Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The issuer’s revenues for the fiscal year ending March 31, 2008 were $0.
On June 24, 2008, the aggregate market value of the registrant’s common stock held by non-affiliates was $1,856,368. For purposes of this disclosure, shares of common stock held by directors, officers and shareholders whose ownership exceeds five percent of the common stock outstanding 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 issuer, or that such person is controlled by or under common control with the issuer.
The number of shares of the registrant’s common stock outstanding on June 24, 2008 was 4,761,800.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one): Yes o No x
PART I
Item 1. Description of Business.
American Claims Evaluation, Inc. (the “Company”) was incorporated in the State of New York and commenced operations in April 1982. Through March 31, 2008, the Company provided a full range of vocational rehabilitation and disability management services designed to maximize injured workers’ abilities in order to reintegrate them into their respective communities through its wholly owned subsidiary, RPM Rehabilitation & Associates, Inc. (“RPM”).
Subsequent to March 31, 2008, the Company announced that it had entered into a non-binding letter of intent for the proposed acquisition of substantially all the assets and business of a privately-held New York-based company providing a comprehensive range of services to children with developmental delays and disabilities. In its most recently completed fiscal year, this entity had revenues of approximately $5,700,000.
The anticipated purchase price is $1,000,000 and the Company will fund the transaction utilizing existing cash reserves. The proposed acquisition is subject to the satisfactory completion of due diligence activities and the negotiation and execution of a definitive asset purchase agreement containing terms and conditions customary for a transaction of this nature and other contingencies.
In light of the Company’s potential entry into a new line of business, Stephen Renz, the President of RPM, expressed interest in purchasing RPM from the Company and entered into a non-binding letter of intent with the Company to acquire all of the outstanding shares of stock of RPM in exchange for cash and an additional amount contingent upon the future earnings of RPM. Accordingly, the results of operations of RPM have been classified as discontinued operations.
Employees
As of March 31, 2008, the Company had ten full-time employees and one part-time employee. Of these full-time employees, three were in management, five were vocational rehabilitation consultants and two were in administration.
Item 2. Description of Property.
The Company leases office space in Jericho, New York under a seven-year non-cancelable operating sublease with American Para Professional Systems, Inc. (“APPS”), an entity under the control of the Company’s Chairman of the Board, which expires on November 30, 2011. Basic rent under the sublease has been established as a pass-through with the Company’s cost being fixed at a cost equal to the pro-rated rent payable for the subleased space by APPS to the building’s landlord.
RPM leases approximately 2,500 square feet of office space in Spokane, Washington under a three-year non-cancelable operating lease which expires on June 30, 2008. RPM will continue to occupy this office space on a month-to-month basis until such time that RPM is purchased by Stephen Renz. RPM also maintain offices in Moses Lake, Washington, and in Kennewick, Washington, which are leased on a month-to-month basis.
The Company believes that its existing facilities are adequate to meet its present needs. However, should the Company require additional space it is assumed that such space will be available.
Item 3. Legal Proceedings. The Company is not engaged in any litigation. 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, 2008.
PART II Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities. The Company’s common stock, par value $.01 (the “Shares”), trades on the NASDAQ Capital 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, 2006 through March 31, 2008: High Low Fiscal 2007: Quarter ended Jun. 30, 2006 $ 3.00 $ 1.82 Quarter ended Sept. 30, 2006 $ 2.50 $ 1.81 Quarter ended Dec. 31, 2006 $ 2.40 $ 1.61 Quarter ended Mar. 31, 2007 $ 2.10 $ 1.61 Fiscal 2008: Quarter ended Jun. 30, 2007 $ 2.23 $ 1.63 Quarter ended Sept. 30, 2007 $ 1.94 $ 0.85 Quarter ended Dec. 31, 2007 $ 1.64 $ 0.76 Quarter ended Mar. 31, 2008 $ 0.93 $ 0.62 The number of holders of the Company’s Shares was approximately 484 on March 31, 2008, 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.
Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Subsequent to March 31, 2008, the Company entered into a non-binding letter of intent with Stephen D. Renz, the President of RPM, whereby Mr. Renz intends to acquire all of the outstanding shares of stock of RPM in exchange for cash and an additional amount contingent upon the future earnings of RPM. The financial statements have been reclassified to exclude the operating results of RPM from the continuing operations and account for them as discontinued operations (see Note 2 to the Consolidated Financial Statements). The following discussion relates only to the Company’s continuing operations, unless otherwise noted. Selling, general and administrative expenses were $990,113 and $688,242 in the fiscal years ended March 31, 2008 (“Fiscal 2008”) and March 31, 2007 (“Fiscal 2007”), respectively. The increase in Fiscal 2008 was the result of an increase in stock based compensation expense of $285,000 recorded in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”) and expenditures of $15,000 related to consulting costs incurred in the Company’s efforts to comply with the Sarbanes-Oxley Act of 2002. Selling, general and administrative expenses for the year ended March 31, 2006 (“Fiscal 2006”) were $637,475. The increase in Fiscal 2007 over Fiscal 2006 was the result of an increase in stock
based compensation expense of $59,250 recorded in accordance with the provisions of SFAS 123R. Interest income was $331,027 and $369,482 during Fiscal 2008 and Fiscal 2007, respectively. This decrease was caused by the decrease in available cash balances to be invested and a shift to more conservative investments which produced lower yields. Interest income for Fiscal 2006 was $286,542. The increase in interest income in Fiscal 2007 over Fiscal 2006 was the result of incrementally higher interest rates. Management evaluates the realizability of the deferred tax assets and the need for additional valuation allowances quarterly. The Company believes it is more likely than not that the deferred tax assets will not be realized. As of March 31, 2008, the Company had net operating loss carryforwards of approximately $2,482,000 which will be available to reduce future taxable income. Liquidity and Capital Resources The Company’s primary source of cash is existing cash resources. At March 31, 2008, the Company had working capital of $6,226,063 as compared to working capital of $6,628,991 at March 31, 2007. During Fiscal 2008, operating activities used cash of $320,614, primarily due to its operating loss. During Fiscal 2008 and 2007, the Company used $39,055 and $79,982, respectively, in its investing activities, which was used for the purchase of automobiles for use by the Chief Financial Officer and the Chairman of the Board/Chief Executive Officer, respectively. The Company continues its review of strategic alternatives for maximizing shareholder value. Potential acquisitions will be evaluated based on their respective merits. Management believes that the Company has sufficient cash resources and working capital to meet its capital resource requirements for the foreseeable future.
Recently Issued Accounting Pronouncements In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measures” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for fiscal years beginning after November 15, 2007, the year beginning April 1, 2008 for the Company. The Company does not expect the adoption of SFAS 157 to have a significant impact on its financial statements. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007, the year beginning April 1, 2008 for the Company. The Company does not expect the adoption of SFAS 159 to have a significant impact on its financial statements. In December 2007, the FASB issued FASB Statement No. 141 (Revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) will significantly change the accounting for business combinations. Under SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions. SFAS 141(R) will change the accounting treatment for certain specific items, including: • Noncontrolling interests (formerly known as “minority interests”) will be recorded at fair value at the acquisition date; • Acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies; • In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; • Restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and • Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) also includes a substantial number of new disclosure requirements. The statement applies to the Company prospectively for business combinations for which the acquisition date is on or after January 1, 2009. Earlier adoption is prohibited. The Company is currently assessing the impact of adopting SFAS 141(R) on its financial statements. The FASB issued FASB Statement No. 160, “Non-controlling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51” in December 2007 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this Statement requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this Statement requires that a parent
recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its non-controlling interest. SFAS 160 is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning with the year ended March 31, 2010. Earlier adoption is prohibited. The Company does not expect the adoption of SFAS 160 to have a significant impact on its financial statements. Off Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to the Company. 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 (“US GAAP”). Actual results could differ significantly from those estimates under different assumptions and conditions. Note 1 of the notes to the consolidated financial statements includes a summary of the significant accounting policies used in the preparation of the accompanying consolidated financial statements, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and which require management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Forward-Looking Statements Except for the historical information contained herein, the matters discussed in this Annual Report 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 7. Financial Statements. The financial statements required by this Item are set forth at the pages indicated in Item 13 on page 16 of this Annual Report. Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 8A (T). Controls and Procedures. Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Annual Report, under the supervision and with the participation of our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of that date. Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, the principal executive officer and principal financial officer, and effected by the board of directors and management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US
GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and the directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Management conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that internal control over financial reporting was effective as of March 31, 2008. Management is aware, however, 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 concluded that considering the employees involved and the control procedures in place, the 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. This Annual Report does not include an attestation report of the Company’s current independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s current independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this Annual Report. There have been no changes in the Company’s internal control over financial reporting or in other factors that could significantly affect the internal control over financial reporting subsequent to the date of the Company’s evaluation in connection with the preparation of this Annual Report. Item 8B. Other Information. None.
PART III Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act. The executive officers and directors of the Company are as follows: Name Age Position Gary Gelman Chairman of the Board, President and Chief Executive Officer Gary J. Knauer Chief Financial Officer, Treasurer and Secretary Edward M. Elkin, M.D. Director Peter Gutmann Director Joseph Looney 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. (“APPS”), which provides nurses who perform physical examinations of applicants for life and/or health insurance for insurance companies. He received a B.A. from Queens College, City University of New York. 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, he was employed from October 1984 to June 1991 by the accounting firm of KPMG LLP. He is a Certified Public Accountant and holds a B.S. from the State University of New York at Binghamton. Since February 1994, Mr. Knauer also has served as Chief Financial Officer of APPS. Edward M. Elkin, M.D. has been a director of the Company since July 1, 1985. He is currently a health program consultant. Previously, Dr. Elkin had 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. from Harvard College and his M.D. 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 PhD. from Harvard University. Joseph Looney was appointed a director of the Company on June 14, 2005. He is currently the Vice President – Finance for NBTY, Inc., a vertically integrated manufacturer and distributor of vitamins and nutritional supplements. He was the Chief Financial Officer of EVCI Career College Holding Corp. from October 2005 to May 2006. Previously, he had been the Chief Financial Officer and Secretary of Astrex, Inc., a distributor of electronic components, since 2002. From 1996-2002, he was the Chief Financial Officer, V.P. of Finance and Assistant Secretary of Manchester Technologies, Inc., a network integrator and reseller of computer products. From 1984 to1996, he was employed by the accounting firm of KPMG LLP. He is a Certified Public Accountant and has a B.A. from Queens College, City University of New York and an M.S. from Long Island University. Since 1996, Mr. Looney has also been an
Adjunct Professor of Accounting and Business Law at Hofstra University.
The directors are elected at the Annual Meeting of Shareholders and hold office until the next Annual Meeting of Shareholders and until their respective successors have been elected and qualified or until their prior death, resignation or removal. The Company has a separately-designated standing audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act. Messrs. Elkin, Gutmann and Looney are the members of the Audit Committee. The Board has determined that Mr. Looney is (i) the “audit committee financial expert”, as defined in regulations adopted pursuant to the Sarbanes-Oxley Act of 2002 and (ii) “independent” in accordance with Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act. Code of Ethics The Company has adopted a Code of Ethics (the “Code of Ethics”) that applies to its Chief Executive Officer, Chief Financial Officer, directors and employees. Any amendments or waivers to the Code of Ethics will be promptly disclosed as required by applicable laws, rules and regulations of the SEC. The Code of Ethics was filed as an exhibit to the Company’s Annual Report on Form 10-KSB for the fiscal year ended March 31, 2004. Section 16(a) Beneficial Ownership Reporting Compliance Under Federal securities laws, the Company’s directors, its executive officers and any person holding more than 10% of the Company’s Shares are required to report their ownership of the Company’s Shares and any changes in that ownership to the SEC on the SEC’s Forms 3, 4 and 5. Based on its review of the copies of such forms it has received, the Company believes that all officers, directors and owners of greater than 10% of the Company’s equity securities complied on a timely basis with all filing requirements applicable to them with respect to transactions during Fiscal 2008. Item 10. Executive Compensation. The following table sets forth all compensation paid or accrued to the Company’s Chief Executive Officer (principal executive officer) and the Chief Financial Officer (the “Named Executive Officers”) for each of the Company’s last two fiscal years: SUMMARY COMPENSATION TABLE Option All Other Name and Fiscal Awards Compensation Principal Position Year Salary Bonus (1) (2) Total Gary Gelman 2008 $ 244,311 — $ 285,000 $ 11,542 $ 540,853 Chairman, 2007 $ 244,311 — — $ 10,146 $ 254,457 President and CEO Gary J. Knauer 2008 $ 144,917 — — $ 7,203 $ 152,120 Treasurer, 2007 $ 136,017 — $ 21,250 $ 4,953 $ 162,220 Secretary and CFO
(1) Represents the compensation costs of stock option awards for financial reporting purposes for the fiscal year under SFAS 123R, rather than an amount paid to or realized by the Named Executive Officer. See Note 1(i) of the Notes to Consolidated Financial Statements for a discussion of the assumptions used in calculating the aggregate grant date fair value computed in accordance with SFAS 123R. There can be no assurance that the SFAS 123R amounts will ever be realized. (2) The amounts shown in All Other Compensation include the Company’s incremental cost for the provision to the Named Executive Officers of certain specified perquisites as follows: Personal Use 401(k)