature of these instruments.
(9) Commitments
Rental expense under non-cancelable operating leases for office space
amounted to $132,990, $206,154 and $189,039 for the years ended March 31,
1999, 1998 and 1997, respectively. Minimum lease payments under
non-cancelable operating leases, exclusive of future escalation charges,
as of March 31, 1999 are as follows:
2000 $ 124,000
2001 82,000
2002 68,000
2003 68,000
2004 45,000
-------------
Total minimum lease payments $ 387,000
=============
13
<PAGE>
EXHIBIT 23
----------
KPMG 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 7, 1999, relating to the consolidated balance sheets of American Claims
Evaluation, Inc. and subsidiary as of March 31, 1999 and 1998, the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1999 which report
appears in the March 31, 1999 annual report on Form 10-K of American Claims
Evaluation, Inc.
KPMG LLP
Melville, New York
June 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,209,421
<SECURITIES> 0
<RECEIVABLES> 89,991
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,319,319
<PP&E> 362,580
<DEPRECIATION> 307,824
<TOTAL-ASSETS> 8,842,886
<CURRENT-LIABILITIES> 198,698
<BONDS> 0
<COMMON> 44,500
0
0
<OTHER-SE> 3,515,699
<TOTAL-LIABILITY-AND-EQUITY> 8,842,886
<SALES> 1,169,436
<TOTAL-REVENUES> 1,169,436
<CGS> 511,080
<TOTAL-COSTS> 511,080
<OTHER-EXPENSES> 1,133,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 92,924
<INCOME-TAX> 33,000
<INCOME-CONTINUING> 59,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,924
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
