UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number: 0-14807
AMERICAN CLAIMS EVALUATION, INC.
(Exact name of registrant as specified in its charter)
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New York
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11-2601199
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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One Jericho Plaza, Jericho, New York
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11753
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(Address of principal executive offices)
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(Zip code)
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(516) 938-8000
(Registrants telephone number, including area code)
Former name, former address and former fiscal year, if changed since last report
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 twelve months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one)
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
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No
þ
The number of shares outstanding of the Registrants common stock as of August 11, 2008 was
4,761,800.
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
INDEX
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
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June 30, 2008
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Mar. 31, 2008
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(Unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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6,141,468
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$
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6,239,442
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Current assets of discontinued operations
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87,467
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111,337
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Prepaid expenses
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24,997
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33,560
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Total current assets
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6,253,932
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6,384,339
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Non-current assets of discontinued operations
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11,450
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7,674
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Property and equipment, net
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86,027
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92,072
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Total assets
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$
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6,351,409
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$
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6,484,085
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Liabilities and Stockholders Equity
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Current liabilities:
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Accounts payable
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$
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40,937
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$
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18,936
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Accrued expenses
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116,812
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106,190
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Current liabilities of discontinued operations
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23,391
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33,150
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Total current liabilities
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181,140
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158,276
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Commitments
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Stockholders equity:
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Common stock, $.01 par value. Authorized
20,000,000 shares in 2008 and 10,000,000
shares in 2007; issued 5,050,000 shares;
outstanding 4,761,800 shares
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50,500
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50,500
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Additional paid-in capital
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4,946,699
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4,931,099
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Retained earnings
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1,634,911
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1,806,051
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6,632,110
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6,787,650
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Treasury stock, at cost
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(461,841
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(461,841
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Total stockholders equity
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6,170,269
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6,325,809
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Total liabilities and stockholders equity
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$
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6,351,409
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$
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6,484,085
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See accompanying notes to condensed consolidated financial statements.
3
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
(Unaudited)
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Three months ended
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June 30,
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June 30,
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2008
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2007
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Revenues
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$
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$
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Cost of services
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Gross margin
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Selling, general, and administrative expenses
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207,111
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450,707
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Operating loss from continuing operations
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(207,111
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(450,707
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Interest income
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41,799
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90,267
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Loss from continuing operations
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(165,312
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(360,440
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Discontinued operations:
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Loss from discontinued operations
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(5,828
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(6,449
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Net loss
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$
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(171,140
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$
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(366,889
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Net loss per share:
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From continuing operations basic and diluted
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$
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(0.04
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$
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(0.08
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From discontinued operations basic and diluted
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$
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$
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Weighted average shares basic and diluted
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4,761,800
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4,761,800
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See accompanying notes to condensed consolidated financial statements.
4
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three months ended
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June 30,
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June 30,
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2008
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2007
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Cash flows from operating activities:
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Loss from continuing operations
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$
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(165,312
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$
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(360,440
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Adjustments to reconcile net loss to net
cash used in continuing operations:
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Depreciation
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6,045
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5,069
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Stock compensation expense
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15,600
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285,000
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Changes in operating assets and liabilities:
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Prepaid expenses
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8,563
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5,399
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Accounts payable
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22,001
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5,890
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Accrued expenses
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10,622
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21,504
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62,831
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322,862
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Net cash used in operating activities of
continuing operations
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(102,481
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(37,578
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Cash flows from investing activities:
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Capital expenditures
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(39,055
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Net cash used in investing activities
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(39,055
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Net cash flows provided by discontinued operations
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4,507
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15,951
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Net decrease in cash and cash equivalents
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(97,974
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(60,682
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Cash and cash equivalents beginning of period
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6,239,442
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6,589,576
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Cash and cash equivalents end of period
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$
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6,141,468
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$
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6,528,894
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See accompanying notes to condensed consolidated financial statements.
5
AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
June 30, 2008
(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 make the consolidated
financial position, results of operations and cash flows for the interim periods not misleading.
Interim periods are not necessarily indicative of results for a full year.
These condensed consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the fiscal year ended March 31, 2008 and the
notes thereto contained in the Companys Annual Report on Form 10-KSB, as filed with the Securities
and Exchange Commission.
Discontinued Operations
The Company committed to a plan to sell RPM Rehabilitation & Associates, Inc. (RPM), the
Companys wholly-owned subsidiary, to Stephen Renz, the President of RPM, wherein 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 Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, related to the accounting and
reporting for segments of a business to be disposed of. The results of RPMs operations have been
classified as discontinued operations in all periods presented.
Net Loss Per Share
Basic earnings (loss) per share are computed on the weighted average common shares outstanding.
Diluted earnings (loss) per share reflects the maximum dilution from potential common shares
issuable pursuant to the exercise of stock options, if dilutive, outstanding during each period.
Potentially dilutive securities consisting of employee and director stock options to purchase
1,233,500 and 1,236,000 shares as of June 30, 2008 and 2007, respectively, were not included in the
diluted net loss per share calculations because their effect would have been anti-dilutive.
Stock Option Plans
The Company follows the provisions of SFAS No. 123 (revised 2004), Share-Based Payment (SFAS
123R). Under these provisions, stock-based compensation is measured at the grant date, based on
the calculated fair value of the award, and is recognized as an expense over the recipients
requisite service period (generally the vesting period of the grant).
The Company recognized stock-based compensation totaling $15,600 during the three months ended June
30, 2008 based on the fair value of stock options granted. This expense is included in selling,
general and
6
administrative expenses in the Condensed Consolidated Statements of Operations. At June 30, 2008,
all outstanding options to purchase shares are fully vested. However, certain option grants
contain disposition restrictions which prohibit the sale of 50% of the shares obtained through the
exercise of such awarded options until the first anniversary of the grant date and the remaining
50% of the shares obtained through the exercise of the awarded options until the second anniversary
of the grant date.
The Company estimates the fair value of stock options granted using the Black-Scholes option
pricing model. Under this method, the average fair value of stock options granted during the three
months ended June 30, 2008 was $0.78 per share. In addition to the exercise price of the awards,
certain weighted average assumptions were used to estimate the fair value of stock option grants as
follows: expected volatility of 50.8%, expected dividend yield of 0%, risk
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free interest rate of
3.52% and an expected option term of 5 years.
The following table summarizes information about stock option activity for the three months ended
June 30, 2008:
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Weighted
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Weighted
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Average
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Average
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Remaining
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Aggregate
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Exercise
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Contractual
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Intrinsic
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Shares
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Price
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Term
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Value
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Outstanding at March 31, 2008
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1,233,500
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$
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2.12
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6.0 years
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Granted
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20,000
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$
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1.63
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10 years
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Expired
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(20,000
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$
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2.25
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Outstanding at June 30, 2008
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1,233,500
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$
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2.11
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5.9 years
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$
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Exercisable at June 30, 2008
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1,233,500
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$
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5.9 years
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$
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There were no options outstanding with an exercise price less than the closing price of the
Companys shares of $1.25 as of June 30, 2008. Accordingly, there was no intrinsic value
associated with outstanding their options at such date.
At June 30, 2008, there was no unrecognized compensation cost related to non-vested stock option
awards.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
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. Our significant accounting policies are described in Note 1 to the
audited consolidated financial statements included in our Annual Report on Form 10-KSB for the
fiscal year ended March 31, 2008. The accounting policies used in preparing our interim condensed
consolidated financial statements are the same as those described in such Annual Report.
7
Results of Operations Three Months ended June 30, 2008 and 2007
The Company entered into a non-binding letter of intent with Stephen Renz, the President of RPM,
whereby Mr. Renz intends to acquire all of the outstanding shares of stock of RPM in exchange for
$150,000 in 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. The following discussion
relates only to the Companys continuing operations, unless otherwise noted.
Selling, general and administrative expenses for the quarter ended June 30, 2008 decreased to
$207,111 from $450,707 for the three months ended June 30, 2007. During the three months ended
June 30, 2007, the Company had recorded stock based compensation expense of $285,000 in accordance
with the provisions of SFAS 123R for stock options granted during the period. During the three
months ended June 30, 2008, stock based compensation expense of $15,600 was recorded.
Interest income for the three months ended June 30, 2008 decreased to $41,799 from the $90,267
recorded during the three months ended June 30, 2007 as a result of declining cash balances
available for investment and a shift to more conservative investments which produced lower yields.
Liquidity and Capital Resources
At June 30, 2008, the Company had working capital of $6,072,792 as compared to working capital of
$6,226,063 at March 31, 2008. 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, 2008, net cash used in operations was $102,481, primarily
due to the Companys operating loss offset by stock based compensation expense of $15,600 and an
increase in accounts payable of $22,001.
Minimum lease payments under non-cancelable leases and subleases, exclusive of future escalation
charges, for the remainder of the fiscal year ending March 31, 2009 and fiscal years ending
thereafter are as follows:
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2009
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$
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50,000
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2010
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75,000
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2011
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78,000
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2012
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65,000
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2013 and thereafter
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54,000
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Total minimum lease payments
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$
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322,000
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The Company has previously announced it has entered into a non-binding letter of intent to acquire
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.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on the Companys financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that are material to the Company.
8
Cautionary Statement Regarding Forward Looking Statements
Except for the historical information contained herein, the matters discussed in this Report on
Form 10-Q may contain forward-looking statements that involve risks and uncertainties. The
Companys 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 and the ability of the Company to successfully identify and
thereafter consummate one or more acquisitions.
Item 3. Quantitiative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk related to changes in interest rates. Most of the Companys
cash and cash equivalents are invested at variable rates of interest and decreases in market
interest rates would cause a related reduction in interest income.
Item 4. 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, 2008, the Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the Companys disclosure
controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as
amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective in timely alerting
them to material information required to be included in the Companys periodic Securities and
Exchange Commission filings.
(b)
Changes in Internal Controls over Financial Reporting
There have been no changes in the Companys internal controls over financial reporting that
occurred during the quarter ended June 30, 2008 that has materially affected, or is reasonably
likely to materially affect, the internal controls over financial reporting identified by the
Companys evaluation in connection with the preparation of this Form 10-Q.
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.
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
10
SIGNATURES
Pursuant to the requirements 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.
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AMERICAN CLAIMS EVALUATION, INC.
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Date: August 11, 2008
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By:
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/s/ Gary Gelman
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Gary Gelman
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Chairman of the Board,
President and Chief Executive Officer
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Date: August 11, 2008
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By:
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/s/ Gary J. Knauer
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Gary J. Knauer
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Chief Financial Officer,
Treasurer and Secretary
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