AMCE American Learning (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2009

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One Jericho Plaza, Jericho, New York		11753
(Address of principal executive offices)		(Zip Code)

(516) 938-8000

(Registrant’s telephone number, including area code)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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)

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the Registrant’s common stock as of February 12, 2010 was 4,754,900.

 

 

AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY

INDEX

				Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
		Condensed Consolidated Balance Sheets as of December 31, 2009 (unaudited) and March 31, 2009			3
		Condensed Consolidated Statements of Operations for the Three and Nine Months ended December 31, 2009 and 2008 (unaudited)			4
		Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 2009 and 2008 (unaudited)			5
		Notes to Condensed Consolidated Financial Statements (unaudited)			6 - 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations					9 - 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk					11
Item 4T. Controls and Procedures					11
PART II — OTHER INFORMATION
Item 6. Exhibits					12
SIGNATURES					13
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets

		Dec. 31, 2009				Mar. 31, 2009
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	3,406,787			$	4,143,445
Accounts receivable, net			1,201,751				847,510
Receivable from former ITG shareholders			—				170,715
Prepaid expenses and other current assets			31,476				119,514
Total current assets			4,640,014				5,281,184
Property and equipment, net			189,485				235,493
Goodwill			145,000				750,000
Intangible assets, net			546,875				—
Other assets			19,787				17,415
Total assets		$	5,541,161			$	6,284,092
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	71,892			$	99,492
Accrued expenses			562,470				604,626
Capital leases payable — current portion			19,307				18,051
Total current liabilities			653,669				722,169
Long-term liabilities:
Capital leases payable — net of current portion			12,905				27,546
Commitments
Stockholders’ equity:
Common stock, $.01 par value; authorized 20,000,000 shares; issued 5,050,000 shares; outstanding 4,754,900 shares			50,500				50,500
Additional paid-in capital			4,952,199				4,952,199
Retained earnings			339,161				998,951
			5,341,860				6,001,650
Treasury stock, at cost			(467,273	)			(467,273	)
Total stockholders’ equity			4,874,587				5,534,377
Total liabilities and stockholders’ equity		$	5,541,161			$	6,284,092

See accompanying notes to condensed consolidated financial statements.

AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Operations

(Unaudited)

		Three months ended								Nine months ended
		Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,
		2009				2008				2009				2008
Revenues		$	1,734,379			$	1,439,638			$	4,959,375			$	1,687,328
Cost of services			1,233,565				1,017,326				3,474,251				1,192,660
Gross margin			500,814				422,312				1,485,124				494,668
Selling, general and administrative expenses			768,225				670,230				2,151,649				1,131,841
Operating loss from continuing operations			(267,411	)			(247,918	)			(666,525	)			(637,173	)
Other income (expense):
Interest income			1,717				27,200				9,525				104,906
Interest expense			(818	)			(626	)			(2,790	)			(886	)
Loss from continuing operations			(266,512	)			(221,344	)			(659,790	)			(533,153	)
Discontinued operations:
Loss from discontinued operations			—				—				—				(1,996	)
Gain on sale of discontinued operations			—				—				—				90,513
Net loss		$	(266,512	)		$	(221,344	)		$	(659,790	)		$	(444,636	)
Net earnings (loss) per share:
From continuing operations — basic and diluted		$	(0.06	)		$	(0.05	)		$	(0.14	)		$	(0.11	)
From discontinued operations — basic and diluted		$	0.00			$	0.00			$	0.00			$	0.02
Weighted average shares — basic and diluted			4,754,900				4,761,800				4,754,900				4,761,800

See accompanying notes to condensed consolidated financial statements.

AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

		Nine months ended
		Dec. 31,				Dec. 31,
		2009				2008
Cash flows from operating activities:
Loss from continuing operations		$	(659,790	)		$	(533,153	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			137,468				45,334
Stock-based compensation expense			—				21,100
Provision for allowance for doubtful accounts			—				35,000
Changes in operating assets and liabilities:
Accounts receivable			(354,241	)			(45,166	)
Prepaid expenses and other current assets			57,455				47,227
Other assets			(2,372	)			—
Accounts payable			(27,600	)			(127,292	)
Accrued expenses			(42,156	)			123,213
			(231,446	)			99,416
Net cash used in operating activities of continuing operations			(891,236	)			(433,737	)
Operating activities of discontinued operations			—				34,439
Net cash used in operating activities			(891,236	)			(399,298	)
Cash flows from investing activities:
Acquisition of business, net of cash acquired			—				(568,375	)
Acquisition escrow refund			30,583				—
Proceeds from acquisition purchase price adjustment			170,715				—
Proceeds from sale of subsidiary, net of cash divested			—				149,391
Capital expenditures			(33,335	)			(5,598	)
Net cash provided by (used in) investing activities			167,963				(424,582	)
Investing activities of discontinued operations			—				(9,452	)
Net cash provided by (used in) investing activities			167,963				(434,034	)
Cash flows from financing activities:
Principal payment on debt			—				(1,105,356	)
Principal payment on capital leases payable			(13,385	)			(6,986	)
Net cash used in financing activities			(13,385	)			(1,112,342	)
Net decrease in cash and cash equivalents			(736,658	)			(1,945,674	)
Cash and cash equivalents at beginning of period			4,143,445				6,239,442
Cash and cash equivalents at end of period		$	3,406,787			$	4,293,768
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	2,790			$	886

See accompanying notes to condensed consolidated financial statements.

AMERICAN CLAIMS EVALUATION, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

December 31, 2009

(Unaudited)

Overview

American Claims Evaluation, Inc. (together with its subsidiary, “we,” “our,” “us,” or the “Company”) provides a comprehensive range of services to children with developmental delays and disabilities in New York State and has developed a reputation for providing well-rounded therapeutic solutions through our wholly owned subsidiary, Interactive Therapy Group Consultants, Inc. (“ITG”).

Basis of Presentation

The accompanying unaudited consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). In our opinion, these financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to make the consolidated financial position, results of operations and cash flows for the interim periods presented not misleading. Results for interim periods are not necessarily indicative of results which may be achieved for a full year.

Accordingly, these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009 (the “Annual Report”), as filed with the Securities and Exchange Commission (“SEC”).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Revenue Recognition

We recognize revenue for services rendered when there is evidence of billable time expended and recoverability is reasonably assured. Deferred revenue is recorded for federal flow-through funding attributable to special education programs when invoiced and recognized over the applicable program periods.

Credit Risk

Service revenue is concentrated within a limited number of clients throughout New York State; municipalities within New York State provide substantial and significant revenue to us. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic or other conditions in New York State. During the three month period ended December 31, 2009, we have started to experience a delay in payments received from these municipalities as a result of the challenging economic climate and the delay in funding to the municipalities from New York State. Although the accounts receivable for our services are still deemed collectible, we will actively monitor this issue when evaluating the adequacy of our allowance for doubtful accounts.

Goodwill and Intangible Assets

Our acquisition of all of the outstanding shares of ITG included intangible assets with a fair value of $605,000 on the date of the acquisition. We recorded $570,000 related to customer contracts and $35,000 related to a non-compete covenant within intangible assets. The remaining excess of the purchase price of $145,000 was assigned to goodwill. Customer contracts are being amortized over a fifteen-year period and the non-compete covenant is being amortized over a five-year period. The goodwill recorded as a result of the acquisition is deductible for Federal and New York State income tax purposes over a period of 15 years.

Intangible assets at December 31, 2009 consisted of the following:

						Accumulated
		Cost				Amortization				Net
Customer contracts		$	570,000			$	(49,083	)		$	520,917
Non-compete convenant			35,000				(9,042	)			25,958
		$	605,000			$	(58,125	)		$	546,875

For the nine months ended December 31, 2009, amortization expense was $58,125. Assuming no changes in our intangible assets, estimated amortization expense for each of the five succeeding fiscal years is $45,000, $45,000, $45,000, $41,208 and $38,000.

We will perform an assessment of goodwill at least annually for impairment and any such impairment will be recognized in the period identified. In assessing the recoverability of goodwill and other intangibles, we must make various assumptions regarding estimated future cash flows and other factors in determining the fair values of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets in future periods. Any such resulting impairment charges could be material to our results of operations.

Accrued Expenses

The components of accrued expenses were as follows:

		Dec. 31, 2009				March 31, 2009
Accrued compensation and related taxes		$	455,035			$	553,926
Other			107,435				50,700
		$	562,470			$	604,626

Seasonality

Our business is moderately seasonal in nature based on the school year. Accordingly, our second fiscal quarter (the three month period ending September 30), which includes two full months during which schools are not in session (July and August), is the quarter in which we achieve our lowest volume of revenues.

Net Earnings (Loss) Per Share

Basic earnings (loss) per share is based on the weighted average number of 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. Our net loss and weighted average shares outstanding used for computing diluted loss per share for continuing operations and discontinued operations were the same as those used for computing basic loss per share for the three and nine months ended December 31, 2009 and 2008 because the inclusion of common stock equivalents

in the calculation of diluted loss per share for continuing operations would be anti-dilutive. Potentially dilutive securities consisting of employee and director stock options to purchase 1,221,000 shares as of December 31, 2009 and 2008, respectively, were not included in the diluted net loss per share calculations because their effect would have been anti-dilutive.

Stock Option Plans

We account for stock-based compensation by recording stock options at their fair value on the measurement date, which is typically the date the services are performed (generally the vesting period of the grant). There were no stock options granted during the nine month period ended December 31, 2009. Stock-based compensation totaling $15,600 was recognized during the nine months ended December 31, 2008 based on the fair value of stock options granted. We estimate the fair value of stock options granted using the Black-Scholes option pricing model.

At December 31, 2009, 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. At December 31, 2009, there was no unrecognized compensation cost related to non-vested stock option awards.

The following table summarizes information about stock option activity for the nine months ended December 31, 2009:

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Shares				Price				Term				Value
Outstanding at March 31, 2009			1,246,000			$	2.12			5.3 years
Granted			—			$	—				—
Expired			(25,000	)		$	2.50				—
Outstanding at December 31, 2009			1,221,000			$	2.11			4.6 years				$	—
Exercisable at December 31, 2009			1,221,000			$	2.11			4.6 years				$	—

There were no options outstanding with an exercise price less than the closing price of our shares of $0.73 as of December 31, 2009. Accordingly, there was no intrinsic value associated with outstanding options at such date.

Regulatory Matters

We are currently exploring alternatives to ITG’s corporate structure concerning non-compliance issues regarding the practice of certain licensed professions in the State of New York. If a change in professional practice structure is deemed necessary, we will take all appropriate measures to assure compliance on a timely basis. Revenues derived from services performed by these licensed professionals approximate 21% of total revenues for the nine months ended December 31, 2009.

We received a letter of inquiry from Vocational and Educational Services for Individuals with Disabilities (“VESID”), an office of the New York State Education Department, dated February 3, 2010, requesting details of the Company’s purchase of ITG. The Company is in the process of preparing a response to the correspondence received from VESID.

Reclassifications

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. These reclassifications have no effect on previously reported income.

Subsequent Events

We have completed an evaluation of the impact of any subsequent events through February 12, 2010, the date these financial statements were issued, and determined that there were no subsequent events requiring disclosure in or adjustment to these financial statements.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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. Our 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 our ability to successfully identify and thereafter consummate one or more acquisitions.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report. A discussion of our critical accounting policies and estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) in our Annual Report. There have been no material changes to the critical accounting policies or estimates reported in the MD&A section of our audited financial statements for the year ended March 31, 2009 as filed with the SEC.

Results of Operations — Three and Nine Months ended December 31, 2009 and 2008

On September 12, 2008, we completed the disposition of our wholly-owned subsidiary, RPM Rehabilitation & Associates, Inc. (“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 our continuing operations, unless otherwise noted.

Revenues for the three month period ended December 31, 2009 were $1,734,379, an increase of approximately 20.5% over the $1,439,638 reported for the three month period ended December 31, 2008. This growth was generated from each of our three main areas of clinical services and program development; Early intervention programs, preschool programs and school staffing services achieved increases of approximately 9.1%, 10.3% and 50.8%, respectively, during the current three month period over the prior year’s comparable period. During the nine months ended December 31, 2009, we recognized revenues of $4,959,375 as compared to revenues of $1,687,328 for the nine months ended December 31, 2008. Results for the nine months ended December 31, 2008 only reflect revenues from ITG’s services since we acquired ITG on September 12, 2008.

Cost of services as a percentage of revenues for the three and nine month periods ended December 31, 2009 were approximately 71.1% and 70.1%, respectively. During the three and nine month periods ended December 31, 2008, the cost of services was approximately 70.7% as a percentage of revenues for each of the periods. The cost of services as a percentage of revenues in the current quarterly period increased as a

result of the hiring of additional clinicians at slightly higher salaries to meet increased demand for services.

Selling, general and administrative expenses for the three and nine month periods ended December 31, 2009 were $768,225 and $2,151,649, respectively, as compared to $670,230 and $1,131,841 for the three and nine month periods ended December 31, 2008, respectively. The increase in selling, general and administrative expenses in the current fiscal year versus the prior year’s comparable periods is the result of expenses incurred by ITG’s operations and the recording of amortization expense for intangible assets resulting from the ITG acquisition. In addition, payroll costs have increased in the current quarterly period over the prior year’s quarter as a result of an increase in its administrative staff in ITG’s New York City office. The new hires are responsible for marketing our services in an effort to stimulate growth. Excluding ITG’s expenses, corporate selling, general and administrative expenses for the three months ended December 31, 2009 experienced a slight decrease over the comparable period in the prior year.

Interest income for the three and nine months ended December 31, 2009 was $1,717 and $9,525, respectively, as compared to interest income of $27,200 and $104,906 for the three and nine months ended December 31, 2008, respectively. The decrease in interest income was a result of a substantial decline in prevailing interest rates compounded by a reduction in cash balances available for investment due to the cash used to purchase ITG and subsequent repayment of ITG’s bank debt.

Liquidity and Capital Resources

At December 31, 2009, we had working capital of $3,986,345 as compared to working capital of $4,559,015 at March 31, 2009. We believe that we have sufficient cash resources and working capital to meet our present cash requirements.

During the nine months ended December 31, 2009, net cash used in operating activities was $891,236, predominately attributable to the operating loss of $659,790 and an increase in our outstanding accounts receivable of $354,241.

For the nine months ended December 31, 2009, cash flows provided by investing activities related to the repayment of a receivable from the former shareholders of ITG and the return of funds held in escrow.

Future minimum lease payments under non-cancelable capital and operating leases and subleases, exclusive of future escalation charges, for the remainder of the fiscal year ending March 31, 2010 and fiscal years ending thereafter are as follows:

		Capital				Operating
		Leases				Leases
2010		$	5,381			$	55,000
2011			21,523				176,000
2012			8,004				128,000
2013			—				94,000
2014			—				5,000
Total minimum lease payments			34,908			$	458,000
Less: Amounts representing interest			(2,696	)
Present value of minimum lease payments			32,212
Less: Current portion			(19,307	)
Long-term portion of capital leases		$	12,905

While we have not experienced any significant impact on our net revenues and profitability from the general slowdown of the economy or current global credit crisis, the continuing economic deterioration could have a negative impact in future periods.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3.		Quantitative and Qualitative Disclosures About Market Risk.

We are subject to interest rate risks that arise from normal business operations. Most of our cash and cash equivalents are invested at variable rates of interest and decreases in market interest rates have caused a related significant reduction in our interest income over prior periods.

Item 4T.		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 December 31, 2009, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings.

(b) Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

We are aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial reporting matters. However, we have decided that considering the employees involved and the control procedures in place, risks associated with such lack of segregation are mitigated by active management involvement and the potential benefits of adding employees to clearly segregate duties do not justify the expenses associated with such increases.

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

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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