UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) {X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 { } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _____ to _____ Commission file number: 0-14807 AMERICAN CLAIMS EVALUATION, INC. (Exact name of small business issuer as specified in its charter) New York 11-2601199 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Jericho Plaza, Jericho, New York 11753 ------------------------------------------ (Address of principal executive offices) (516) 938-8000 --------------------------- (Issuer's telephone number) As of August 13, 2004, there were 4,859,800 shares of the issuer's common stock, $.01 par value, outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] AMERICAN CLAIMS EVALUATION, INC. INDEX Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheets as of June 30, 2004 (unaudited) and March 31, 2004 3 Consolidated Statements of Operations for the Three Months ended June 30, 2004 and 2003 (unaudited) 4 Consolidated Statements of Cash Flows for the Three Months ended June 30, 2004 and 2003 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 - 7 Item 2. Management's Discussion and Analysis or Plan of Operation 8 - 9 Item 3. Controls and Procedures 9 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Consolidated Balance Sheets June 30, 2004 Mar. 31, 2004 ------------- ------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 7,737,730 $ 6,763,920 Accounts receivable, net 111,883 125,697 Prepaid expenses 34,929 35,930 Prepaid and recoverable income taxes 1,042 272 ----------- ----------- Total current assets 7,885,584 6,925,819 Property and equipment, net 56,942 55,917 ----------- ----------- Total assets $ 7,942,526 $ 6,981,736 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 45,104 $ 44,357 Accrued expenses 120,380 96,994 ----------- ----------- Total current liabilities 165,484 141,351 ----------- ----------- Stockholders' equity: Common stock, $.01 par value. Authorized 10,000,000 shares; issued 5,050,000 and 4,450,000 shares at June 30, 2004 and March 31, 2004, respectively; outstanding 4,859,800 and 4,259,800 shares at June 30, 2004 and March 31, 2004, respectively 50,500 44,500 Additional paid-in capital 4,579,699 3,515,699 Retained earnings 3,463,984 3,597,327 ----------- ----------- 8,094,183 7,157,526 Treasury stock, at cost (317,141) (317,141) ----------- ----------- Total stockholders' equity 7,777,042 6,840,385 ----------- ----------- Total liabilities and stockholders' equity $ 7,942,526 $ 6,981,736 =========== =========== See accompanying notes to consolidated financial statements. 3 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Consolidated Statements of Operations (Unaudited) Three months ended -------------------------- June 30, June 30, 2004 2003 ----------- ----------- Revenues $ 287,190 $ 305,749 Cost of services 144,358 143,478 ----------- ----------- Gross margin 142,832 162,271 Selling, general, and administrative expenses 290,559 275,518 ----------- ----------- Operating loss (147,727) (113,247) Interest income 15,384 27,416 ----------- ----------- Loss before income tax expense (132,343) (85,831) Income tax expense 1,000 3,000 ----------- ----------- Net loss $ (133,343) $ (88,831) =========== =========== Net loss per share - basic $ (0.03) $ (0.02) =========== =========== Net loss per share - diluted $ (0.03) $ (0.02) =========== =========== Weighted average shares - basic 4,459,800 4,259,800 =========== =========== Weighted average shares - diluted 4,459,800 4,259,800 =========== =========== See accompanying notes to consolidated financial statements. 4 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited) Three months ended -------------------------- June 30, June 30, 2004 2003 ----------- ----------- Cash flows from operating activities: Net loss $ (133,343) $ (88,831) ----------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 8,441 8,368 Deferred income taxes -- 2,527 Changes in assets and liabilities: Accounts receivable 13,814 (27,971) Prepaid expenses 1,001 1,400 Prepaid and recoverable income taxes (770) (2,502) Accounts payable 747 (2,807) Accrued expenses 23,386 23,777 ----------- ----------- 46,619 2,792 ----------- ----------- Net cash used in operating activities (86,724) (86,039) ----------- ----------- Cash flows from investing activities: Capital expenditures (9,466) (1,792) ----------- ----------- Net cash used in investing activities (9,466) (1,792) ----------- ----------- Cash flows from financing activities: Proceeds from exercise of stock options 1,070,000 -- ----------- ----------- Net cash provided by financing activities 1,070,000 -- ----------- ----------- Net increase (decrease) in cash and cash equivalents 973,810 (87,831) Cash and cash equivalents at beginning of period 6,763,920 7,179,340 ----------- ----------- Cash and cash equivalents at end of period $ 7,737,730 $ 7,091,509 =========== =========== Supplemental disclosure of cash flow information: Income taxes paid $ 1,770 $ 2,975 =========== =========== See accompanying notes to consolidated financial statements. 5 AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) General The accompanying unaudited consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the information furnished reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows for the interim periods. Interim periods are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended March 31, 2004 and the notes thereto contained in the Company's Annual Report on Form 10-KSB, as filed with the Securities and Exchange Commission. Net Loss Per Share The following table sets forth the computation of basic and diluted net loss per share for the three months ended June 30, 2004 and 2003: Three months ended -------------------------- 06/30/04 06/30/03 ----------- ----------- Numerator: Net loss $ (133,343) $ (88,831) Denominator: Denominator for basic loss per share - weighted average shares 4,459,800 4,259,800 Effect of dilutive securities: Stock options -- -- ----------- ----------- Denominator for diluted loss per share 4,459,800 4,259,800 =========== =========== Basic loss per share $ (0.03) $ (0.02) =========== =========== Diluted loss per share $ (0.03) $ (0.02) =========== =========== Potentially dilutive common stock equivalents consisting of employee stock options to purchase 908,500 and 1,478,500 shares as of June 30, 2004 and 2003, 6 respectively, were not included in the diluted loss per share calculations because their effect would have been anti-dilutive. Stock Option Plans The Company has adopted the "disclosure only" provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, and will continue to use the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation expense has been recognized for the Company's stock option plans as the exercise price of the Company's stock option grants equaled or exceeded the fair value of the Company's common stock at the date of grant. Had compensation expense for the Company's stock option plans been determined based on the fair value at the grant date for awards during the three months ended June 30, 2004 and 2003 consistent with the provisions of SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, and SFAS No. 123, the Company's net loss and loss per share would have been increased to the pro forma amounts indicated below: Three months ended ---------------------- 06/30/04 06/30/03 --------- --------- (As restated) Numerator: Net loss $(133,343) $ (88,831) Deduct: Total stock-based employee compensation expense determined under fair value method for options granted (5,106) (32,492) --------- --------- Pro forma net loss $(138,449) $(121,323) ========= ========= Net loss per share: Basic and diluted - as reported $ (0.03) $ (0.02) ========= ========= Basic and diluted - pro forma $ (0.03) $ (0.02) ========= ========= The Financial Accounting Standards Board ("FASB") recently indicated that it will eventually require stock-based employee compensation to be recorded as a charge to earnings. The Company will monitor the FASB's progress on the issuance of a new standard and its impact on the consolidated financial statements. 7 Item 2. Management's Discussion and Analysis or Plan of Operation. Critical Accounting Policies The Company makes estimates and assumptions in the preparation of its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company does not consider any of its accounting policies to be critical. Our significant accounting policies are described in Note 1 to the audited consolidated financial statements included in our annual report for the year ended March 31, 2004. The accounting policies used in preparing our interim condensed consolidated financial statements are the same as those described in our annual report. Results of Operations - Three Months ended June 30, 2004 and 2003 Revenues for the three months ended June 30, 2004 were $287,190 as compared to $305,749 reported for the corresponding period ended June 30, 2003. This decrease of approximately 6.1% was caused by a slight decline in referrals from the Washington State Department of Labor & Industries, the Company's largest client, and a reduction in cases referred from various self-insured clients. Cost of services increased to 50.3% of revenues for the quarterly period ended June 30, 2004 as compared to 46.9% of revenues in the same period last year. This increase in cost of services was the result of a larger percentage of vocational rehabilitation services being performed by the Company's more experienced and higher paid consultants during the current quarter. Selling, general and administrative expenses for the three months ended June 30, 2004 increased to $290,559 from the $275,518 recorded for the three months ended June 30, 2003. During the three months ended June 30, 2004, the Company's expenditures increased for travel costs and legal fees related to its acquisition search efforts. Interest income for the three months ended June 30, 2004 decreased to $15,384 from the $27,416 recorded during the three month period ended June 30, 2003 as prevailing market interest rates continued to decrease. Liquidity and Capital Resources At June 30, 2004, the Company had working capital of $7,720,100 as compared to working capital of $6,784,468 at March 31, 2004. The Company believes that it has sufficient cash resources and working capital to meet its present cash requirements. During the three months ended June 30, 2004, net cash used in operations of $86,724 consisted principally of a net loss of $133,343, offset by an increase in accrued expenses of $23,386. Cash provided by financing activities during the quarter ended June 30, 2004 reflects $1,070,000 of proceeds related to the issuance of common stock pursuant to the exercise of options to purchase 600,000 shares of common stock. 8 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. Market Risk The Company is exposed to market risk related to changes in interest rates. Most of the Company's cash and cash equivalents are invested at variable rates of interest and further decreases in market interest rates would cause a related reduction in interest income. Forward Looking Statements Except for the historical information contained herein, the matters discussed in this report on Form 10-QSB may contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, general economic and market conditions, the potential loss or termination of existing clients and contracts and the ability of the Company to successfully identify and thereafter consummate one or more acquisitions. Item 3. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are designed to ensure the reliability of the financial statements and other disclosures included in this report. As of the end of the fiscal quarter ended June 30, 2004, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company's periodic Securities and Exchange Commission filings. (b) Changes in Internal Controls There have been no changes in the Company's internal controls or in other factors that have materially affected, or is reasonably likely to materially affect, these controls subsequent to the date the Company carried out its evaluation. Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial matters. However, management has decided that considering the employees involved and the control procedures in place, risks associated with such lack of segregation are insignificant and the potential benefits of adding employees to clearly segregate duties do not justify the expenses associated with such increases. 9 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 31.1 Section 302 Principal Executive Officer Certification Exhibit 31.2 Section 302 Principal Financial Officer Certification Exhibit 32.1 Section 1350 Certification Exhibit 32.2 Section 1350 Certification (b) The following report on Form 8-K was filed during the quarter ended June 30, 2004: On June 18, 2004, a Form 8-K was filed by the Company under "Item 9. Regulation FD Disclosure." 10 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN CLAIMS EVALUATION, INC. Date: August 13, 2004 By: /s/ Gary Gelman ------------------------------------- Gary Gelman Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Date: August 13, 2004 By: /s/ Gary J. Knauer ------------------------------------- Gary J. Knauer Chief Financial Officer, Treasurer (Principal Financial and Accounting Officer) and Secretary